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Yum Profit Tops Estimates as KFC’s China Sales Declines Slow (2)

July 11, 2013

Yum! Brands Inc. (YUM:US), owner of the KFC and Pizza Hut restaurant chains, posted second-quarter profit that topped analysts’ estimates as sales in China began to recover from the avian flu scare and a probe of a supplier.

Net income (YUM:US) fell 15 percent to $281 million, or 61 cents a share, from $331 million, or 69 cents, a year earlier, the Louisville, Kentucky-based company said yesterday in a statement. Excluding some items, profit was 56 cents a share. The average of 22 analysts’ estimates compiled by Bloomberg was 54 cents.

Yum has faced a backlash in China at KFC after an outbreak of avian flu scared diners away from poultry and a former chicken supplier was investigated for selling food with too much antibiotics. Sales at Chinese stores open at least 12 months fell 10 percent in June. That was less than the 12 percent decline estimated by analysts surveyed by Consensus Metrix and better than drops of 19 percent in May and 29 percent in April.

“They are discounting, promoting and advertising pretty heavily to try to get people back into the restaurants” in China, Peter Saleh, a New York-based analyst at Telsey Advisory Group, said in an interview. “Once you get the traffic, I think you’ll be OK.”

Still, revenue (YUM:US) fell 8.3 percent to $2.9 billion, after dropping 7.6 percent in the first quarter. Analysts estimated $2.92 billion, on average. Yum gets about 50 percent of its sales from China, where it has more than 5,400 KFC and Pizza Hut locations.

The shares fell 1.1 percent to $71.53 at the close in New York. Yum has advanced (YUM:US) 7.7 percent this year, compared with a 17 percent gain for the Standard & Poor’s 500 Restaurants Index.

Forecast Reiterated

Yum, which has more than 39,000 stores worldwide, reiterated its forecast (YUM:US) that 2013 profit excluding certain items would decline at a “mid-single digit” percentage rate.

“China sales are recovering as expected,” Chief Executive Officer David Novak said in yesterday’s statement. “The extensive media surrounding avian flu in China has subsided.”

While same-store sales in China declined 20 percent in the second quarter, the company projects that they will rise in the fourth quarter. Yum has been airing 30-second television commercials touting the quality of its chicken to Chinese consumers.

In the U.S., comparable-store sales rose 1 percent during the quarter, while analysts estimated a 1.4 percent increase, according to Consensus Metrix, a researcher owned by Wayne, New Jersey-based Kaul Advisory Group. Same-store sales advanced 2 percent in India and 1 percent at other international stores.

Comparable-store sales are considered an indicator of growth because they include only older, established locations.

Yum’s Taco Bell chain, which has about 5,700 domestic units, has been introducing new items to draw American diners from McDonald’s Corp. (MCD:US) and Burger King Worldwide Inc. (BKW:US) stores. The Mexican-fare chain recently tested egg-stuffed taco waffles in California and also a $1 Cravings Menu that it may roll out later this year across the U.S.

To contact the reporter on this story: Leslie Patton in Chicago at

To contact the editor responsible for this story: Robin Ajello at

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