Yum! earnings tumble 68% in Q3

by Keith Nunes
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LOUISVILLE, Ky. — More trouble in China combined with a higher-than-expected tax rate pushed Yum! Brands, Inc.’s earnings down 68 percent during the third quarter of fiscal 2013. Net income for the quarter ended Sept. 7 fell to $152 million, equal to 34c per share on the common stock, and compared unfavorably to the same period during the previous year when Yum earned $471 million, equal to $1.02 per share.
Sales for the quarter fell 3 percent to $3,466 million.

KFC China’s third-quarter sales and profits were impacted by adverse publicity surrounding a poultry supply incident in December and subsequent news about avian influenza in the region. Same-store sales for KFC China fell 14 percent during the quarter.

Infographic: Yum!'s troubles in China



“Even with our recent challenges, KFC is unquestionably the category leader in China and we remain confident sales will fully recover from the adverse publicity surrounding the December poultry supply incident,” said David C. Novak, chairman and CEO. “Our Pizza Hut business in China continues to deliver strong results, and the rest of Yum is performing generally as expected for the full year.

“I’m pleased with the strong margin performance in China in the face of significant sales deleverage, along with the fact that Taco Bell has produced seven consecutive quarters of positive same-store sales growth. We remain on the ground floor of global growth and continue to have unparalleled development opportunities.
“As evidence of this, we expect to open at least 700 new units in China this year, as we capitalize on the world’s fastest growing consuming class. Outside of China, we expect record new-unit openings for Yum! Restaurants International and in India this year. When you add it all up for Yum!, we will open at least 1,850 new restaurants outside the US, further strengthening our leadership position in emerging markets. In addition, we will have net new-unit growth in the US for the second consecutive year.”

Same-store sales in Yum’s US division were flat, with 2 percent growth for Taco Bell, a 1 percent decline at Pizza Hut and a 4 percent decline at KFC.

As a result of the challenging quarter, Yum! Brands revised its full-year earnings per share outlook.

“Given a slower-than-expected sales recovery at KFC China and a higher-than-expected tax rate, we are now estimating a high-single to low-double-digit percentage decline in full-year EPS versus prior year, excluding special items,” Novak said. “Our revised full-year EPS outlook is obviously well below our 11-year track record of double-digit growth through 2012.”

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