Yum! Brands

It’s déjà vu all over again.

Yum! Brands on Tuesday released third quarter results – and once again the US operator of KFC, Pizza Hut and Taco Bell missed market expectations as its China business continues to suffer. 

By Pan Kwan Yuk and Eric Platt

Poor Yum! Brands. The inanely-punctuated US operator of KFC, Taco Bell and Pizza Hut just can’t seem to catch a break in China – its single most important market.

The company, which makes about half of its revenues and profits from China, said on Friday that same store sales in the country fell 10 per cent in August as its KFC division continues to shed customers following a safety scare involving some of its chicken suppliers last year and new outbreaks of avian flu earlier this year. 

Yum Brands may be the leading company in the Chinese fast food market with over 5700 outlets, but recently it has seen a sharp decline in sales in the country.

Although Yum has suffered from headline-grabbing food scares (bird flu and banned antibiotics), are there bigger structural shifts afoot in Chinese fast food? Chart of the week takes a look. 

Airlines stocks were the first to feel pangs of fever when bird flu raised its ugly head again in China earlier this month. Shares in many Asian carriers nosedived last week, with some recording double digit falls in single trading sessions.

But while many of them have since shown full or near recoveries, there’s one stock that still looks decidedly peaky: Yum Brands. 

As expected, a dreadful fourth quarter for Yum! Brands following furor over a food safety scare in China.

Like-for-like sales growth in China – a market that now accounts for half of total group revenues and profits – fell 6 per cent for the quarter, compared to the 21 per cent increase seen during Q4 of 2011.

But the worst is yet to come. The company said it expects same-store sales in China to fall “approximately 25 per cent for January and February combined”. 

So it was the toxic chicken accusations afterall.

Shares in Yum! Brands fell more than 5 per cent in aftermarket trading on Monday after the inanely-punctuated US owner of KFC, Taco Bell and Pizza Hut said China sales fell more than expected. 

Yum Brands, operator of KFC, Taco Bell and Pizza Hut, gave a robust defense of its business in China on Thursday, saying the surprise four per cent contraction it expects to see in its fourth quarter sales there is just a blip.

The company, which spent the last two decades conquering the Chinese fast food scene, blamed the sales stumble on the slowdown in the Chinese economy. Yet in a country where the fight for stomach share is fierce and diners are as picky as their tastes are fickle, there are reasons to think that Yum’s China woes go beyond the catch-all of weaker consumer spending. 

Half way into first quarter earnings season in the US and one trend is already becoming apparent – the extent to which US Inc is being propped up by emerging markets.

Kimberly-Clark, maker of Huggies diapers (nappies) and Kleenex tissues, on Friday became the latest US corporate to sing the praises of EMs – where strong sales growth has helped the consumer goods company offset weaknesses in its core US market.