KFC parent Yum Brands Inc (YUM.N) on Wednesday reported a smaller than expected decline in June sales at established restaurants in China, showing signs of recovery after sales were drastically hit by a food safety scare and a bird flu outbreak.
The company posted an estimated 10 percent drop in June sales - a smaller decline than in May when sales began to moderate. June results from China, the company's most important business unit, will be recorded in the current third quarter.
The June sales decline was less than the 12.2 percent fall expected on average of 20 analyst estimates compiled by Consensus Metrix. The fast-food operator gets more than half of its overall sales in China, where most of its nearly 6,000 restaurants are KFCs.
In May, Yum's China sales fell an estimated 19 percent.
"China sales are recovering as expected. The extensive media surrounding Avian flu in China has subsided and same-store sales at KFC are clearly improving," Chief Executive David Novak said in a statement.
"As KFC sales continue to recover, we expect to have solid momentum in China heading into 2014," Novak said.
The company, whose other fast-food chains include Taco Bell and Pizza Hut, expects China restaurant sales to start growing in the fourth quarter.
Shares of Yum were up 0.5 percent in extended trade at $72.75 after closing at $72.36 on the New York Stock Exchange.
FOOD SAFETY ISSUES
Yum has dealt with food safety scares and disease outbreaks in China before and analysts are cautiously optimistic that its business in the world's fastest-growing major economy will recover as quickly as it has in the past.
The latest blow came at the end of 2012, when the discovery of excessive levels of antibiotics in chicken from two of Yum's suppliers prompted government food safety agencies to probe the company's supply chain. Yum was not fined by food safety authorities, but it suffered a widespread backlash in the mainstream media and on Weibo, the China equivalent to popular U.S. social media site Twitter.
In April, just as those issues began to wane, reports about a new bird flu outbreak in the country picked up steam.
The World Health Organization on July 4 said it has been informed of 133 laboratory-confirmed cases, including 43 deaths, of the novel H7N9 bird flu virus in China.
Yum earned $281 million, or 61 cents per share, for the second quarter - down from $331 million, or 69 cents per share, a year earlier.
Excluding items, second-quarter earnings were 56 cents per share, 2 cents better than the average analyst estimate compiled by Thomson Reuters I/B/E/S.
While the official end to the fast-food chain's overall quarter was June 15, Yum's China quarter ended on May 31.
Yum reiterated its prior forecast for a mid-single-digit, full-year decline in earnings per share.
(Reporting by Lisa Baertlein in Los Angeles; Editing by Bernard Orr)