Yum Brands Cuts Profit Outlook on China Woes -- Update

By Maria Armental 

Yum Brands Inc. sharply cut its profit projection for the year citing a slower-than-expected recovery in China, compounded by the impact of the stronger dollar and weaker yuan.

Yum--which owns the KFC, Pizza Hut and Taco Bell chains--said it now projects profit to improve by a percentage in the low single digits, down from its previous view of at least 10% growth and the average analyst estimate of 14%, according to Thomson Reuters.

Shares of Yum, up nearly 15% this year, fell 17% to $69.15 in late trading.

Chief Executive Greg Creed said Tuesday that the company is "experiencing unexpected headwinds" in China, making the second half of the year more challenging than anticipated.

China, at the center of Yum's expansion plans, accounts for about half of total sales but has weighed on results because of 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.

To improve sales in the country, Yum has revamped its marketing and menus, adding premium coffee, herbal tea and seafood at KFC restaurants. In addition, Yum opened Atto Primo, a high-end Italian restaurant, in Shanghai's Bund, the city's historic waterfront.

Yum's updated outlook came as it reported results for the quarter ended Sept. 5. In the quarter, Yum's China sales rose 8%, while sales at stores open for at least a year rose 2%, breaking a streak of double-digit declines.

Company spokesman Jonathan Blum said Tuesday that Pizza Hut remained a weak spot in the latest period, particularly in China. Yum projects Pizza Hut will report a decline in sales at restaurants open for at least a year in the current fourth quarter.

Overall for the September quarter, Yum reported a profit of $421 million, or 95 cents a share, down from $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 earnings of $1.07 a share on $3.68 billion in revenue.

Total restaurant 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%.

Company officials are expected to release additional information of the company's results and full-year projections during a conference call with analysts scheduled for Wednesday morning and release projections for 2016 at the company's annual investor meeting in December

Write to Maria Armental at [e-mail]

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(END) Dow Jones Newswires

October 06, 2015 18:02 ET (22:02 GMT)

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