NEW YORK - The owner of KFC, Pizza Hut and Taco Bell plans to spin off its China business into a separate, publicly traded company.
Shares of Yum Brands Inc. (YUM) gained more than 5 percent in Tuesday premarket trading.
Yum Brands has had trouble with its China business. Earlier this month the Louisville, Kentucky-based company cut its profit outlook for the year, citing a slower-than-expected comeback for its China division.
In the latest quarter, Yum Brands reported that sales in China rose just 2 percent at established locations. Yum has been trying to win back customers after negative publicity stemming from food supply controversies. The company has said that part of the difficulties in China are due to a mix of external factors, such as the Chinese economy, as well as internal issues, such as the execution of marketing for Pizza Hut.
Yum Brands said Tuesday that it believes the China business, which will be called Yum China after the separation, could grow from its current 6,900 restaurants to more than 20,000 restaurants in the future. The China business, which will be headquartered in Shanghai, had $6.9 billion in revenue last year.
The remaining Yum Brands business will concentrate part of its efforts on becoming more of a franchisor, with the goal of having at least 95 percent of its restaurants owned and operated by franchisees by the end of 2017. Yum China will be Yum Brands' biggest franchisee and will operate under a franchise agreement. Yum Brands currently has more than 41,000 restaurants globally.
Yum Brands had $6.3 billion in annual revenue in 2014, excluding China.
The separation of the businesses is expected to be complete by the end of next year. It still needs final approval from the Yum Brands' board.
Micky Pant, who was named CEO of the China business in August, will remain in that role after the separation is complete. Greg Creed will continue as CEO of Yum Brands.
Shares of Yum Brands Inc. rose $4.10, or 5.7 percent, to $75.81 in premarket trading about 90 minutes before the market open.