Yum Brands Q1 Profit Tumbles 26% due to Falling Sales in China But Results Top Estimates (YUM)

Yum! Brands Inc. (NYSE: YUM) said that its profit in the fiscal first quarter fell 26% as its top line was adversely impacted due to declining sales in China.

The Company’s operations in China have come under tremendous pressure following a negative publicity at the end of last year, which found that certain KFC products contained unacceptable amount of chemical residue.

Lately, bird flu epidemic in China has also turned away customers from poultry products.

However, shares climbed about 4.50% in aftermarket hours as the fast-food chain’s adjusted earnings comfortably edged-past Street’s estimate while revenue fell slightly short of expectation.

The Company said that outbreak of bird flu in China was hurting sales, adding that sales at established stores (same-store-sales) in the recently concluded quarter slumped 20%, which was in-line with analysts’ estimate.

Still, the Company’s Chairman and Chief Executive, David C. Novak was optimistic. Addressing analysts, the CEO said that in spite of challenging first quarter, the Company handed better-than-expected results.

Novak said that Yum Brands was addressing these concerns (chicken quality) by resorting to an “aggressive quality assurance marketing campaign” in China but the recent of outbreak of avian flu has hurt its same-store-sales.

Nonetheless, the Company is sticking to its plans for opening at least 700 new stores in China this year. For Yum Brands, China is one of the major top line contributors.

At present, Yum Brands operates 5,300 stores (mainly KFC) in China.

For the fiscal first quarter, the Company reported net income of $337 million down from $458 million, in the same quarter of last year. Excluding onetime items, EPS stood at 70 cents down from 76 cents, in the same period of last fiscal.

Revenue contracted 7% to $2.54 billion from $2.74 billion, in the year-earlier quarter.

Analysts polled by Thomson Reuters were expecting earnings of 60 cents a share on revenue of $2.56 billion.

Same-store-sales rose 1% in international division while it increased 2% in the U.S.