Market Minute: KFC Parent Yum Slammed by Chicken Scare in China


NEW YORK (AP) - Yum Brands (YUM) warned Monday that it expects its profit for the year to decline as the parent company of KFC, Pizza Hut and Taco Bell continues to reel from a controversy over its chicken suppliers in China.

A drop in 2013 would snap an 11-year streak of profit growth of at least 13 percent.

The company, based in Louisville, Ky., gave the grim forecast after its profit in the fourth quarter fell 5 percent, with a key sales figure in China dropping. For January and February, the company expects sales at restaurants open at least a year in China to plummet 25 percent.

Since an investigation aired on national Chinese television on Dec. 18, Yum has been dealing with an "onslaught of negative media attention" over its chicken suppliers, spokesman Jonathan Blum said. The TV station had reported that Yum's suppliers were ignoring regulations and giving chickens unapproved levels of antibiotics.

KFCA government investigation into the issue was concluded on Jan. 25 and Yum has agreed to adopt measures to strengthen its oversight of suppliers. But the company says it will take time to recover.

"Our primary emphasis now is to rebuild consumer confidence and sales in China," Blum said, noting that the company plans to mount a "brand reputation" campaign in coming weeks.

Even though Yum has far more locations in the U.S., its restaurants in China are far more profitable because the cost of doing business there is lower and there's much more room for growth. Already, Yum is the biggest Western fast-food chain in the country with KFC accounting for most of its 5,300 locations. The nation's economic growth had until now been a boon for Yum, helping it register a streak of growth for more than a decade.

Although the investigation into chicken suppliers didn't focus solely on KFC, Blum said that the chain was hit especially hard because it's the biggest chicken chain in the country. He noted that the negative media attention had been slowing, but that the earnings results could stir up more bad publicity.

For the fourth quarter, a key sales figure fell 6 percent in China, in line with the decline the company had forecast last month. It marked the first decline in the region since 2009. A year ago, the figure had increased 19 percent.

For the period ended Dec. 29, Yum said net income fell to $337 million, or 72 cents per share. That's compared with $356 million, or 75 cents per share, a year ago. Not including one-time items, it earned 83 cents per share.

Revenue rose 1 percent to $4.15 billion.

Analysts expected a profit of 82 cents per share on revenue of $4.13 billion, according to FactSet.

The U.S. was a bright spot for the company, with sales at restaurants open at least a year up 3 percent in the quarter, driven by a 5 percent increase at Taco Bell and a 4 percent increase at KFC. At Pizza Hut, the figure fell 1 percent.

For all of 2012, sales at restaurants open at least a year rose 4 percent in China and 5 percent in the U.S. Yum said it opened 1,976 restaurants for the year, including 889 new units in China.

Its shares slid 5 percent to $60.36 in after-hours trading.


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rtgarton

Maybe some cat meat thrown in

February 06 2013 at 8:01 AM Report abuse rate up rate down Reply
waynemcbay

Do you think maybe KFC in the USA is cooking chinese chickens? I would suspect so since it's cheaper and not regulated and it's all about the profit . I refuse to knowingly eat anything from china

February 05 2013 at 10:36 PM Report abuse +1 rate up rate down Reply
Kiz Rivera

i

February 05 2013 at 6:33 PM Report abuse -1 rate up rate down Reply
Kiz Rivera

ii

February 05 2013 at 6:33 PM Report abuse -1 rate up rate down Reply
Kiz Rivera

.

February 05 2013 at 6:33 PM Report abuse -1 rate up rate down Reply
metusmetu

"If" you can find a "Church's" Fried Chicken give them a try, you won't be disappointed, get an order of "Greens" to go with your chicken, and their jalapeno's are great with chicken. Drinking milk or eating cheese will take the heat out of the jalapeno's if they get to hot for you, but the their flavor with chicken is outa this world.

February 05 2013 at 6:02 PM Report abuse rate up rate down Reply
nut4puck

Whatever happened to the USA! Who cares about your profits from China. Come on...you are going to be just like GM and quit making Pontiacs because Buick sales better in China. What is happening to the US and our businesses.....all they think about is more, more money. Who cares about the customers that started their business.

February 05 2013 at 5:34 PM Report abuse +2 rate up rate down Reply
1 reply to nut4puck's comment
metusmetu

They've got the "markets saturated" here in the U.S., they don't give a damn about the U.S. anymore! Also, they can't pay $2 a day for workers here in the U.S. like they do in China!

February 05 2013 at 6:07 PM Report abuse rate up rate down Reply
Anna

"Our primary emphasis now is to rebuild consumer confidence and sales in China," - nice attitude. How about starting by focusing your primary energy on actually improving your supply base and ensuring your suppliers uphold the standards you claim to require? No, start with trying to paint a prettier picture for the public to increase sales instead...sheesh. As long as your top priority is the appearance of your company rather than your integrity, you'll be working on that uphill hike.

February 05 2013 at 11:22 AM Report abuse +3 rate up rate down Reply
irishut36

I never eat Ken-Yucky and won't. There are other places that make FAR better chicken without the health scare.

February 05 2013 at 11:01 AM Report abuse +3 rate up rate down Reply
Jim

i worked in A&W root beer stand in Omaha Nebraska 1956 when i was a jr. at Tech High school and was that best chicken ever all the pcs. were big and the batter was so much more tastier then and also a heck of a lot cheaoer then but again that was the beginning of KFC then came the 1957 chevy the car most wanted oh well i had a 1947 ford coupe and with a loud set of smiitty mufflers my Girl friend and later my wife and all our friends did the Friday @ Saturday night thing drive in movie then the rounds to all Drive-in Resturants yup that was the days JIM

February 05 2013 at 10:56 AM Report abuse rate up rate down Reply