By Emiliana Molina
Shares of Yum! Brands Inc., which owns KFC, Pizza Hut, and Taco Bell chains, fell by as much as 19 percent Wednesday after reporting worse-than-expected quarterly earnings.
The company blamed a slow sales recovery in China after a food safety scandal last year and lowered its profit estimate for the full year to “well below” the 10 percent growth it expected previously.
Slow economic growth in the country, which accounts for more than half of Yum!’s sales, and a strong U.S. dollar also hurt results.
“There’s been substantial reduction in overall momentum” in China, said Pat Grismer, chief financial officer at Yum!, on a conference call with analysts.
Revenue, at $3.43 billion in the fiscal quarter ended Sept. 5, fell far short of the analysts’ consensus estimate of $3.63 billion.
The Louisville-based restaurant company said net income in the fiscal quarter ended Sept. 5, rose by 4 percent to $421 million, or 95 cents per diluted share, compared with $404 million, or 89 cents, a year ago.
Adjusted earnings per share of $1 missed the analysts’ consensus estimate of $1.05, according to Bloomberg. Same-store sales in China also disappointed, rising by only 2 percent.
Analysts on the company’s conference call lit into Yum! management.
“At what point do you decide, if it’s not three years of flat earnings, is it time to reconsider if the view that you are absolutely the right people to run the day-to-day operations of Yum! China or to have the structure that you have right now,” said Sara Senatore, managing director and senior analyst at Sanford Bernstein.
Grismer responded that the company is open to all options for turning the business around and is currently focusing on better positioning its brands and improving product innovation, among other things.
Taco Bell had the strongest performance in the quarter, with 4 percent same-store sales growth, compared with a 3 percent increase in same-store sales for KFC and 1 percent same-store sales growth at Pizza Hut.
Shares of Yum! were down $15.15 per share in midday stock market trading at $68.27.