Wall Street turns on Yum Brands

The company made a huge bet in China. But its reputation there suffered amid suspected links to unscrupulous chicken farmers.

By Jonathan Berr Feb 5, 2013 11:55AM
Taco Bell restaurant in Richmond, Virginia (Steve Helber/AP Photo)Yum Brands (YUM) didn't stumble in the fourth quarter. It fell off a cliff.

Shares of the owner of Pizza Hut, KFC and Taco Bell fell nearly 4% Tuesday following Monday's disappointing earnings report. For a closer look at the earnings, click here. My colleague Jim Jubak opined on the earnings here.

Wall Street is especially worried about Yum's businesses in China, where the company owns 5,000 restaurants in 800 cities, most of them KFCs. The company's reputation for quality food at a low price has taken a hit in the world's most populous country amid media reports that its poultry suppliers did business with farmers who feed their flocks excessive levels of antibiotics. Yum gets more than half of its sales and operating profit from China.

As Reuters notes, Yum wasn't fined by regulators, but the company's reputation was pilloried on social media sites. The impact of this negative publicity was devastating. Same-store sales, a key metric for locations opened at least a year, fell 37% in China overall in January. They plunged 41% at KFC and 15% at Pizza Hut Casual Dining. China same-store sales will rebound in the fourth quarter, according to the company.

The pain in China isn't ending anytime soon. Same-store sales are expected to fall by 25% in January and February. Not surprisingly, Yum Brands expects a significant decline in earnings performance in the first half of the year and no longer expects earnings growth in 2012. That's a huge disappointment since Yum had expected 2013 earnings-per-share growth of at least 10%.

Yum hasn't thrown in the towel on China. The company has apologized for its food handling mistakes and has launched a marketing campaign to bolster its KFC brand in China.

--Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.


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6Comments
Feb 5, 2013 1:22PM
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Kentucky Fried Chicken has been pricing themselves out of business in the USA.  There is no more Kentucky Fried Chickens in Akron, OH.  Even though Kentucky Froed Chicken is better than is competitiors, yet is is not as godd as it was many years ago.  It all sums to be, while the prices increases the quality decreased.  Only reason that they had success in China, because that is where most of our manufacturing jobs went.  China has our jobs, while here we have unemployment or underemployment.
Feb 5, 2013 12:45PM
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WHo would have thunk that KFC, Pizza Hut and Taco Bell do more business in China than the good ole USA.  Let em eat Hunan.
Feb 5, 2013 4:25PM
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Still looks as if maybe the feds are manipulating the markt to make them look better. It also gives the people a false sense of security.
Feb 5, 2013 3:50PM
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HI COMRADS:You have right to your wrong opinions and by law your gay

rights should be protected.

Feb 5, 2013 12:46PM
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I`m glad I sold my YUM stock for a nice profit.I`ll buy another limo for my business with

the profit.

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