Yum reported 1Q12 EPS of $0.76 versus $0.73 consensus.  The negative reaction to the print was, we believe, largely due to the miss in China’s same-store sales.  YUM is priced for perfection and needed to deliver a commensurately perfect quarter.  While the company came close, it didn’t quite deliver.  The quarter was strong; EPS exceeded expectations helped, for the first time in a long time, by the U.S. Division.  Given the weather and calendar-shift benefits that helped the first quarter, the question from here is “how sustainable is the domestic business?”  Here are our initial takeaways ahead of the earnings call this morning:

  • Yum China comps grew 14% year-over-year.  The stock is up 23% YTD.  Can it work from here with China seemingly losing momentum, at least in the first quarter?  As weather helped in the U.S., did cold weather during Chinese New Year negatively impact top-line trends?
  • Yum Restaurants India same-store sales grew 8% in the first quarter.  As China growth moderates – it has to at some point – this division is set to assume a greater role in driving Yum’s global growth.
  • In the U.S., Taco Bell came in at 6% same-store sales growth.  We are concerned that the trend may not be sustainable.  How much of the boost from the new product introduction and breakfast testing will be sustained?  Is Taco Bell one quarter behind Pizza Hut – will it roll over next quarter – or is this concept truly on the mend?
  • Pizza Hut trends rolled over in the U.S.  The 5% print implied two-year trends down 700 basis points sequentially.  What is next to keep trends moving forward?
  • KFC’s U.S. results were clearly a net positive.  Same-store sales grew 2%, with the two-year average trend up 200 basis points.  Was this a weather-and-leap-year head fake?
  • YRI saw same-store sales up 5%, which brought the two year up 150 basis points to 3.5%.  The numbers are impressive for 1Q12, the first quarter that India has been broken out from this division.  Previously, it had been included within YRI.  Margin contraction on 5% comps is one data point we will be trying to understand better from this morning’s call.

 YUM PRE-CALL QUESTIONS - yum china pod1


YUM PRE-CALL QUESTIONS - us taco bell pod1


YUM PRE-CALL QUESTIONS - us pizza hut pod1




Howard Penney

Managing Director


Rory Green


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more