Yum! Brands Inc. Misses Q3 Views, Slashes Outlook

Yum! Brands Inc.

missed Wall Street's third-quarter expectations Tuesday and slashed its 2014 earnings outlook, citing a food-handling fiasco that continues to spook its customers in China. Profits grew to $404 million, or $0.89 cents a share, from $152 million, or $0.33 cents a share a year earlier. Excluding items, profits were $0.87 cents a share. Revenue grew from $3.47 billion a year earlier to $3.35 billion. Analysts on Wall Street expected earnings of $0.89 cents a share, on revenue of $3.48 billion. The operator of KFC, Pizza Hut and Taco Bell restaurants gets about 35 percent of its operating profits from operations in China, where a T.V. report was aired in July concerning improper food handling by a Yum supplier. Chief Executive David C. Novak said Tuesday it's "difficult to forecast" sales in China "but in our experience, sales typically take six to nine months to recover from these types of events." Same-store sales in China during the third quarter fell by 14 percent, compared with growth of 15 percent in the second quarter. Comparable sales in China are presently recovering but continue to run negative, the company said. Worldwide restaurant margin in the second quarter narrowed by 2.7 percentage points to 14.9 percent and and worldwide operating profit decreased 12 percent. Yum cut its forecast for 2014 earnings growth from its earlier expectation of "at least" 20 percent earnings growth to between 6 percent and 10 percent. Analysts on average are predicting a 13 percent increase in 2014 earnings, to $3.37 a share. In after-hours trading recently, Yum changed hands at $69.70 a share, little changed after closing down 2.3 percent Tuesday. Minutes after the earnings report, Yum shares spiked down to a post-market low at $67.90, only to spike back toward the $72 level.