Yum! to Sell Long John and A&W - Analyst Blog

Yum! Brands Inc. (YUM) plans to sell two of its brands - Long John Silver's and A&W - so that it can focus on expanding the remaining three brands KFC, Pizza Hut and Taco Bell in the U.S, China and other international markets.

Louisville, Kentucky, based company acquired the two chains in 2002 for $320 million. Long John Silver's and A&W account for 1,630 of the company's more than 37,000 restaurants worldwide. All the restaurants under the two brands are owned and operated by franchisees and are mostly located in the U.S. The company is looking for the right candidate and doesn't expect the sale of the chains to have a material effect on its earnings or cash flow.

The world's largest restaurant company was spun off from PepsiCo Inc (PEP) in 1998 and since thn Yum!'s profit from the international market has improved substantially. The company's earnings from the overseas market have jumped by more than 40% in the last 12 years.  Yum! currently generates 65% of its earnings from the market outside the U.S and expects to raise it to 75% over the next five years.

The fast-food giant recently reaffirmed its 14% EPS growth guidance for 2010 and expects earning per share growth of at least 10% in 2011. The upside is expected mostly to come from robust performances in its China division and new unit development in China and Yum Restaurants International (YRI). This will also mark the tenth consecutive year of the company's meeting or exceeding its annual EPS growth target of at least 10%.

Moreover, management's earnings growth model includes annual operating profit growth of at least 15% in the China Division attributable to its two leading brands, KFC and Pizza Hut, 10% in the YRI division and 6% in Taco Bell.

Yum! is also slated to open about 1,400 international units, mostly in China and YRI divisions, in fiscal 2011, which  will make it the industry's leading international new unit developer.

We believe that Yum! will definitely benefit from its increased focus on overseas expansion as it remains one of its key growth drivers  particularly with Yum!'s China division offering immense growth potential.

 
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