KFC’s parent company Yum Brands says its profit fell 68 percent in the third quarter, as its China unit struggles to recover from a controversy over its chicken supply and bird flu scare, and the company took a write-down tied to its Little Sheep chain in China.
Results missed expectations and Yum lowered its outlook. Shares fell 7.5 percent in aftermarket trading.
China is a critical region for Yum, accounting for more than 40 percent of the company’s operating profit. But sales at restaurants began nose-diving after a report late last year said some of the company’s suppliers were giving chickens unapproved levels of antibiotics. A few months later, the chain’s recovery efforts were derailed by a bird flu scare.
Yum said revenue in restaurants open at least one year, a key retail metric, fell 11 percent in China during the quarter.
The Louisville, Ky.-based company, which also owns Taco Bell and Pizza Hut, cut its full-year outlook to a high-single-digit to low-double-digit percentage decline in earnings per share. It previously expected a mid-single-digit percentage-rate decline.
“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 CEO David Novak.
Back in the U.S., the company’s Taco Bell chain saw sales rise 2 percent at restaurants open at least a year. The fast-food chain’s performance has been boosted by the popularity of its Doritos-flavored tacos.
The figure fell 4 percent at KFC and fell 1 at Pizza Hut.
Traditional fast-food chains are trying to keep up with changing tastes. The sluggish economy has also forced them to focus on dangling discounts and deals to attract customers, a strategy that pressures profit margins.
Yum says net income for the quarter ended Sept. 7 fell to $152 million, or 33 cents per share. That compares with net income of $471 million, or $1.02 per share, last year. Excluding a write-down related to its Little Sheep chain in China, net income was 85 cents per share. A higher tax rate hurt net income by 10 percentage points.
Analysts expected 93 cents per share, according to FactSet.
Revenue fell 4 percent to $3.02 billion, missing expectations of $3.54 billion.
Shares fell $5.37, or 7.5 percent, to $66.30 during aftermarket trading, after closing the day up 24 cents at $71.67. The stock has traded between $59.68 and $75.13 over the past year.