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Yum Brands First Quarter Net Income Skyrockets 73%

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LOUISVILLE, Ky. — Yum Brands Inc., owner of the Pizza Hut, Taco Bell and KFC chains, said Wednesday its first-quarter net income rose 73 percent due to a successful combo – continuing strong overseas sales packaged with a rebounding U.S. performance led by its once-struggling Taco Bell business.

Upbeat about its prospects in the U.S. and abroad, the company raised its earnings-per-share growth forecast for the full year to at least 12 percent, or at least $3.22 per share. It previously said it expected growth of at least 10 percent in 2012.

Analysts surveyed by FactSet forecast annual income of $3.28 per share, on average.

Sales from existing restaurants rose in the first quarter across its worldwide businesses, including a 5 percent overall gain in the U.S as Taco Bell showed signs of emerging from its slump last year. All three chains showed sales gains in the U.S.

Yum also kept up its fast-paced expansion overseas in the first three months. It added 168 new restaurants in China, a record number of openings in the first quarter there, said Jonathan Blum, a Yum senior vice president. The company opened 123 more stores in 41 countries in its international division, which excludes China and India. The company expects to open 100 new restaurants this year in India.

The Louisville-based company recently has relied on a combination of strong sales at its existing overseas restaurants and the rapid pace of new store openings to weather last year's sluggishness in the U.S.

But the company followed up a robust fourth-quarter U.S. performance last year with even stronger sales in the first three months of this year.

Overall, Yum reported net income of $458 million, or 96 cents per share, in the first quarter, up from $264 million, or 54 cents per share, last year, when it took a charge of 9 cents per share. Excluding one-time items in the latest quarter, income was 76 cents per share. The restaurant operator's revenue increased 13 percent to $2.74 billion in the period.

Analysts expected profit of 73 cents per share on revenue of $2.71 billion.

Operating profit in the U.S. jumped by 27 percent in the first quarter. Taco Bell led the way with a 6 percent increase in sales from its established U.S. stores. Pizza Hut was right behind at 5 percent, while KFC had a 2 percent increase.

"While we realize there is much work to do, we are optimistic we will dramatically improve our U.S. brand positions, consistency and returns," Yum Chairman and CEO David C. Novak said in a statement.

Taco Bell accounts for more than half of Yum's U.S. profit. The company has been encouraged by early sales of its new tacos featuring shells made out of Nacho Cheese Doritos, Blum said. The new Doritos Locos Tacos offering was launched late in the first quarter. It's touted as the biggest product launch in the chain's 50-year history, and plans were to spend about three times more than the usual amount to promote new menu rollouts.

The company is also upbeat about Taco Bell's foray into breakfast, he said.

"It should get better in the second quarter," Blum said, referring to the company's U.S. business.

The Mexican-style chain was knocked on its heels last year by a now-dropped lawsuit that questioned the beef content of its taco and burrito filling.

Taco Bell denounced the claim as false and spent millions to defend its filling and shore up its image. The suit was dropped about three months after it was filed by an Alabama-based law firm, but the chain's sales sagged for months afterward.

The breakfast menu was introduced at nearly 800 restaurants in 14 states earlier this year. Taco Bell has said it hopes to begin selling breakfast burritos and hash browns in its approximately 5,600 locations nationwide by 2014.

Operating profit in the key China market rose 14 percent, adjusted for currency fluctuations. Sales at its established restaurants rose by the same level.

Novak said the China business continues "to fire on all cylinders." KFC is a leading fast-food brand there and Pizza Hut also has a strong foothold.

In the international division, operating profit rose 9 percent, adjusted for currency fluctuations.

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