Markets|4/18/2012 @ 4:54PM

Yum! Brands' Profit Jumps 73% In Q1 Despite China Concerns

Yum! Brands posted a new earnings beat after the bell on Wednesday, but didn’t impress investors, as the stock initially sold-off in after-hours trading. The company continues to see explosive growth in China, along with a decent performance in the U.S. as its Taco Bell franchise excelled.

Net income surged 73% to $458 million in the first quarter; EPS, excluding special items, came in at 76 cents, three pennies above the consensus estimate.

Revenue at Yum grew 13% to $2.743 billion, barely above the $2.7 billion estimate. Worldwide system sales grew 7%, mainly on a 28% expansion in China; the international unit saw an 8% increase while sales in the U.S. inched up 1%.

Same-store sales (SSS) are what really matters, though, and those were up as well. In China, SSS grew 14%, while both the international unit and the U.S. unit saw a 5% expansion.

Yum Brands is seen by investors as a bet on Chinese domestic demand. The company opened 168 new restaurants in China (out of a total 297 around the world) and now counts with 4,649 stores there, including franchises. That figure includes 3,481 Yum-owned stores, about half of their total company-owned stores.

Revenues in China surged 34% to $1.2 billion overall, but wage and commodity inflation pushed restaurant margins down 1.5 percentage points to 23.6%.

The U.S. did relatively well in Q1. The 5% jump in sss was complemented by a 3.7 percentage point increase in margins; revenues slid 6% to $800 million.

David Novak, Yum’s chairman and CEO, noted the China business “continues to fire on all cylinders” and added that the first quarter was a good one for all their business units. “In summary, we’re off to a strong start to the year in each of our businesses. These results give us even more confidence that we will continue our track record of double-digit annual EPS growth,” he said.

Concerns over China’s economic outlook are a major risk for companies heavily exposed to the world’s second largest economy. Yum isn’t alone in its reliance on China for growth, with companies like Starbucks and Caterpillar very tied to the large Asian economy. Coca-Cola, which posted earnings on Tuesday, saw volume in China grow 9% in Q1, while in its latest earnings report (Q4), McDonald’s saw its Asia/Pacific, Middle East and Africa unit expand sales 6.9%. Despite the slowdown in Chinese GDP, sales there continue to be among the fastest growing for many companies.

Shares in Yum didn’t fare well during Wednesday’s trading session, closing down 0.3% to $72.94. The stock sunk further into the red in after-hours trading as investors digested the earnings report; by 4:44 PM in New York, Yum! Brands was down 1.1% to $72.11.

Yum! Brands' Profit Jumps 73% In Q1 Despite China Concerns - Forbes