Yum! Brands Inc. (
recently lowered its sales expectations from China. China is the
largest contributor to its revenue stream, accounting for nearly
55% of total revenue in the third quarter of 2012.
In a recent SEC filing, management stated that its China
division's same store sales are expected to suffer a 6% decline
in the just concluded fourth quarter of 2012. The company had
previously projected the same store sales in China to decline 4%
in the fourth quarter owing to the steep economic slowdown.
The allegations against the company regarding the quality of
chicken supplied to KFC are cited to be the reason for such a
dismal outlook. Last month, Shanghai Food and Drug Administration
(SFDA) reported that eight out of 19 chicken batches supplied to
KFC, which were sent for examination in 2010 and 2011, contained
a very high amount of antibiotic named amantadine.
Moreover, China's state television CCTV also reported that two
poultry farms in the Shandong province of China that supplied
chickens to KFC had fed chicken with unapproved levels of
antibiotics. The Chinese government's investigation followed soon
After the announcement of this news, the company stated
through a SEC filing that it is always highly concerned regarding
the safety of its food products and will be assisting the
government in the investigations to resolve this problem.
The negative publicity had also led to a steep fall in the
company's sales during the last two weeks of December.
Despite lowering the fourth-quarter revenue projection in
China, Yum! Brands reiterated its adjusted earnings per share
forecast for 2012 of at least 13% growth or $3.24 per share.
The company faces competition from
) in terms of price, service, location and concept.
Yum! Brands currently carries a Zacks #3 Rank (short-term Hold
rating). We are also maintaining our long-term Neutral
recommendation on the stock.
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