UPDATE 1-Yum's November KFC China sales flat, sees 2014 earnings rebound

Mon Dec 2, 2013 6:00pm EST

By Lisa Baertlein

Dec 2 (Reuters) - Yum Brands Inc said November sales at established KFC restaurants in China, its top market, failed to grow despite a successful half-priced chicken promotion, and it forecast a return to earnings per share growth in 2014.

China accounts for more than half of Yum's operating profit. Its shares have risen 14 percent since the start of November on expectations that China's KFC restaurant sales are poised for a rebound.

The results released Monday put a chill on such hopes, sending shares in the fast-food chain operator down 2.8 percent to $75.52 in extended trading.

Yum's overall China same-restaurant sales rose 1 percent in November, including flat sales at KFC and a gain of 7 percent at Pizza Hut Casual Dining. Yum is the biggest Western restaurant operator in China and had almost 4,500 KFC outlets there at the end of its third quarter.

Nine analysts, on average, had expected a 3.1 percent sales decline at KFC and an 8.8 percent rise at Pizza Hut, according to Consensus Metrix.

The limited-time half-priced bucket promotion yielded a roughly 16 percent increase in KFC China same-restaurant sales for the first 10 days of November. KFC same-restaurant sales fell about 8 percent for the rest of the month, Yum said in a statement.

Yum forecast at least 20 percent growth in 2014 earnings per share, excluding special items.

Bernstein Research analyst Sara Senatore estimated 2014 earnings of $3.48 per share, which implies 21 percent growth over this year.

"We expect to have a strong bounceback in 2014 following a year that is clearly below our high expectations," Chief Executive David Novak said in a statement.

"In China, we have an aggressive plan to reignite sales at KFC," Novak said.

Louisville, Kentucky-based Yum also repeated its forecast for a high-single to low double-digit percentage decline in 2013 earnings per share, excluding items.

MEDIA STORM

Yum's China business took a dive after China Central Television on Dec. 18 reported that a few poultry farmers doing business with Yum suppliers fed their chickens excessive levels of antibiotics. That was followed by a bird flu outbreak in the spring.

The Shanghai Food and Drug Administration investigated the chicken contamination incident. The agency did not bring a case against Yum China and did not assess a fine.

The China chicken supplier scandal has hurt Yum's reputation for serving safe, high-quality meals in China. Hamburger giant McDonald's Corp was also swept up in the controversy, though to a lesser extent.

Restoring diners' trust has proven difficult in the country where food contamination, with sometimes deadly outcomes, is a chronic problem.

Yum has tightened its poultry supplier network and launched an "I Commit" (to serving safe food) campaign to reassure Chinese consumers, but recently said it expects the process to take more time.

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