Investopedia: Is The U.S. Holding Back Yum! Brands?

The list of American companies that have done a better job than Yum! Brands (NYSE:YUM) of growing their brands and business in China is a short one indeed. In fact, YUM has been so successful in its international growth that it is now worth wondering if the U.S. business is still capable of being part of the company's future growth plans, or whether there might be some sort of "value-unlocking" transaction in the company's future. 

Second Quarter Results Tell a Story  
Overall, YUM reported that sales rose more than 9% in the second quarter, surpassing the average estimate by more than $100 million, but not quite beating the highest estimates in the range. There are no two ways about it - China was the story here. U.S. same store sales fell 4% as Taco Bell and KFC were both weak, but Chinese same-store sales shot up 18% on 21% higher store traffic. The company's other foreign operations were a more moderate grower, with 2% same-store growth. 


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Investopedia: McDonald's Seems A Bit Overcooked

Quality is all well and good, but at some point price always has to matter. That, then, is the issue with McDonald's (NYSE:MCD) shares today - there is really no quibbling over the quality of the company, but have investors already baked in more than enough optimism? 

The Quarter that Was
The fourth quarter was really not a performance that McDonald's management is going to tack onto the board as a prototype. Revenue grew 4% (5% in constant currency) and met estimates, and full-quarter comp growth of 5% was not all that bad. More problematic, though, is the trend in those comps. December comps were a bit soft, rising 3.7% versus 4.8% in November. U.S. comps slipped below 3% in December, while Europe went negative. Although the company pointed towards weather as a key issue in the U.S. and Europe numbers, and management is still looking for 4 to 5% growth in 2011, institutional investors can be a twitchy and unforgiving lot.

Going down the earnings statement, the company appeared to have a relatively lower-quality quarter. Operating income grew 2% as reported (or 3% in constant currency) and the company clearly lost some of its operating leverage. What's more, while the company met estimates for the period, it got a boost from more favorable taxes and would have missed the quarter otherwise. (For more, See Zooming In On Operating Income.)

The Road Ahead
For a company of its size, McDonald's has done an impressive job of growing its free cash flow over the past five or six years. Moreover, the company has navigated the recession better than many other restaurant operators. Some of that is due to new store hours and menu items (particularly the value meal options), while some of it is also due to the quality-value trade-off that customers see in McDonald's menu (nutritionists may hate it, but customers like it).


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