updated 5/1/2007 6:15:35 PM ET 2007-05-01T22:15:35

Fast-food giant Yum Brands Inc. said Tuesday that first-quarter profit rose 14 percent, as its international business soared while its brands suffered in the U.S.

The operator of KFC, Taco Bell and Pizza Hut said U.S. results were down for the three months ended March 24 in the wake of two highly public black eyes — an E. coli outbreak at some Taco Bell restaurants on the East Coast and a rat infestation at a franchise KFC/Taco Bell store in New York City.

Still, the overall quarterly results easily outperformed Wall Street expectations, and the company raised its full-year outlook in predicting a rebound in U.S. sales.

“We expect that the enduring strength of our brands and the plans we have in place will enable us to be back on track for improved U.S. performance during the second half of 2007,” said Yum Chairman and CEO David C. Novak.

Louisville-based Yum said quarterly net income rose to $194 million, or 70 cents per share, from $170 million, or 59 cents per share, in the prior-year period.

Revenue grew 7 percent to $2.22 billion from $2.09 billion in the first quarter of 2006.

Analysts polled by Thomson Financial had forecast profit of 64 cents per share on sales of $2.16 billion.

The company said operating profit in its fast-growing China division rose 31 percent over the year-ago period. In its international division, which excludes China, Thailand and Taiwan, operating profit was up 25 percent from a year ago.

“This is one of the best quarterly performances ever for these two divisions,” said Yum spokesman Jonathan Blum.

In the U.S., operating profit declined 11 percent from a year ago as same-store sales fell 6 percent at company-owned stores and 3 percent systemwide. Same-store sales, or sales at stores open at least a year, are a key measure of retailer and restaurant performance because they measure growth at existing stores rather than newly opened locations.

The decline was blamed on sluggishness at Taco Bell, which had an 11 percent drop in company-owned same-store sales that the company attributed to the two widely publicized problems.

An E. coli outbreak late last year in the Northeast caused more than 70 Taco Bell customers to become sick. Yum has said it added another level of testing to guarantee its supply of lettuce — considered the most likely source of the outbreak.

Sales also were hurt by a public relations debacle in February, when a TV news camera recorded scores of rats running through a New York City KFC/Taco Bell restaurant. The video, showing rats scurrying across floors and climbing tables and counters, was broadcast on the Internet, causing an uproar around the world.

“This had a negative impact on each brand, particularly on Taco Bell since it had just begun to recover from the previously discussed produce-supply issue in the region,” the company said.

In response to the incident, Yum Brands closed 10 of its New York City restaurants owned by franchisee ADF Cos.

Blum said Yum expects sales to begin recovering in coming months at Taco Bell.

“We expect to see steady improvement for the balance of the year,” he said.

Bear Stearns restaurant industry analyst Joe Buckley also predicted a future uptick in Yum’s U.S. sales, including at Taco Bell.

“I would think in the second quarter, they will be under pressure again, but by mid-year the business should look better again,” he said.

Buckley said that overall, it was a “pretty strong looking quarter” for Yum as international sales exceeded expectations.

“I think they did very well, given the circumstances,” he said. “It shows the power of having a global portfolio.”

The company’s brands also include Long John Silver’s and A&W All-American Food Restaurants.

Based on the strength of its international division, Yum Brands raised its outlook for 2007 earnings per share to at least $3.23 — matching Wall Street’s consensus estimate. The company previously said it would earn at least $3.21 per share.

Yum Brands shares rose $1.26, or 2 percent, to close at $63.12 on the New York Stock Exchange. They were up another 63 cents, or 1 percent, in after-hours trading.

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