February 5, 2009 - Yum! Brands, Inc. (YUM-NYSE) operates as a quick service restaurant company. The company develops, operates, franchises, and licenses a system of restaurants, which prepare, package, and sell various food items.

Since 2001, the company has increased profits every year, starting with 91 cents back then and finishing 2008 with $1.91. Over the last 10 years, earnings had an average annual increase of 10%. Over the last 5 years, they improved by 10.5%, on average, per year. Over the next 5 years, analysts see annual average gains of 11%. Revenues went up by 2% over the last 10, then up 8.5% over the last 5. Analysts think sales will average 10% growth per year in the next 5.

Earnings for the first quarter of 2009 are expected at 40 cents a share, down from 42 cents reported in the first quarter of last year. For the second quarter, look for 44 cents, again below the same quarter of last year when they were 45 cents. But for the full year, analysts estimate earnings will hit $2.08, up from $1.91, then go to $2.31 in 2010. The company is still growing in spite of a slower global economy.

Beside lower consumer spending domestically, the company dealt with higher commodity prices and slower growth in China. Management recently cut general and administrative (G&A) costs and expects commodity prices to ease in the near future. Anticipate better quarter to quarter comparisons after the second period.

China has been the engine for the company's most recent growth. With its booming economy, the company saw ever increasing sales. But recently the country joined the rest of the world and reported slower economic expansion. The company doesn't expect to diminish its efforts and will aggressively expand even with current headwinds. Last year, China contributed 25% of operating profit growth. This year, analysts expect it will be closer to 20%. In China, Yum's demographic is more middle-class, rather than the fast-food niche it holds in the U.S. As such, this group may be more price sensitive, eating out less.

In the U.S., the company is working on a turnaround of its franchises with new store locations or store refreshes along with price increases. This division has seen profits decline over the last several years, but management expects a 15% improvement in 2009, a result of cost cutting, lower commodity prices and stronger contributions from the KFC franchise.

More numbers: Market Cap is $12.51 billion. Forward P/E is 11.78. Debt is 103% of capital with total debt of $3.6 billion. There are 459.9 million shares outstanding and a float of 454.9 million. Insiders own .41% of the stock while institutions have 80%. The dividend is 76 cents a share for a yield of 2.90%. There's cash of $216 million. Book Value is a negative $ .235 but should go to $1.00 this year. Current ratio is .55.

This is a highly leveraged company with aggressive growth plans in China. If the Chinese economy revives faster than expected, so will earnings for Yum. Management has consistently delivered increasing earnings and responded to adversity with cost cuts, price increases, and necessary actions. This stock bears watching from most investors. One of the key indicators for its resurgence will be China. If that nation gets back to its extremely strong growth pattern, expect Yum to be along for the ride.

Company Web site: www.yum.com

- Ted Allrich