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Yum Brands upbeat about China division

Associated Press Modified: October 10, 2012 at 1:30 pm •  Published: October 10, 2012

The second-quarter profit decline had been a rare event for Yum in China, and was blamed on rising costs for ingredients and workers. Those costs have since moderated, helping improve profits.

Yum opened its 4,000th KFC in China in August, and has ramped up its breakfast offerings, 24-hour operations and delivery services at more KFC stores there. Pizza Hut has a growing presence there, too.

Sales growth has slowed in Yum's Chinese restaurants open at least a year, but the combination of new restaurant growth and product introductions — along with a growing middle class — makes Yum confident of reaching its goal of 15 percent profit growth in 2013. It also expects double-digit profit growth in the fourth quarter.

Yum now expects to open at least 750 stores in China this year, up from its prior forecast of at least 700.

"From day one, we've never been chasing a number," Novak said. "The number just keeps getting bigger and bigger than what any of us ever expected."

The company has thousands of future restaurant managers in training to run its growing number of stores in China.

In the U.S., Taco Bell has been the catalyst behind Yum's strong performance. Third-quarter operating profit in the U.S. rose 13 percent.

Sales in U.S. restaurants open at least a year rose by 7 percent at Taco Bell in the quarter. That figure is key for retailers because it excludes new and closing stores. It rose 6 percent at Pizza Hut and 4 percent at KFC.

Yum executives said Wednesday that Taco Bell will expand its line of Doritos Locos Tacos next year.

"Part of the reason we pushed that into 2013 is because the product was so successful it basically used all of our available supply of taco shells," said Yum President Rick Carucci.

Yum has more than 38,000 restaurants in more than 120 countries and territories.