Yum Brands Cuts Outlook on China Woes

By Maria Armental 

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 [e-mail]

Access Investor Kit for "Yum! Brands, Inc."

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US9884981013

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

October 06, 2015 17:05 ET (21:05 GMT)

Copyright (c) 2015 Dow Jones & Company, Inc.