Yum Brands Cuts Outlook on China Woes
07 October 2015 - 8:30AM
Dow Jones News
Yum Brands Inc. reduced its earnings outlook for the year
because of the company's slower-than-expected recovery in China and
lingering currency issues.
Chief Executive Greg Creed said the company is "experiencing
unexpected headwinds" in China, making the second half of the year
more challenging than anticipated.
As a result, Yum said its per-share earnings for 2015 are likely
to grow well below its target of at least 10%. Analysts, on
average, were expecting per-share earnings growth of 14%, according
to Thomson Reuters.
Shares, up nearly 15% this year, fell 18% to $68.60 in late
trading.
China, at the center of Yum's expansion plans, accounts for
about half of total sales but had weighed on results amid food
quality concerns.
In August, Yum announced a shake-up of its Chinese operations as
Sam Su, the executive who had built the Yum's KFC brand into the
largest foreign-restaurant chain in China, retired as head of the
company's China division.
Yum, which also owns the Pizza Hut and Taco Bell chains,
reported sales in China rose 8% in the quarter, while sales at
stores open for at least a year rose 2%, breaking a streak of
double-digit declines. Restaurant margin, meanwhile, improved 4.7
percentage points to 19.6%.
To improve sales in China, Yum revamped its marketing and menus,
adding premium coffee, herbal tea and seafood at KFC restaurants.
And the company opened Atto Primo, a high-end Italian restaurant,
in Shanghai's Bund, the city's historic waterfront. The restaurant,
Yum spokesman Jonathan Blum has said, will serve as a "one-off
incubator" for new products for Pizza Hut.
Overall for the September quarter, Yum reported profit of $421
million, or 95 cents a share, compared with $404 million, or 89
cents a share, a year earlier. Excluding special items, profit rose
to $1 a share from 87 cents a year earlier. Currency fluctuation,
Yum said, lowered operating profit by $29 million,
Revenue, which includes franchise and license fees, increased
2.2% to $3.43 billion.
Analysts surveyed by Thomson Reuters projected $1.07 a share on
$3.68 billion in revenue.
Total system sales rose 6%, with Taco Bell reporting a 7%
increase, KFC a 6% increase and Pizza Hut up 2%. Meanwhile,
restaurant profit margin improved 3.3 percentage points to
18.2%.
Write to Maria Armental at maria.armental@wsj.com
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(END) Dow Jones Newswires
October 06, 2015 17:15 ET (21:15 GMT)
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