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It's true that the company has paid off a sizeable portion of its debt in the past couple of years, and that the cash flow exists to continue doing so (as long as there are no more stock buyback diversions). It is essential that they carry out their debt-reduction mission.

I'm not sure, however, that the debt load is the primary reason the investing community has been treating YUM like chopped liver lately. After all, earlier in the year, when the stock flew up to 73 on Star Wars hysteria, the company carried more debt than it currently does.

The main problem, in my opinion, is reflected by statements like these in the October 10-Q:

Revenues decreased $215 million or 14% and $452 million or 10% in the quarter and year-to-date, respectively...

Company sales decreased $230 million or 16% and $500 million or 12% in the quarter and year-to-date, respectively...

Same store sales at KFC declined 2% in the quarter and grew 1% year-to-date...

Same store sales at Taco Bell decreased 3% in the quarter and were slightly favorable year-to-date...

Investors don't like to hear about revenue and same store sales declines. Also, although Pizza Hut SSS increased 6% and 10% in the quarter and year-to-date, one of their main franchisees, NPC International, reported only 3.3% comparable store sales growth in the quarter ending 1/26/00 ( ).

Today's positive words about earnings this quarter were based on lower insurance costs and tax rates in addition to strong business performance. It will be interesting to see how much each factor contributed to the quarter's (presumptive) growth. NPC's quarter was stronger than they had previously indicated ( ), so maybe things are looking up at YUM. But I think that the improvement is going to have to come from revenue growth rather than buybacks or even debt reduction.

Let's hope that today's bullish pre-announcement was not just cover for the AmeriServe bankruptcy news.

Brian Z.
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