Yum's China woes slams sales and profit

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By Lisa Baertlein | February 5, 2013 10:14 AM EST

KFC parent Yum Brands Inc on Monday warned that it expects 2013 earnings to shrink rather than grow, as it grapples with a food safety scare in China where it makes more than half of its overall revenue, and shares fell more than 6 percent.

The company, which gets more than half of its overall sales and operating profit from China, reported a 6 percent drop in fourth-quarter sales at established restaurants in China due to "adverse publicity" regarding its poultry supply.

Its business there continued to suffer in January, when China same-store sales dropped 37 percent, including a 41 percent fall for KFC and a 15 decline for Pizza Hut Casual Dining.

As a result, Yum forecast a "mid-single digit" percentage decline in earnings per share for 2013. Yum previously forecast 2013 earnings per share growth of at least 10 percent.

Yum has nearly 5,300, mostly KFC, restaurants in China. Its strong reputation for high food quality helped it grow briskly in a country where there have been some serious food safety scandals.

"I don't think anybody saw this coming," said Edward Jones analyst Jack Russo, who like many others expects the company to eventually bounce back. "Investors are definitely going to need some patience.

Analysts polled by Consensus Metrix estimate that Yum's first-quarter China same-restaurant sales will drop 9.3 percent before stabilizing later in 2013.

Yum's fourth-quarter net income fell to $337 million, or 72 cents per share, from $356 million, or 75 cents per share, a year earlier.

Excluding special items, Yum had a profit of 83 cents per share. That topped analysts' average estimate by a penny, according to Thomson Reuters I/B/E/S.

Total revenue rose to $4.15 billion from $4.11 billion.

(Reporting By Lisa Baertlein in Los Angeles; Editing by Leslie Gevirtz)

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