YUM Offers Tasty Strategy; Eagle Gets Stable Rating

YUM! Brand's multi-branding strategy--which places a combination of any two of its restaurant food brands, such as KFC and Taco Bell, on a single site --has produced strong initial results in a saturated and highly competitive U.S. market for quick service restaurants, according to Fitch Ratings. Steady operating performance, continued growth in international markets and stable leverage all factor into YUM's BB+ rating. The outlook on the $1.2 billion credit has been changed to positive. "It's a huge consumer and financial win," said, Kathleen Corsi, YUM's senior v.p. and treasurer, regarding the multi-branding strategy. Corsi added the company reaps 50% more profitability from the strategy. "Our customers love it," she said, explaining that consumers, especially families, like having choices.

Fitch expects the company will have continued success with its restaurant sharing initiatives, and leverage will improve as its debt levels are reduced from cash flow. Speaking to YUM's positive outlook, Corsi said, "No one else has the number of brands that we have. So that gives us a competitive edge." On an international level, Fitch believes that YUM will continue to produce good growth from its expansion of KFC and Pizza Hut in markets such as the U.K., China, Korea and Mexico. Furthermore, Fitch expects leverage to drop in 2003 as the company uses free cash flow to pay down debt and repurchase shares.

* Eagle-Picher has implemented a series of restructuring actions, which has resulted in a ratings outlook change by Moody's Investors Service to stable from negative. Moody's anticipates productivity cost savings during this year and much lower future cash restructuring costs. The Phoenix-based automotive parts and industrial product manufacturer has maintained the B2 rating on its $233 million in bank facilities.

The ratings outlook change specifically reflects Eagle-Picher's margin improvement during the most recent quarters, despite weak automotive market conditions and unaltered credit protection measures since the company's ratings downgrade in 2001. Moody's believes the company is better positioned to generate value-added business, enhance operating efficiencies and increase capacity utilization. Furthermore, improved cash flow is expected to offset the payment of over $16 million of preferred stock dividends, which Eagle-Picher may have to begin distributing as early as September. Calls to Thomas Pilholski, Eagle-Picher's cfo, were not returned by press time.