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Yum Brands Downgrades Outlook Over China Troubles

Yum-BrandsYum Brands (NYSE:YUM) announced on Tuesday that it was cutting the year end outlook over a meat scare in China that torpedoed sales in the KFC chain.

The Louisville based company said that it now expects earnings per share to rise by 6-10% from the year prior, this is a marked decrease from the minimum of 20% increase that was previously forecast. Yum Brands, which includes KFC, Pizza Hut and Taco Bell, is in a recovery phase after a TV report earlier in the year that revealed one of its meat suppliers was using expired meat.

The company has stated that business was hurt by the controversy even though only a small number of products were used from that supplier.

For the quarter, sales for Yum Brands (NYSE:YUM)  fell by 14% at locations in China, this includes a 14% drop for KFC and an 11% drop for Pizza Hut locations. China is a key division for the company, bringing in 35% of its operating profit.

McDonalds has a deeper relationship with the supplier in question, OSI Group, and was affected by the controversy to a deeper level. Many restaurants were left unable to serve basic menu items like chicken and burgers.

In the U.S., there were mixed results for the three Yum chains. The best performer for the U.S. was Taco Bell with a 3% rise in sales. Numbers were boosted by the launch of a breakfast menu nationwide. Sales for KFC rose 2% and Pizza Hut dropped 2%.

Quarterly earnings for Yum came in at $404 million, reflecting $0.89 per share. Not including any one time items, earnings were $0.87 per share. According to Zacks Investment Research, that is a penny more than expected.

Total revenue fell short of the $3.46 billion expected by analysts at $3.35 billion. Yum stocks rose by 0.5% to $70.10 in after-hours trading, initially the stock closed down by 2%

 

 

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