January 9, 2013

Yum Brands anticipates poultry issues to hurt KFC sales in China

Due to a recent government investigation of its poultry, Yum Brands Inc. expected that KFC's sales in China will suffer.

The company announced in late December that the Chinese government was conducting a review of two poultry suppliers who provided chicken with unapproved levels of antibiotics to KFC. While the supplies represent a small percentage of the company's product, the publicity did slow sales.

Yum Brands said Monday (Jan 7) that due to the bad publicity associated with the review, it expects a key sales measure for KFC in China will come in lower than expected. It anticipates revenue from its stores in China open at least a year will be down 6% for the fourth quarter of its 2012 fiscal year, versus its prior forecast of a 4% decline.

Yum expects to earn US$3.24 for the full fiscal year on an adjusted basis. Analysts polled by FactSet had forecast earnings of US$3.26 per share, on average. The company said it will not comment further until it releases its full quarterly results on February 4.

Yum, based in Louisville, Kentucky, owns the KFC, Pizza Hut and Taco Bell chains. It is already the biggest Western fast-food chain in China as a result of massive expansion in its big cities during recent years. Shares of the company plummeted US$3.77, or more than 5%, to US$64.12 in after-hours trading on the news. Its stock closed the day down US$0.43 at US$67.89.

Yum's shares have fallen roughly 9% since late November when it issued its full-year forecast for 2013 and told investors that growth in China was moderating.