April 23 KFC parent Yum Brands Inc on
Tuesday reported that quarterly profit fell less than Wall
Street expected, despite a sharp drop in sales in its top China
market, sending the company's shares up nearly 6 percent.
The Louisville, Kentucky-based fast-food company also
repeated its earnings forecast for the year, based on the
better-than-expected first-quarter results.
Sales at established restaurants in China fell an expected
20 percent during the first quarter and Yum warned that fears
surrounding a bird flu outbreak there were continuing to depress
sales already struggling to recover from a previous food safety
The fast-food operator reaps more than half of its overall
sales in China, where most of its nearly 5,300 restaurants are
Still, Yum expects sales to recover in China, where it is on
track to add 700 new restaurants this year.
"Historically, the sales impact of Avian flu publicity has
initially been dramatic at KFC, but relatively short-lived,"
Chief Executive David Novak said in a statement.
Yum's first-quarter net income fell to $337 million, or 72
cents per share, from $458 million, or 96 cents per share, a
Excluding items, first-quarter earnings were 70 cents per
share, 10 cents better than the average of analysts estimates
compiled by Thomson Reuters I/B/E/S.
Based on that beat, the company backed its forecast for a
mid-single-digit, full-year EPS decline.
While it is not uncommon for Yum to hit bumps in the road in
the world's fastest-growing major economy, it is unusual for the
fast-food operator to be grappling with two sales-crushing
crises in China at the same time.
The first came in mid-December after 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 of popular
U.S. social media site Twitter.
In April, just as the pressure was beginning to ease,
reports about a new bird flu outbreak began picking up steam.
Demand for poultry products since then has plummeted and the
new strain of bird flu, the H7N9 virus, has infected more than
100 people and killed 22 in China.
Yum stock closed down $1.11 at $64.15 on Tuesday after BofA
Merrill Lynch downgraded Yum shares to "underperform." The
shares more than recovered in after-hours trading, gaining
$3.87 to $68.02.