Yum! Profit Down On Weak China Sales, Shares Slip 7%

(RTTNews) - Yum! Brands Inc. (YUM) on Tuesday reported a drop in profit for the third quarter, as its business in China continues to be affected by the December poultry supply incident. Shares of the parent company of KFC and Pizza Hut restaurants slipped 7 percent in the after hours trade, as both earnings and revenues for the quarter came in short of Wall Street expectations.

Moving ahead, the company also cut its revenue outlook for the full year based on its KFC China sales and warned that same-store sales are unlikely to be positive for the fourth quarter.

Sales from China contribute more than half of Yum! Brands total revenue; however, this has been impacted by a slowing economy and a food-safety scare. The outbreak of avian flu in China scared many of its KFC customers away, on the back of some adverse publicity the company received late last year. Subsequently, the Shanghai FDA launched an investigation into the poultry supply management at Yum! China, following reports of excessive levels of antibiotics in chicken sold at KFC outlets.

Third-quarter same-store sales, or sales from stores open for at least a year, declined 11 percent in China, including a 14 percent drop at KFC and 5 percent growth at Pizza Hut.

Same-store sales of September, which will be included in fourth-quarter results, are also bleak with an estimated drop of 11 percent for the China division.

Revenues for the third quarter dropped 3 percent to $3.47 billion from $3.57 billion last year. On average, twenty-two analysts polled by Thomson Reuters had a consensus revenue estimate of $3.53 billion for the quarter.

The Louisville, Kentucky-based company's third-quarter profit plunged to $152 million or $0.33 per share from $471 million or $1.00 per share last year.

For the latest third quarter, Yum recorded a significant non-cash charge for the write-down of Little Sheep intangible assets.

Excluding special items, earnings for the quarter declined to $0.85 per share from $0.99 per share a year ago. On average, twenty-four analysts expected earnings of $0.93 per share for the quarter. Analysts' estimates typically exclude special items.

Commenting on the outlook, Chief Executive David Novak said, "Given a slower-than-expected sales recovery at KFC China and a higher-than-expected tax rate, we are now estimating a high-single to low-double-digit percentage decline in full-year EPS versus prior year, excluding Special Items."

The company had previously expected a mid-single-digit decline in earnings. The company also added it is unlikely China Division same-store sales will be positive for the fourth quarter.

YUM closed Tuesday's regular trade at $71.67, up $0.24 or 0.34%, on the NYSE. The stock, however, slipped $5.11 or 7.13% in after-hours trade.