Yum: China Recovery Taking Longer Than Expected


Yum Brands Inc (NYSE:YUM), owner of KFC and Pizza Hut, said on Wednesday that sales at established restaurants in its biggest market China fell less than feared in the fourth quarter as it fights to recover from a food scandal involving a minor supplier, and its shares jumped 2.1 percent.

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Same-restaurant sales in China, Yum's No. 1 market for revenue and profit, fell 16 percent for the quarter that ended Dec. 27 on continued fallout from allegations that a former supplier used expired meat.

But the decline was less severe than the 19.4 percent drop expected by analysts polled by Consensus Metrix, and shares in Yum rose $1.51 to $75.16 in extended trading.

The company's same-restaurant sales in China fell 14 percent in the third quarter ended Sept. 6. They rose 15 percent in the second quarter, which ended roughly a month before news of the supplier scandal surfaced on July 20.

"While the sales recovery in China continues to be slower than expected, we anticipate a strong second half of 2015 as the turnaround gains momentum," Yum Chief Executive Greg Creed said in a statement.

Sales at established KFC and Pizza Hut restaurants in China swooned after a television news story there alleged supplier Shanghai Husi was using meat past its expiration date.

Yum, which has 6,715 restaurants in China, did not do significant business with Shanghai Husi and quickly cut ties with it and its parent, U.S. meat supplier OSI Group LLC

Still, the scandal shook Chinese consumers, who have weathered a series of food safety lapses.

OSI and its affiliates are major suppliers to McDonald's Corp, which on Jan. 23 reported a 4.8 percent decline in fourth-quarter sales at established restaurants for the region that includes China and Japan. Both of those McDonald's markets have been hard hit by the Shanghai Husi supplier scandal.

Yum also reported a fourth-quarter net loss of $86 million, or 20 cents per share, versus its net profit of $321 million, 70 cents per share, a year earlier.

Excluding special items related to writing down its Little Sheep investment and gains from selling restaurants to franchisees, Yum had a profit of 61 cents per share in the latest quarter.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Leslie Adler)