KFC, Pizza Hut owner Yum cuts profit outlook for year after China food scare hurts sales there

NEW YORK, N.Y. – Yum Brands cut its profit outlook for the year on Tuesday, citing the latest food scare in China that pummeled sales at its flagship KFC chain.

The company, based in Louisville, Kentucky, said it now expects earnings per share to rise between 6 and 10 per cent from a year ago, instead of the growth of at least 20 per cent it previously forecast.

Yum, which also owns Pizza Hut and Taco Bell, is trying to recover from a TV report this summer that showed one of its suppliers using expired meat. The company noted it was hurt by the controversy even though it got a limited number of products from the supplier in question, a unit of OSI Group.

During the quarter, KFC’s sales fell 14 at established locations in China, while Pizza Hut’s sales dropped 11 per cent. China is a critical division for Yum, which gets 35 per cent of its operating profit from the country.

McDonald’s, which has much deeper ties to OSI spanning the globe, was far more affected by the supplier scandal, with many restaurants unable to serve basic items like burgers and chicken. McDonald’s has also warned it expects the controversy to hurt is quarterly results, which it is slated to report on Oct. 21.

Back in the U.S., Yum reported mixed results for its three chains. For its best performer in the country Taco Bell sales rose 3 per cent at established locations, boosted by the national launch of a breakfast menu.

Sales rose 2 per cent at KFC and fell 2 per cent at Pizza Hut.

For the quarter, Yum said it earned $404 million, or 89 cents per share. Not including one-time items, it earned 87 cents per share, a penny more than analysts expected.

Total revenue declined to $3.35 billion and fell short of the $3.46 billion Wall Street expected, according to Zacks Investment Research.

Its stock rose 50 cents to $70.23 in after-hours trading, after closing down about 2 per cent.


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