- REUTERS/Joe Tan
Yum Brands is the latest reason to be worried about China.
Shares of the fast-food giant fell by as much as 18% in early trading Wednesday after the company reported earnings below expectations and cut its outlook.
Yum Brands is seen as a bellwether for the Chinese economy, given that about 54% of its sales were derived from the country.
“While it remains difficult to forecast China sales, we are now estimating full-year same-store sales to be low-single-digit negative,” the fast-food giant said in its third-quarter earnings statement.
“The pace of recovery in our China Division is below our expectations,” Yum Brands said.
CEO Greg Creed said the company faced more challenges than it had expected in the second half of the year in China. Still, same-store sales (sales at restaurants open at least a year) in China increased 2%, and restaurant margins were 20%.
“Clearly, the China Division’s recovery will take longer than we had been anticipating,” Nomura analysts wrote in a note on Wednesday. “But the silver lining to all this bad news is that, it is still recovering. The +2% same-store sales growth for Q3 was the first positive quarter in over a year.”
The company’s restaurant chains include KFC, Taco Bell, and Pizza Hut. The company reported adjusted earnings per share of $1, versus the estimate for $1.06, according to Bloomberg. Revenues came in at $3.43 billion, versus the expected $3.67 billion.
The stock is up 14% year-to-date.
Here’s a chart of Wednesday’s drop.