Tickers in this Article: YUM, MCD, CMG, WEN, AFCE
Yum! Brands (NYSE:YUM) has traded down, recently, on fears that growth in China, its primary growth driver, is starting to slow down. This has knocked the valuation into more reasonable territory, though growth trends in the more mature domestic market remain a concern. Higher food costs are also denting near-term profits, but Yum's long-term prospects, including above-average overseas growth, remain intact. (For more on growth, read Is Growth Always A Good Thing?)

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Third Quarter Recap
Total company sales advanced 14% to $3.3 billion. Sales in China jumped 35% to $1.6 billion to make up almost half of total sales. The international division, which includes all overseas sales except for China, also posted strong top-line trends with growth of 14% to account for almost a quarter of total sales. The U.S. continued to be a laggard, and posted a sales decline of 10% to account for the remaining quarter of total sales. Same store sales trends followed total divisional sales trends, with China jumping 19%, international advancing 3% and the U.S. falling 3%.

Higher commodity costs dented profitability during the quarter. Food and paper costs jumped 23%, contributing to a 17% rise in restaurant expenses. As a result, operating profits fell 10% to $488 million. A big drop in income tax expense allowed net income to grow 7% to $383 million. Slightly lower outstanding shares pushed earnings growth to 8%, or 80 cents per diluted share.

Despite the softer quarter, management stuck to its goal of reporting full-year earnings growth of "at least 12%, excluding special items." Analysts currently project earnings of $2.86 per share, sales growth of over 9% and total sales of $12.4 billion.

The Bottom Line
Overall stock market volatility and fears that economic growth is slowing in China, have pushed Yum's stocks more than 10% below its highs over the past year. However, they still trade at a forward price to earnings of more than 16. Archrival McDonald's (NYSE:MCD), which is firing on all cylinders across the globe, trades at a slightly more reasonable forward earnings multiple of below 16.

Other peers, including Wendy's (NYSE:WEN), Chipotle (NYSE:CMG) and AFC Enterprises (Nasdaq:AFCE), the last of which runs the Popeye's fried chicken chain, have overseas growth ambitions, but still have most of their restaurants in the U.S. As such, Yum remains a way to boost overseas fast-food exposure, with a particular focus on China. (To learn more about investing in China and other emerging markets, read Should You Invest In Emerging Markets?)

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