UPDATE 2-Decline in Yum's China restaurant sales eases in May

Tue Jun 11, 2013 5:45pm EDT

June 11 (Reuters) - KFC parent Yum Brands Inc reported on Tuesday an estimated 19 percent drop in May sales at established restaurants in China, a smaller decline than in April when the country's bird flu outbreak caused diners to shun chicken.

That result just matched the average of eight analysts, as compiled by Consensus Metrix. Shares in Yum fell 1.3 percent at $70.80 in after-hours trading.

The fast-food operator generates more than half of its overall sales in China, where most of its nearly 5,300 restaurants are KFCs.

Yum, which is considered a way for U.S. investors to penetrate China, said it expects restaurant sales in the world's fastest-growing major economy to turn up in the fourth quarter.

Nevertheless, it has forecast a mid-single-digit decline in earnings per share for the full year.

In May a 25 percent same-store sales drop at KFC China restaurants was somewhat offset by a 12 percent sales increase at Pizza Hut Casual Dining.

Yum's China sales were down an estimated 29 percent in April - including a 36 percent drop at KFC and a 5 percent increase at Pizza Hut Casual dining.

The Louisville, Kentucky-based company said the sales impact from prior bird flu outbreaks in China has been short-lived.

"Based on current trends, we believe this will again be the case," Yum said in a statement.

Diners in China started shunning Yum's restaurants in December, after news reports and government investigations focused on chemical residue found in a small portion of its chicken supply.

Then, just as that pressure was easing, China was hit by an outbreak of a new bird flu strain.

The first known victim fell ill in February. As of May 29, 132 laboratory-confirmed cases of the H7N9 bird flu, including 37 deaths, had been reported to the World Health Organization (WHO).

Chinese authorities responded by shutting down live poultry markets, temporarily or permanently, to control the source of outbreaks in roughly a dozen provinces.

The number of reported cases has fallen sharply, but WHO is cautioning against calling the outbreak over, said Gregory Hartl, a spokesman for the organization.

"The weather is warmer and flu virus does not circulate as well in warmer weather," he said.

WHO, citing an estimate from China's agriculture ministry, said last month that the bird flu outbreak in China had caused some $6.5 billion in losses to the country's economy.

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