Yum Brands Cuts Profit Outlook on China Woes -- Update
October 06 2015 - 6:17PM
Dow Jones News
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 maria.armental@wsj.com
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(END) Dow Jones Newswires
October 06, 2015 18:02 ET (22:02 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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