Bird-flu outbreak pressures Yum! China profits

by Keith Nunes
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LOUISVILLE – An outbreak of avian flu combined with consumer backlash related to antibiotics used in the raising of chickens has taken a toll on Yum! Brands Inc.’s financial results for the first quarter ended March 23. Net income during the quarter declined 27 percent when compared with the same period of the previous year to $337 million, equal to 74 cents per share on the common stock.

Sales for the quarter declined 10 percent to $2,099 million.

The company said its China division sales and profits were negatively impacted as a result of the media attention surrounding the possibility of antibiotics in the poultry supply that occurred in December 2012. Beginning the first week of April, publicity surrounding avian flu in China has had a significant, negative impact on KFC sales, according to the company, but, it added, the impact of avian flu publicity initially has been dramatic at KFC but relatively short-lived. Based on its results through the first three weeks of April, Yum! Brands expects its China division same-store sales to decline about 30 percent for the month.

“The negative media surrounding poultry supply in China has subsided,” said David Novak, chairman and chief executive officer. “We have taken steps to enhance our industry-leading supply chain practices, and we’re now in the midst of an aggressive quality assurance marketing campaign.

“However, our sales recovery has been adversely affected by the recent news of avian flu,” he added. “This news surfaced during the first week of April and continues to negatively impact same-store sales. We continue to remind consumers that properly cooked chicken is perfectly safe to eat. Historically, the sales impact of avian flu publicity has initially been dramatic at KFC but relatively short-lived. We will stay the course with our plans to develop at least 700 new units in China this year to lay the foundation for future growth. We have complete confidence in a full sales recovery.”

Yum’s US division saw its same-store sales increase 2 percent, including growth of 6 percent at Taco Bell. Same-store sales declined 1 percent for both Pizza Hut and KFC.

“There is no doubt 2013 will be a challenging year for our company,” Novak said. “With news of avian flu, there will obviously be more volatility with our China sales recovery. However, given better-than-expected first-quarter performance, our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. I'm confident we will end the year with momentum and restore our track record of consistently delivering double-digit EPS growth in 2014 and beyond.”

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