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LOUISVILLE, KY-Unwelcome publicity chewed up results in the US, but Yum Brands Inc. parlayed rampant overseas expansion into a robust first quarter, company officials announced yesterday. The world’s largest restaurant chain and parent of KFC, Long John Silvers, Pizza Hut and Taco Bell posted a 12% gain in operating profit versus the same stretch of 2006, paced by a 31% surge on mainland China and 25% boost for the international group overall.

“Our international businesses continue to generate strong, consistent growth,” CEO David Novak said in releasing the results. “Our proven capability of generating global growth with high returns and substantial free cash flow gives us confidence that we are on track to deliver another year of solid financial performance.”

Two publicized health incidents “had the most significant impact on US performance,” Novak acceded, but the firm says it will still open more than 1,000 units globally this year and has raised its earnings per share projection in FY 2007 to 11% ($3.23), up from 10%. If achieved, it would mark the sixth straight year the firm has registered double-digit EPS appreciation. Listed on the New York Stock Exchange, Yum shares closed at $66.73 on Wednesday.

Yum’s China Division covers the mainland plus KFC Taiwan and Thailand. Strong unit expansion of KFC and Pizza Hut in mainland China accounted for much of the increase in profitability during the first quarter, according to the company. Sales were up 18% to $331 million, and same-store sales in that division rose by 9% for the quarter.

In the US, operating profit fell 11% from FY 2006 due to a 6% decline in company same-store sales and a 3% decline in all stores. Taco Bell caused much of the disruption, says the company, attributing their dip partly to an unusually strong start to FY 2006 that saw same-store sales rise 8%.

Bad publicity lingering from an e coli scare involving Taco Bell lettuce in late 2006 was even more to blame, says Yum officials, and the chain’s image was further dunned in February when a KFC in New York City became overrun by rats during a construction project. That problem led to “much adverse publicity,” Novak says, trouble enhanced via Internet exposure and other media attention.

In response, Yum is working with agricultural suppliers to improve the vegetable vetting process, is cooperating with public health agencies, and even hired pest control expert Bobby Corrigan to offer further advice on the NYC pest problem. “We expect to review these recommendations by mid-May,” says Novak. “We are determined to prevent this incident from happening again.”

Strong brand recognition and market penetration should allow Taco Bell and KFC to recover from the recent controversies, company officials maintain, adding they expect to ride the international train to great lengths in 2007. Should the firm eclipse the 1,000-unit mark in opening stores overseas again, it would be the seventh straight year Yum has reached that level.

With more than 34,000 units overall, nearly all of which are franchised, Yum has advanced into mainland China quicker than other Asian markets, and is now operating more than 4,000 KFC’s or Pizza Huts in the country. Yum’s Dallas-based international group, YRI, opened 144 more KFC’s and Pizza Huts globally during the first quarter, and Novak says that pace will accelerate for the remainder of the year.

Figures for domestic expansion were not provided, but Yum Brands did sell 105 company owned units to franchisees in the first quarter. The transfers are part of a three-year program through next year to sell 1,500 company restaurants to franchisees. Some 557 have changed over since the beginning of 2006, and fulfilling the campaign would increase US franchise ownership to 83% of the system, up from 77% at the outset.

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