NEWS WRAP: Yum China boosts returns to shareholders on strong quarterly results

The operator of KFC and Pizza Hut restaurants in China announced it was expanding its cash allocation for share buybacks and dividend payments between 2024 and 2026

By Doug Young

Yum China Holdings Ltd. (YUMC.US; 9987.HK) announced on Monday it will boost its spending on repurchasing its shares and paying dividends, as it continued to deliver solid revenue and core operating profit growth of 5% and 18%, respectively, in the third quarter despite a challenging operating environment. It said the results demonstrated the effectiveness of its strategy and ability to outperform in a challenging and fluid environment.

Yum China also said it was further raising its cash allocation for share buybacks and dividends, often referred to by companies as “returning value to shareholders,” to $4.5 billion over the three years from 2024 to 2026 from a previous commitment of $3 billion.

The company has already spent nearly three times as much on shareholder returns in the first nine months of this year as it did in the same period last year, including over $1 billion in share repurchases and $187 million in quarterly dividends.

Yum China has continually repurchased its shares since it was spun off from its former parent, Yum Brands (YUM.US) in 2016. The company has grown rapidly since Yum opened its first KFC in Beijing in 1987, and it is now the country’s largest restaurant operator.

While share buybacks provide value to shareholder by reducing the size of a company’s outstanding shares, Yum China said it canceled its repurchased shares, which is more beneficial to shareholder than other treatment. Yum China has bought back more than 27 million shares this year, around 7% of its total shares outstanding. That has helped its earnings per share (EPS) to grow more quickly than actual profit growth, with its EPS up 33% in this year’s third quarter, ahead of the 22% rise in its actual net profit for the period.

Yum China’s cumulative shareholder returns have exceeded $4 billion since it first listed in the U.S. in 2016. It picked up the pace sharply after making a second listing in Hong Kong in 2020. Yum China’s cash position remains healthy, with net cash of $3.1 billion at the end of September.  

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