Yum! Brands (NYSE:YUM), the parent company of Kentucky Fried Chicken (KFC), Pizza Hut and Taco Bell reported weak third quarter financial performance as the company experienced difficulties in recovering from the effect of the avian flu scare and controversies surrounding its chicken supply in China.
The restaurant operator’s earnings declined by 67% to $0.33 per share from $1.00 per share in the same period last year. The company recorded a $0.55 non-cash charge related to the write down of Little Sheep intangible assets.
Yum Brands posted $0.85 earnings per share (EPS) excluding special items, which is lower than the $0.93 EPS consensus estimate of Wall Street analysts.
The stock price of Yum Brands plummeted 7% to $66.60 per share after trading hours on Tuesday.
According to Yum Brands, the same store sales of its business division in China declined by approximately 11% including an estimated growth rate of 6% at Pizza Hut Casual Dining and 13% decline at Kentucky Fried Chicken, still affected by negative publicity regarding its chicken supply last December.
The poor performance of its same store sales in China particularly KFC and higher-than-expected tax rate during the quarter prompted the management of the restaurant operator to reduce its full year outlook. Yum Brands expect a high-single digit to low-double digit full-year EPS decline excluding special items. The company previously projected a mid-single digit EPS decline.
During the quarter, Yum Brands said its worldwide effective tax rate before special items increased from 25.1% to 33.1% while its operating profit dropped by 9% prior to foreign currency translation. Its worldwide restaurant margin fell by 1.3% to 17.6%.
In a statement, David C. Novak, Chairman and CEO of Yum Brands said, “Despite the disappointing third-quarter performance, I remain as confident as ever in our ability to deliver strong, sustainable growth in the years to come.”
Novak added, “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. 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.”