Yum Brands says KFC sales will fall in China

The Associated Press

Yum Brands Inc. said Monday that it expects that KFC's sales in China will suffer due to a recent government investigation of its poultry.

The company announced in late December that the Chinese government was conducting a review of two poultry suppliers who provided chicken with unapproved levels of antibiotics to KFC. While the supplies represent a small percentage of the company's product, the publicity did slow sales.

Yum Brands said Monday that due to the bad publicity associated with the review, it expects a key sales measure for KFC in China will come in lower than expected. It anticipates revenue from its stores in China open at least a year will be down 6 percent for the fourth quarter of its 2012 fiscal year, versus its prior forecast of a 4 percent decline.

Yum expects to earn $3.24 for the full fiscal year on an adjusted basis. Analysts polled by FactSet had forecast earnings of $3.26 per share, on average.

The company said it will not comment further until it releases its full quarterly results on Feb. 4.

Yum, based in Louisville, Ky., owns the KFC, Pizza Hut and Taco Bell chains. It is already the biggest Western fast-food chain in China as a result of massive expansion in its big cities during recent years. The company is now planning on setting up shops in smaller cities.

The nation's booming economy has been a boon for Yum, but with competition intensifying and economic growth slowing, Yum has hit a snag and investors fear its brands could be losing their luster. The company is also facing the pressure of rising labor and rental costs in big cities and as a result, the company said it would be more selective about expansion in such metropolitan areas.

Shares of the company plummeted $3.77, or more than 5 percent, to $64.12 in after-hours trading on the news. Its stock closed the day down 43 cents at $67.89.

Yum's shares have fallen roughly 9 percent since late November when it issued its full-year forecast for 2013 and told investors that growth in China was moderating.