The Zacks Analyst Blog Highlights: Yum! Brands, McDonald's, AFC Enterprises, Krispy Kreme Doughnuts and Logitech International
by PR Newswire
CHICAGO, March 5, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog includeYum! Brands Inc. (NYSE:YUM), McDonald's Corp. (NYSE:MCD), AFC Enterprises Inc. (Nasdaq:AFCE), Krispy Kreme Doughnuts Inc. (NYSE:KKD) and Logitech International (Nasdaq:LOGI).
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Here are highlights from Monday's Analyst Blog:
Yum! Downgraded to Underperform
On Feb 26, we downgraded our recommendation on Yum! Brands Inc. (NYSE:YUM) from Neutral to Underperform based on the dim outlook for Yum!'s flagship China division, which in turn, compelled the company to slash its 2013 outlook.
Why the Downgrade?After contributing immensely to the growth of Yum! Brands in the last few years, the Yum! China division, which holds the key to the company's overseas expansion plans, faltered in the fourth quarter of 2012 mainly due to allegations regarding the quality of chicken supplied to KFC as well as economic slowdown.
In Dec 2012, China's state television CCTV reported that two poultry farms in the Shandong province of China that supplied chickens to KFC and competitor McDonald's Corp. (NYSE:MCD) had fed the chickens with unapproved levels of antibiotics. The Shanghai Food and Drug Administration (SFDA) investigation followed soon after. SFDA reported that 8 out of 19 chicken batches supplied to KFC, which were sent for examination in 2010 and 2011, contained a very high amount of the antibiotic amantadine.
Though the company claimed to be concerned regarding the safety of its food products, the negative publicity led to a steep fall in the company's sales during the last two weeks of December.
Management is unsure about how long it will take to recover sales at KFC and expects the negative sales scenario to remain unchanged in the first quarter of 2013 in China.
Further a tough year-over-year comparison and muted consumer discretionary spending in the wake of a slowdown in China added to Yum!'s woes,. Additional costs associated with the acceleration of restaurant openings are also hurting the company's margins persistently,
Owing to the China issues, management expects mid-single digit earnings per share decline in 2013 much lower than its long-term target of at least 10% earnings per share growth. According to management, solid results from the US and YRI businesses will not be able to contain the decline in earnings per share.
Other Stocks to Consider
Logitech's Cost-Cutting Initiatives
Logitech International (Nasdaq:LOGI), a leading company in the field of digital products, announced its plans to take up cost-cutting initiatives.
LOGI, which has been reporting poor results for the last few quarters, reported a loss of $1.24 per share in the third quarter of 2013, with an operating expense of $765 million, up 43.2% year over year. The company's first quarter 2013 results were also disappointing in which the company also posted a net loss of 32 cents a share. Such a prolonged weak performance of the company made it essential for management to take up cost cutting initiatives.
As announced in the outlook for third quarter, the company started the procedure to divest its remote control and digital video security categories with further plans to discontinue other non-profitable products, such as speaker docks and console gaming peripherals, by the end of 2013.
Logitech believes that by adopting these cost control measures the company will not only become a more focused company but will also hel Logitech reduce its costs. Through these initiatives Logitech intends to generate incremental savings amounting to approximately $16 to $18 million. This amount is incremental to the $80 million saving already proposed from reducing operating costs and cost of goods sold for fiscal 2014.
Following the restructuring operations, the company expects to save approximately $12 million to $14 million in the fourth quarter of fiscal 2013. These savings will mainly come in from the workforce reduction. Logitech is required to lay off 140 employees, or 5% of its workforce as part of its cost cutting measure.
Logitech's newly appointed CEO Bracken P. Darrell, believes that these initiatives would result in improved operational efficiency and higher profitability coupled with faster growth in performance. In response to these restructuring activities Logitech shares moved up to $6.80, compared with its previous day's closing.
Currently Logitech rates a short-term Zacks Rank #5 (Strong Sell).
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