Yum Brands Suffers on Weak Guidance and China Comps

The company posted $1.00 in earnings per share (EPS) on $3.43 billion in revenue, compared to the Thomson Reuters consensus estimates that called for $1.07 in EPS on revenue of $3.68 billion. In the same period of the previous year, the fast-food giant reported EPS of $0.87 and $3.35 billion in revenue.

Unfortunately the company now estimates full-year same-store sales to be low-single-digit negative in its China division. This division only had same-store sales growth at 2% in the third quarter, which was weaker than analysts predicted. However the rest of the China division numbers were strong, as system sales increased 8%, driven by 7% unit growth with its operating profit increasing 64%.

CEO Greg Creed said:

Third-quarter EPS grew 14%. We’re pleased same-store sales turned positive and we achieved restaurant margins of nearly 20% in our China business. However, the pace of recovery in our China Division is below our expectations. Outside of China, our Taco Bell and KFC Divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat. Given our lower full-year expectations in China, combined with additional foreign exchange impact, we now expect 2015 EPS growth to be well below our target of at least 10%.

He added:

Our growth fundamentals in China, including new-unit development, remain intact. However, we’re experiencing unexpected headwinds, making the second half of the year more challenging than we anticipated. Our new China Division CEO, Micky Pant, and his leadership team are taking significant actions to get sales, traffic and profits back to historic levels. Outside of China, KFC continued its solid growth across both emerging and developed markets. Taco Bell’s same-store sales growth was boosted by insight-driven innovation coupled with industry-leading value. We remain confident in the actions underway at Pizza Hut to turn this business around longer term.

Shares of Yum were down nearly 19% at $67.65 on Wednesday. The stock has a consensus analyst price target of $94.78 and a 52-week trading range of $65.81 to $95.90.

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