Yum Brands’ profits for the second quarter ended on June 16 increased 4.7 per cent – but soaring costs in China dented its potential.

The US-headquartered chain, which owns KFC and Pizza Hut, operates 4600 outlets in China. 

Worldwide net income increased to US$331 million from US$316 million a year earlier or 69 cents per share which is below analysts’ expected 70 cents per share.

The profits narrowly missed expectations due to the higher costs in China where wage costs have soared 13 per cent and commodity prices by six per cent in the quarter. 

But Yum Brands has reconfirmed plans to open an additional 700 outlets in China this year.

“Economic growth might be slowing in China, but the company is going to forge ahead, continue to grow its units and take market share,” said analysts Jack Russo of Edward Jones.

Yum Brands is upbeat in this year’s second half as it raises prices in China to cover losses. Commodity prices are also expected to level off in the second half of this year.

“We expect this to be short-lived, returning to double-digit profit growth in the second half of the year,” said Yum Brands chairman and CEO David Novak.

GB