Operating profit margins
With the China division separation in 2016, let’s look more closely at Yum! Brands’ (YUM) restaurant margins expectations for the next year. Note that a company’s restaurant margin is its operating income over its revenue from a given division or segment.
Expectations for the company
The bar chart above shows the management’s target for the restaurant operating margins for each of Yum! Brands’ divisions in 2016. The data excludes India. The management targets a 10% operating profit margin for the China division as well as the KFC[1. Kentucky Fried Chicken] International division in 2016. Over the same period, the management also expects its Taco Bell division to report an operating profit margin of 6%, and its Pizza Hut division to report an operating profit margin of 5%. Bear in mind that these are on constant currency basis, so they exclude the impact of foreign currency translation.
The company anticipates the impact of foreign currency translation to be about -2%. So, overall and on a constant currency basis, Yum! is expecting an operating profit margin of 10% in 2016.
You may get exposure to Yum! Brands through the Consumer Discretionary Select Sector SPDR ETF (XLY). The ETF invests about 8% of its portfolio in McDonald’s (MCD), Chipotle Mexican Grill (CMG), and Starbucks (SBUX). With this, let’s look at analysts’ recommendations and the price target for Yum! Brands over the next 12 month.