• by Thom Forbes  @tforbes, July 14, 2016

A 1% drop in sales in Taco Bell’s 6,400 outlets in the U.S tempered overall strong second-quarter results for Yum Brands, whose eateries are resurging in China, where it is the largest foreign food chain. 

“It marked the second consecutive quarterly sales slowdown for Taco Bell, and followed a meager 1% gain in the first quarter,” writes Brian Sozzi for The Street after pointing out that sales rose 6% in the same period last year. “For Taco Bell, the stretch of sluggish sales likely reflects a broad industry slowdown in the second quarter, heightened price competition from burger players, and the continued popularity of McDonald's all-day breakfast.” 

KFC sales were up 2% in the U.S.; Pizza Hut was flat.

Meanwhile, Louisville, Ky.-based Yum said that it would complete the spin-off of its China business, which accounts for about 50% of its revenue, by Oct. 31, Maria Armental reports for the Wall Street Journal. It “reported an 3% system sales increase, adjusted for currency conversions” in China, but “sales at Pizza Huts open for at least a year contracted 11% in the second quarter and dragged down the division’s key comparable-sales metric to even with the year-ago period.”

Things are looking better so far this quarter, however, the company says. Long-term, though, Chinese consumers are no different than those elsewhere who are looking to improve their diets. 

“They’ve made progress in China but that’s really from hitting rock bottom a couple of years ago after their food safety scandal,” China Market Research Group senior analyst James Roy tells Bloomberg’s Leslie Patton. “They face a larger issue in the market with Chinese consumers becoming more health-conscious and moving away from fast food.”

Overall, investors were heartened by the results, which were better-than-expected — including by Yum.

“I’m pleased to raise our full-year core operating profit growth forecast to at least 14% from 12% previously,” CEO Greg Creed, said in a statement accompanying the earnings release. Shares were up about 4.5% in after-hours trading on top of a rise of about 17% year to date, CNBC reports.

“Creed noted weaker spending in the U.S. due to ‘challenging industry conditions…,’ Hadley Malcolm reports for USA Today. “The company has been particularly focused in the U.S. on making its Taco Bell chain more of a dining destination, with new store designs currently being tested and opening a handful of what it calls ‘cantina’ restaurants in major cities like Chicago and, soon, Las Vegas. These flagship locations have a tapas-style menu and sell alcohol.”

“The company has been trying to keep customers chomping on chicken, too, with new menu items at KFC like Nashville Hot Chicken and a rotating cast of comedic actors playing the iconic KFC colonel in the brand's commercials,” Malcolm continues.

Nomura analyst Mark Kalinowski “recently lowered his same-store sales growth forecast for Pizza Hut U.S. from 4% to 0%, citing menu fatigue surrounding the chain's ‘$5 Flavor Menu.’ He wasn't optimistic about Yum's other U.S segments either,” writes CNBC’s Sarah Whitten.

“(W)e do not believe either Taco Bell U.S. or KFC U.S. enjoyed standout quarters, as the non-burger quick-service business in the U.S. remained sluggish in [the second quarter],” Kalinowski wrote in a research note. “All in all, we continue to argue that the structure of Yum Brands — three large brands with little-to-no synergies (and arguably, dis-synergies) crammed together nearly 20 years ago by a beverage company — is not ideal.”

But you’ve got to take the field with the team you’ve got — and that’s a massive and ever-expanding lineup. All in all, Yum has nearly 43,000 restaurants in almost 140 countries and territories and is ranked #218 on the Fortune 500 List with revenues of more than $13 billion in 2015, according to its investors Web site. If that weren’t enough, it opens “over six new restaurants per day on average.”

Yum will have more information “on the transformative initiatives we are undertaking as we become a more heavily franchised company,” as Creed put it, at its investor conference in New York City on Oct. 11.