What's going on?
Yum Brands, the owner of KFC, Pizza Hut and Taco Bell, saw its shares jump almost 5% after it reported its second quarter results late on Wednesday. Its decent performance in China is at least part of the reason for the positive reception from investors.
What does this mean?
Yum’s sales in the US fell short of investors’ expectations (it blamed “challenging industry conditions”), but its sales in China were smack in-line with what people were expecting – and that was taken as a positive (because some feared they could do a lot worse). Perhaps more importantly, the company said that its operations in China were doing even better in the current quarter (i.e. in the weeks since the quarter being reported on ended). Relatedly, Yum increased its profit expectations for the whole year – and that also likely helped push the stock higher.
Why should I care?
For the stock: Yum’s performance in China is important because that division is about to become a separate company.
Yum plans to carve out its Chinese business and turn it into a separate company by the end of October. In reality, this means that Yum shareholders would likely be given stock in the new company (in addition to the Yum stock they own). So there’s lots of focus on its performance in China right now.
The bigger picture: Companies’ outlook on future performance can matter just as much as their historic results.
A whole bunch of companies are about to report their financial results in the coming weeks and investors will understandably be paying a lot of attention to how they performed in the most recent quarter. But the guidance that companies give for the future (e.g. Yum raising its profit expectations) is also extremely important for investors – and can have a significant impact on the stock price.