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Yum! Brands, Inc. (YUM), McDonald’s Corporation (MCD): This Fast-Food Giant Is Expected to Recoup Its China Sales

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Yum! Brands, Inc. (NYSE:YUM), which operates in more than 120 countries with almost 38,000 units through its flagship brands, KFC, Pizza Hut, and Taco Bell, is engaged in developing and operating a worldwide system of restaurants which offer a menu of food items that appeal to the masses. Yum! is the world’s largest quick-service restaurant (QSR) company. At the end of 2012, it had more than 5,700 units in China, including more than 4,200 KFC restaurants and nearly 1,000 Pizza Hut units.
McDonald's Corporation (NYSE:MCD)

It witnessed an aggressive decline in sales since it was hit by the chicken scandal last December. The Louisville, Ky.-based company suffered a sharp decline in the sales figures in China where customers preferred to stay away from KFC due to the avian flu. For the China division’s second quarter, sales fell 20%. Late in 2012, Yum! Brands, Inc. (NYSE:YUM) came under the microscope after it was reported that the company’s poultry suppliers were giving chickens unapproved levels of antibiotics.

Signs of improvement

In May, the sales figure for China dropped 19%, which is definitely an improvement from the decline of 29% in April. There was 12% growth in Pizza Hut. Yum! Brands, Inc. (NYSE:YUM) expects to recuperate from the decline by the end of the fourth quarter of this year. China, a critical zone for this brand, alone accounted for more than 50% of the total sales of the brand in 2012. The company is taking continual initiatives to keep its investors updated of its ongoing recovery efforts.

The company continues to take strong actions to improve the operation, and protect its brands. It has eliminated 1,000 smaller, less sophisticated chicken suppliers to control the quality and started 30-second TV commercials to promote quality assurance.

Competition

Yum! Brands, Inc. (NYSE:YUM) faces stiff competition from McDonald’s Corporation (NYSE:MCD) Both companies compete in the same food market. Over the last five years, Yum! has slightly outperformed McDonald’s, boasting a return of 74% against 65% for McDonald’s Corporation (NYSE:MCD). Yum! Brands, Inc. (NYSE:YUM) has a clear edge of a more consistent gross profit. If we shift our focus to the debt of the two companies, Yum! has increased its assets-to-liabilities ratio from slightly less than 1.0 to 1.3 over the past five years compared to McDonald’s Corporation (NYSE:MCD), which has decreased its from 1.9 to 1.8 over the same time period.

McDonald’s Corporation (NYSE:MCD) would take 2.5 years to pay off all long-term debt using annual net earnings, compared to Yum! Brands, Inc. (NYSE:YUM), which would take only 1.8 years as of 2012. Yum! has a consistent track record of financial success. It had 13% EPS growth in 2012, and in the same year it exceeded its target EPS by 10%.

In order to compete with KFC, the world’s largest chain of hamburger fast-food restaurants is concentrating on adding new value items in its menu, which include chicken wraps and egg-white sandwiches.

Burger King Worldwide Inc (NYSE:BKW)

is a fast-food hamburger restaurant under the Burger King Worldwide Inc (NYSE:BKW) brand. It is also becoming a close competitor of Yum!. The company desires to strengthen its global footprint in growing markets. Burger King Worldwide Inc (NYSE:BKW), which runs over 12,500 restaurants globally, has teamed up with the Kurdoglu family and private equity firm Cartesian Capital Group to expand and open up new stores in China.

Currently, the Miami-based food chain has only 63 outlets in the mainland. This King has further boosted its business with wrap sandwiches, soft-serve ice cream, salads, fruit smoothies, and other new menu items that have attracted women and people over the age of 55.

Burger King Worldwide Inc (NYSE:BKW) had formed a joint venture to increase the number of outlets to 1,000 in China.

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