Yum! Brands Earnings: An Early Look

With hundreds of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Let's turn to Yum! Brands (YUM -0.35%). The company behind KFC, Taco Bell, and Pizza Hut has spent the past few years expanding into international markets, even as its domestic business has lagged behind. Let's take an early look at what's been happening with Yum! Brands over the past quarter and what we're likely to see in its quarterly report next Monday.

Stats on Yum! Brands

Source: Yahoo! Finance.

Can Yum! Brands feed investors a healthy report?
Analysts have slowly ratcheted down their estimates on Yum! in recent months, but to no greater extent than they generally have for most stocks. Yum!'s share price has pulled back considerably, though, with an 8% drop since late October.

We've already gotten an initial taste at what Yum!'s fourth quarter looked like. In early January, the company preannounced its expected full-year earnings per share of $3.24, excluding any special items. The SEC filing also called out particular weakness in China, blaming a government inquiry into the poultry supply as hurting KFC China's sales and leading the company to reduce its same-store sales estimates in the emerging nation from a decline of 4% to a fall of 6%. Given that investors bid down the shares by 10% when Yum! first discussed the impact of the Chinese slowdown in November, a key element of its earnings release will be its guidance for China for the coming year.

But Yum! is responding by bringing ambitious new plans in its domestic market. Investing guru David Einhorn believes that Taco Bell's new food lines are successfully competing against Chipotle Mexican Grill (CMG 1.90%), which has seen its own growth slow in the face of high ingredient costs. Yum! is also taking aim at McDonald's (MCD 0.44%), which has seen great success with its dollar value menu, by adopting a "$1 cravings" menu of its own.

Yum! hasn't given up on international growth, turning to little-tapped markets for potential gains. The fast-food company seems to be following Coca-Cola's (KO 0.68%) game plan, as the soft-drink giant has targeted the Middle East as a potential growth center that it has largely ignored until now. For its part, Yum! expects to launch 150 new restaurants in Africa to go with its Chinese expansion.

In its earnings, Yum! needs to show that it's laying the foundation for a turnaround in China. If it can do so while building optimism about its U.S. prospects, then Yum! may be able to earn back much of its stock's lost ground.

Click here to add Yum! Brands to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.