Previously in this series, we discussed how Yum! Brands (YUM) operates three brands but reports the performance from its China and India divisions separately. During 3Q15, the company’s overall revenue grew by 2% to $3.4 billion, compared to $3.3 billion in the corresponding quarter in 2014. Bear in mind, however, that its revenues had been growing at an average of 4% over the past four years.
In 3Q15, revenues from Yum!’s China division grew by 5% to $1.9 billion, compared to $1.8 billion in the corresponding quarter one year previously. China happens to be the most important segment for the company. Here’s why:
- About 56% of Yum! revenue comes from China. The division has historically contributed the most to Yum!’s revenue growth. In terms of operating margin, the China division contributed 54%.
- Over the past four years, Yum! has added units in China at an average rate of 15% faster than any other division.
- China has been the focus of Yum!’s earnings call, and so investors watch any negative events in China closely.
Companies like Starbucks (SBUX) and McDonald’s (MCD) also have exposure to China, while Chipotle Mexican Grill (CMG) is better protected because its primary operations are located in the US. All three companies form ~8% of Consumer Discretionary Select Sector SPDR’s (XLY) portfolio.
Yum!’s KFC division, which includes sales from all markets excluding India and China, reported a 10% decline in revenues to $694 million in 3Q15, compared to $771 million in the corresponding quarter one year prior in 2014.
KFC contributes about 20% toward Yum’s revenue and added units at the rate of 3% during 3Q15—higher than the 1% unit growth rate over the previous four years.
Yum!’s Taco Bell division, which also includes sales from all markets excluding India and China, reported a 3Q15 revenue growth of 7% to $473 million, compared to $443 million in the corresponding quarter one year prior in 2014.
Taco Bell contributed 14% of Yum’s overall revenues and added units at the rate of 3% during the quarter—higher than the 1% unit growth rate over the past four years.
Pizza Hut, Yum!’s weakest performer over the years, reported a sales decline of 1% to $262 million in 3Q15, compared to $264 million in the corresponding quarter one year prior in 2014.
Pizza Hut contributed 8% toward Yum’s overall revenue and added units at a rate of 2% during 3Q15. Like Yum!’s other restaurants, Pizza Hut has had a four-year unit growth rate of 1%. The remaining 2% of revenue comes from the India division.
So, overall revenue growth has decelerated across all divisions, but Yum! seems to have stepped up its unit growth rate—a positive indicator, as same-store sales growth should continue to be a dominant driver for Yum!’s revenue.
Read the next part of this series for a closer look at how Yum!’s management responded to the company’s 3Q15 earnings report.