Yum Suffers 16% Profit Drop as Sales in China Continue to Shrink

KFC parent Yum Brands (NYSE:YUM) revealed a 16% drop in second-quarter profits on Wednesday as the fast-food giant grappled with a 20% sales tumble in China.

While Yum’s top and bottom lines both declined, the company’s stock inched higher in after-hours action as investors had been bracing for an even steeper contraction in profits following a chicken probe in China.

Yum said it earned $281 million, or 61 cents a share, last quarter, compared with a profit of $333 million, or 69 cents a share, a year earlier.

On a non-GAAP basis, the company earned 56 cents a share, exceeding the Street’s view by two pennies.

Revenue fell 8.5% to $2.9 billion, trailing analysts' expectations of $2.93 billion.

Hurt by concerns about the quality of its chicken in China and worries about the avian flu, Yum said its operating profits plunged 63% in China last quarter and same-store sales in that key market slumped 20%.

However, Yum forecast same-store sales growth in the world’s second-largest economy during the fourth quarter. Same-store sales in China dropped 19% in May, but just 10% in June.

“The good news is that 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,” Yum CEO David Novak said in a statement.

Meanwhile, Yum reported a 3% jump in U.S. KFC same-store sales for the second quarter and a 2% increase in domestic sales for Taco Bell.  U.S. same-store sales at Pizza Hut dropped 2%.

Overall, global system sales gained 1% last quarter.

Shares of Louisville-based Yum ticked up 0.79% to $72.93 in after-hours action on Wednesday after dropping 0.42% to $72.36 during regular trading.