Yum sees China labor, food costs up in 2011

Yum Brands Inc forecast rising 2011 labor and food costs in China and said that modestly raising prices in its top growth market would help mitigate that pressure.

Shares in the owner of the KFC, Pizza Hut and Taco Bell fast-food chains, rose $1.54, or 3.2 percent, to $49.27 in morning trading.

Louisville, Kentucky-based Yum, the No. 1 Western restaurant brand in the world's fastest-growing major economy, expects China wage inflation in the mid-teen percentages this year.

It also expects food and paper inflation to rise 5 percent in China, 4 percent in the United States and 3 percent in other parts of the world where it operates.

Commodity inflation will be a challenge in 2011, Chief Financial Officer Richard Carucci told analysts on a conference call.

Higher costs for ingredients like beef, cooking oil and cheese are squeezing restaurant operators. Food cost spikes have been particularly problematic in China.

Yum executives said the company recently passed through modest menu price increases in China and that those higher prices should cover most of its inflation expectations for the year.

They also said that foreign exchange rates and 1,400 new restaurants in quickly growing markets outside the United States would buoy 2011 results.