Is Yum! Brands Destined to Stall?

Fast-food restaurant operator Yum! Brands (NYSE: YUM) surprised the markets with better-than-expected profits in its most recent quarter as its business in China -- which it plans to spin off -- may have finally stabilized. Though management is attempting to increase shareholder value through several capital allocation strategies, there are headwinds facing the company's various chains.

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This podcast was recorded on July 15, 2016.

Chris Hill:Shares ofYum!Brandsup this week after second-quarter profitscame in slightly higher than expected. The parent company ofKFC, Taco Bell,andPizza Hutreported same-store sales in China that were flat,but that's certainly better thanwhat we've seen out of China in the past, Jason.

Jason Moser:Yeah. Historically weak quarter and tough comps. It was a decent quarter. The story with Yum!Brands,it's a really interesting situation here for investors where there's clearly a near-term catalyst in the shares and its recapitalization program that management's implementing. Levered up the balance sheet a little bit, starting to buy back a lot of shares in advance of this China spin off, which is going to happen by October.

But from there, I think, then it becomes a bit more of a question mark. If you look at the history of Yum!Brands, you go back to 2011, they had a really hard time actually growing their top line. Revenue has been relatively flat here for the past four or five years. And that has to be a concern, particularly domestically here. You see the success ofMcDonald'swith their all-day breakfast, rolling that out even more, so your Taco Bells here and KFCs, domestically speaking, are a little bit more challenged than before. But again, I think the near-term catalyst is obvious. Since 2011, management brought the share account down about 10%. That's going to continue. And I think that's a way that shareholders can see some value there, some capital gains in the share price.

But beyond that, once this spinoff happens, I think investors need to take another look here and assess if there's really a bright future for either entity.

Chris HillJason Moserfree for 30 daysconsidering a diverse range of insightsdisclosure policy