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Taco Bell Leads US Surge for Yum, Even as Company Reduces Stake

Posted by Dale Buss on October 10, 2012 04:25 PM

Everything that Taco Bell has been doing right lately have boosted results at its parent company, Yum! Brands. And Yum's other major QSR brands in the U.S., Pizza Hut and KFC, are contributing to the uptick as well. Yum's profits jumped 23 percent for the third quarter on stronger results in the U.S. even while its fast-track growth in China, another crucial market, was held back by the cooling economy there.

"Our China business is having another strong year," Yum CEO David Novak told industry analysts on Wednesday, according to the Associated Press. "But as I've said before, China is going to have its inevitable ups and downs... We are now facing a slowing economy. But that doesn't change our outlook in China one iota. Our annual performance has been pretty consistent, and we expect that to continue."

Meanwhile, in the United States, Yum! brands have been doing better in bucking a sluggish economy and intense competition in the QSR business. Still, buried in the third quarter earnings report is this note on how Yum! Brands has been reducing its U.S. and Taco Bell ownership stakes through refranchising:

As part of our plan to transform our U.S. business we took certain measures ("the U.S. business transformation measures") in 2012 and 2011 which includes the continuation of our U.S. refranchising, potentially reducing our Company ownership in the U.S. to 10% or slightly less, including a reduction of Taco Bell Company ownership to 16%. During the year to date ended September 8, 2012, we recorded gains of $53 million related to refranchising in the U.S., primarily at Taco Bell. We have traditionally not allocated refranchising (gains) losses for segment reporting purposes. Additionally, U.S. refranchising (gains) losses have been reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results).

Most notably in the U.S. in the third quarter, the Taco Bell brand boosted same-store sales by 7 percent on the strength of its Doritos Locos Tacos menu, as the chain generated buzz and sales by introducing Doritos taco shells. It's also opening new dayparts with its breakfast menu and an initially popular Cantina Bell menu with fresh ingredients designed to make Taco Bell more competitive with Chipotle.

KFC contributed a 5-percent sales increase, and Pizza Hut a 6-percent bump. Pizza Hut, too, has been getting more aggressive about new products and new types of promotions, including its current political promotion concerning the presidential debate next week. Pizza Hut is offering a lifetime supply of pizza or a check for more than $15,000 to anyone who poses the question "Sausage or pepperoni?" to either presidential candidate during the town-hall-style debate next week:

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