Retail

Bad Chicken in China Haunts Yum! Earnings

Yum China
Yum! Brands Inc.
Yum! Brands, Inc. (NYSE: YUM) reported third quarter 2014 results after markets closed on Tuesday. The fast-food restaurant operator posted adjusted diluted earnings per share (EPS) of $0.87 and revenues of $3.35 billion. In the third quarter of 2013, Yum reported EPS of $0.33 on revenues of  $3.47 billion. Thomson Reuters had estimates for EPS of $0.89 and $3.48 billion in revenue.

China System sales declined 11% for KFC and increased 3% for Pizza Hut Casual Dining. China Same-store sales declined 14%, including declines of 14% at KFC and 11% at Pizza Hut Casual Dining. Overall, same-store sales in China fell 14%. Yum owns 6,419 restaurants in China including its Little Sheep and East Dawning chains.

Same-store sales in the KFC division rose 3% year-over-year, but in the U.S. market system sales were flat for the quarter. U.S. same-store sales were down 2% in the Pizza Hut division and rose 3% in the Taco Bell division for the quarter. The rise in Taco Bell sales was attributed to the breakfast menu.

Same-store sales also declined 4% in India although total sales rose 14% excluding currency effects.

The company’s CEO said:

China sales are on the path to recovery and we expect to develop at least 700 new restaurants in China this year, which we’re confident will ultimately deliver high returns as we further capitalize on the world’s fastest growing consuming class. … Overall, our business model is compelling and we firmly believe we are building momentum behind major initiatives around the world that will drive strong sales and profit growth in 2015. We remain focused on the three keys to driving shareholder value: new-unit development, same-store sales growth and generating high returns on invested capital.

The company said that it assumes same-store sales in China will continue to improve but remain negative for the fourth quarter. On that assumption Yum estimates that 2014 full-year adjusted EPS will rise 6% to 10% above last year’s total of $2.97. That gives a range of about $3.15 to $3.27. The current consensus estimate for full-year EPS is $3.41.

Yum’s stock is trading down about 0.6% in Tuesday’s after hours session at $69.73 in a 52-week range of $64.08 to $83.58. Thomson Reuters had a consensus analyst price target of around $79.60 before today’s report.

ALSO READ: China Growth to Slow — World Bank

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