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Why China Is So Important to Yum! Brands’ Revenue



Yum hits a new high

Yum! Brands (YUM) shares reached a five-year high of $95.90 in 2015. Yum is spread across 125 countries, but China is the most important region for the company.

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China: The biggest contributor

In the above chart, you can see the how Yum! Brand’s global sales growth has trended with the company’s China division’s same-store sales or comps growth. China has been the biggest contributor toYum! Brands’ operating income with 34% share as of 2Q15. Keep in mind that the China segment includes all three brands—KFC, Pizza Hut, and Taco Bell. Over the past nine quarters, the average revenue contribution from the China division was 52%. KFC in the United States and international segment is the next biggest contributor to Yum’s revenue, at 24%. Next come Taco Bell’s 15% contribution and Pizza Hut’s 9% contribution.

The China segment’s same-store sales growth was negative over the past three quarters. This negative growth significantly depressed Yum’s China division and overall revenue growth. The company’s China revenue growth was -9% in 1Q15, dragging down the company’s global revenue growth to -4% year-over-year.

Sales growth declined in the China division because, in July 2014, the Chinese media exposed one of Yum! Brands’ food suppliers for using expired meat. McDonald’s (MCD), Burger King (QSR), and Starbucks (SBUX) were also affected by this issue in China. The Consumer Discretionary Select Sector SPDR (XLY) holds 1.5% of Yum! Brands. XLY also holds 0.3% of Darden (DRI).

Read on to the next part of this series to learn more about these supplier issues and what Yum did to remedy the issue.


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