July 14, 2009 / 9:09 PM / 10 years ago

KFC parent Yum lowers sales view, shares fall

LOS ANGELES (Reuters) - Yum Brands Inc (YUM.N), parent of the Taco Bell, Pizza Hut and KFC chains, cut its full-year forecast for sales on weakness in its two biggest markets, the United States and China, and its shares fell 3.9 percent.

Customers wait for their orders at a KFC outlet in Beijing April 2, 2007. REUTERS/Claro Cortes IV

The company, which also posted a profit that topped Wall Street’s view but did not raise its full-year earnings outlook to reflect the beat, said it now expects 2009 same-stores sales in mainland China to be “about flat” versus up 5 percent.

It sees U.S. same-store sales “down slightly” versus its prior call for a gain of 3 percent. And, it trimmed its forecast for same-restaurant sales in other international markets, pegging growth at 3 percent versus growth of 3 to 5 percent.

Louisville, Kentucky-based Yum gets more than half of its operating profit from China and other overseas businesses and investors expect most of Yum’s future growth to come from those markets.

Second-quarter net income rose to $303 million, or 63 cents per share, for the quarter ended June 13, compared with net income of $224 million, or 45 cents per share, a year earlier. The company previously had said that the second quarter would likely be its most challenging and a low point for the year.

Profit excluding special items was 50 cents per share, handily topping analysts call for earnings of 43 cents per share, according to Reuters Estimates.

The company’s effective tax rate fell to 12.8 percent from 14.9 percent in the year ago quarter.

Total revenue fell to $2.48 billion from $2.66 billion.

Yum maintained its forecast calling for per-share earnings growth of at least 10 percent in 2009 and said it continues to see full-year earnings of $2.10 per share, excluding items. Analysts were expecting $2.12 per share for the year.

“The biggest surprise is that they didn’t raise guidance on this beat,” said Stifel Nicolaus analyst Steve West.

During the second quarter, same-store sales in mainland China fell 4 percent, but other international markets gained 1 percent. U.S. same-store sales fell 1 percent after Pizza Hut posted an 8 percent decline in sales at established restaurants.

Yum, the world’s second-largest fast-food chain after McDonald’s Corp (MCD.N), has been working to turnaround its U.S. KFC business and appears to be having some success with its newly introduced grilled chicken.

A compilation of “brand health barometers” showed that KFC’s marketing and products like grilled chicken are catching on with 18- to 34-year-olds, according to research from YouGov Plc’s (YOU.L) BrandIndex.

KFC is promoting a “$5 complete meal” with grilled chicken, sides and a drink. The ads urge diners to “taste the unsub side of KFC,” a reference to a very popular $5 foot-long sub sandwich offer from Subway that has proven popular in a weak economy that has sent U.S. unemployment to a 26-year high.

At the end of 2008, Yum had more than 36,000 restaurants in China, nearly 20,000 outlets in the United States and almost 13,000 restaurants in its other international markets.

Shares in Yum closed up 1.6 percent, or 56 cents, to $36.23 on the New York Stock Exchange, but fell to $34.81 in extended trade.

Reporting by Lisa Baertlein; Editing Bernard Orr

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