Yum! Brands Shares Tumble on Poor Earnings

Analysts blame lagging KFC sales, slowing growth in China for earnings miss

Facing slowing growth in China, Yum! Brands — the fast-food restaurant company that owns KFC, Pizza Hut, and Taco Bell — posted worse-than-expected third-quarter earnings this month.

Yum!, based in Louisville, Ky., reported earnings of $1.00 per share for the third quarter of 2015. Analysts had expected the company to announce earnings of $1.05 per share.

“I think it goes without saying [that] we’ve obviously had a very disappointing quarter,” said Greg Creed, Yum! Brands’ CEO, on an earnings conference call. “As I said, I and we and everyone at Yum! take responsibility for it.”

(Photo courtesy of Wikimedia Commons)

Much of Yum!’s earnings disappointment could be traced back to its struggles with KFC, which accounts for more than 50 percent of the company’s total sales in China.

In the third quarter, the fast food chain saw sales in China drop by 12 percent, total revenue drop by 10 percent, and operating profits drop by 11 percent. Yum!’s same-store sales in China rose by just 2 percent from one year prior.

The results hint that KFC may still be struggling to bounce back from multiple recent scandals involving its China stores. Last year, one of KFC’s Chinese food suppliers was accused of providing the brand expired meat. And in 2012, reports emerged that KFC’s suppliers had violated food regulations and injected growth hormones into its chicken — resulting in KFC sales in the country declining by the double-digits.

Yum! officials said KFC was also hurt by the rising dollar, which cut into operating profits by $23 million, as 90 percent of its sales are generated outside of the U.S.

“We did not foresee this confluence of events, and quite frankly, we are very surprised by the business trends that began to unfold at the end of August,” Pat Grismer, Chief Financial Officer of Yum!, said on the earnings call.

Yum! downgraded its full-year estimate to a single-digit loss.

One bright spot for Yum! was the continued growth of two of its brands, Taco Bell and Pizza Hut, and strong sales in Australia, Russia and Japan. These factors, however, were not enough to offset disappointing sales in China, company officials said.

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