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YUM continues to be on our Best Ideas list as a long.


YUM released updated FY14 guidance after the close today, estimating mid-single digit full-year EPS growth, below the 9% growth the street is currently projecting.  Perhaps the more disappointing guide, however, was FY15 EPS growth of at least 10%, well below the 17% the street is currently projecting.  Specific operating unit commentary was limited, although management noted an anticipated benefit from sales leverage as sales rebound in China.

This release doesn’t change much, in our view, and in fact strengthens our long thesis with what is yet another example of China dragging down the overall business.  We continue to believe there is a strong likelihood management either 1) induces significant change from within or 2) is influenced by a group of influential shareholders to make significant changes. 

All told, tomorrow’s anticipated sell-off could present a nice buying opportunity for investors, particularly when considering expectations are being reset to reasonable and, we’d argue, easily achievable levels.  YUM is a powerful, global brand that has many levers at its disposal in order to immediately drive shareholder value. 

We look forward to learning more at the company’s investor meeting on Thursday.

Howard Penney

Managing Director

Fred Masotta

Analyst