Yum Q3 net rises, sees 2008 profit down

LOS ANGELES (Reuters) - Yum Brands Inc , the parent of Taco Bell, Pizza Hut and KFC, posted higher third-quarter earnings on Tuesday on overseas strength, but forecast an 8 percent drop in 2008 U.S. profits amid a sharp economic downturn.

Yum reiterated its 2008 outlook calling for 12 percent profit growth, sending shares up nearly 2 percent after hours.

Yum and rival McDonald's Corp have been sheltered from domestic weakness for the most of this year by strong results in China and other fast-growing international markets.

Now the threat of a global downturn looms. "We're hearing a lot about a slowdown in some of these emerging markets in terms of growth," said Edward Jones analyst Jack Russo. "We'll have to see going forward ... if this affects consumers' ability to eat out."

Third-quarter net income rose to $282 million, or 58 cents per share, topping analysts' call for earnings of 54 cents, according to Reuters Estimates.

Louisville, Kentucky-based Yum earned $270 million, or 50 cents per share, a year ago, when it had 10 percent more shares outstanding.

"On the surface it looks like they blew it out," said Russo. "The headline is a little misleading because if you dig into it, they probably met the number."

Russo said a lower-than-expected tax rate boosted earnings in the most recent quarter by 3 cents to 4 cents, currency added a penny or two, and fewer outstanding shares help lessen the impact of weakness in the United States.

Total revenue increased to $2.84 billion from $2.56 billion. Sales at established restaurants were up 3 percent worldwide.

Mainland China posted a 5 percent hike in same-store sales, while Yum International sales rose 4 percent and U.S. operations were up 3 percent.

Yum's U.S. business has long underperformed its overseas operations. Domestic KFC restaurants have struggled for months.

Overall restaurant profits have been hurt for months by high food and energy costs and a slowdown in U.S. consumer spending that has only accelerated with the nation's current economic slowdown.

At the same time, investors are worried about ongoing inflationary pressure in China, which has been Yum's growth engine.

Third-quarter China restaurant margins fell to 20.9 percent from 23.2 percent on higher costs for food -- especially chicken -- and labor.

Looking to the end of the year, Yum repeated its forecast calling for 2008 earnings of $1.89 per share, excluding special items that would boost results by 6 cents per share.

The stock jumped to around $28 from a close of $27.50 on the New York Stock Exchange.

(Reporting by Lisa Baertlein; editing by Jeffrey Benkoe)

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