Yum! Brands Inc share price down, cuts profit forecast as China food scandal takes effect

Yum! Brands Inc has decreased its full-year profit expectations after sales at Chinese restaurants open more than a year fell 14% in the third quarter.

The previous forecast was for at least 20% increase in earnings per share, but due to the recent food-safety scare that drove customers away, the company trimmed its projections to 6% to 10% growth.

After the food scandal Yum! said: “This triggered extensive news coverage in China that has shaken consumer confidence and impacted brand usage, even though OSI was a minor supplier, sales at KFC and Pizza Hut were disproportionately impacted given our category-leading positions.”

The companys sales in China dropped 14% in the third quarter and while this was a big hit for Yum!, since the country accounted for 61% of the companys sales in the second quarter, executives remain optimistic.

David Novak, chairman and chief executive, said Yum! will open “at least 700”, new restaurants in China this year. Furthermore, Yum! Is looking for opportunities to expand to Africa and Latin America.

While the situation in the Asian country remains grim, the company still posted strong performance. Yum! reported strong sales both at its KFC and Taco bell divisions. For the third quarter of this year the companys profit per share had risen from 33 cents per share to 89 cents, or a total profit of $404 million compared to $152 year to year.

“It is difficult to confidently forecast the exact trajectory of China sales,” said Yum!. “In our experience, sales typically take six to nine months to recover from these types of events. Our brands have proven resilient over time, and we expect this to be the case with this situation as well,” Yum! added.

On Tuesday, Yum! Brands Inc fell by 2.31% and closed at $69.73 per share in New York, marking a one-year change of -2.38%. The company is valued at $30.66 billion.
According to the Financial Times, the 18 analysts offering 12 month price targets for have a median target of $78.20, with a high estimate of $110.00 and a low estimate of $69.00. The median estimate represents a 12.15% increase from the last price of $69.73.

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