Yum Brands CEO calls for patience with struggling China division

Yum Brands Inc. CEO Greg Creed on Wednesday called on investors to remain patient with the company's China segment as the company faces pressure to spin off the division.

Yum Brands (YUM), which operates Taco Bell, KFC and Pizza Hut, has faced calls from activist investor Keith Meister to spin off its China division, which has been a drag on the company's bottom line in the aftermath of a food safety scandal in China last year.

Creed said the company, which has seen its stock value climb more than 22% since the beginning of the year, said his top priority is to get the China business back on track. He declined to directly address the spinoff call, saying he wanted to remain focused on the company's second quarter results. Shares were trading at $89.58 in late morning trade, down more than 2%.

"We want you to know this. The Yum board of directors regularly reviews strategic options to optimizing long-term shareholder value, including those involving corporate structure," Creed said in the company's second quarter earnings call. "We routinely dialogue with shareholders, listen to their ideas and thoroughly evaluate those which are made in our shareholders' best interest."

The fast food company reported $0.69 in earnings per share on revenue of $3.1 billion during the second quarter, down from the $0.73 in earnings per share on $3.2 billion in revenue it posted during the same quarter last year.

The company says it remains confident that will hit its target of 10% earnings per share growth for the year for 2015.

Yum reported that sales in China fell 4% in the second quarter. Sales at stores open for at least a year declined 10%. The decline marked an improvement from the first quarter, when same-sale stores in China fell 12% and the fourth-quarter of 2014, when they dropped 16%.

Yum officials blame the problems in China on their brands being tarnished after a TV report last year showed one of its suppliers using expired meat. The company has cut ties with the supplier.

The China restaurants profit margin also decreased more than 2 percentage points to 14.6% in the second quarter, but Yum officials said they are bullish that margins will increase to the 20% range as sales recover. Yum is also on track to open 700 new restaurants in China this year after already opening 251 new units in the first half of 2015.

The company is predicting improved sales in the second half that could leave the China segment showing full-year same store sales growth in the low-single digits.

"The good news is that sales are recovering," Creed said of China. "The good news is that consumer metrics are trending in the right direction. As always these are never linear unfortunately, but we compare this to previous recoveries (and) we're going in the right direction. We obviously remain bullish on China."