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Yum! Posts Poor Quarter Results, but Expects a Rebound in 2014
Posted by: Live investor (IP Logged)
Date: October 11, 2013 05:02PM

Yum! Brands (YUM), the parent of KFC, reported disappointing third quarter results on Tues. as its China sales are recovering at a slower pace than expected. The outlook of the last quarter of the year is also not very optimistic, but company executives are confident that 2014 would be a “bounce-back year” for the fast food giant’s China division. Poor sales results led the company to lower its full year profit outlook. Let’s check out some of the important numbers.

A look at the performance
Yum!’s net income for the third quarter plunged 68% to $152 million from $471 million a year ago. The company’s revenue fell 3.47 billion from $3.57 billion in the last quarter. Yum!’s difficulty started last Dec., after the food regulatory agency conducted a poultry test and concluded that certain chicken samples contained excess antibiotic level. Same store sales plunged immediately since then and just as it started showing positive signs, the bird flu outbreak destroyed Chinese appetite for Yum’s KFC.

However, several industry observers feel that the chicken issue is not the sole reason for the quick service restaurant chain’s China woes. The food industry grew in China mainly because of the increasing disposable income of the middle class. However, now China’s middle income group has restricted their spending after the government’s strict measures. Additionally, KFC and other Western-based corporations including McDonald’s (MCD) and Burger King (BKW) are facing tremendous competition from local eateries of the economy.

Yum!’s comparable store sales declined 11% for KFC during the quarter. In contrast Pizza Hut Casual Dining saw 6% growth. Since Yum! derives over 50% of its revenue from the mainland, the company has undertaken several marketing campaigns to trigger faster sales recovery. The main idea is to win back consumer confidence so that KFC footfall moves up to the level prior to the chicken issue. According to Reuters, a company spokesperson Jonathan Blum said that the image of KFC has improved since December, but it is still to return to the normal level.

Looking ahead
Yum! is hopeful about the coming year and expects things to rebound for the company. It has plans for all its divisions. It proposes to introduce a breakfast menu at Taco Bell in its US division. As far as the international division is concerned, that includes China and India, Yum! is considering to increase its focus in the emerging markets which show potential for growth. This will help the company to increase its consumer base and diversify stake in different economies with growth prospects.

China undoubtedly plays a huge role in determining Yum!’s overall growth in the current year and in the future too. However, it will take some more time for the people to come out of the notion that KFC’s chicken is safe to have. I am still bullish on the stock and consider it to have great potential. It is just a matter of time. Yum! has faced similar issues in China in the past and managed it brilliantly. I believe it has grown enough strong to come out of the current issues successfully again.

Stocks Discussed: YUM, MCD, BKW,
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