Yum sticks to growth forecast despite slow China recovery

Wed Jul 15, 2015 1:49pm EDT
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(Reuters) - KFC and Pizza Hut owner Yum Brands Inc (YUM.N: Quote) stuck to its profit growth target for the year despite a slower-than-expected recovery in its Chinese business, which was hit by allegations of a supplier using expired meat last year.

Shares of Yum, which reported another decline in quarterly sales on Tuesday, recovered some of their earlier losses but were still down 2.6 percent.

The company will need nearly 30 percent earnings growth in the second half of the year to meet its 10 percent EPS growth target, Chief Financial Officer Pat Grismer said in a post-earnings conference call on Wednesday.

"We believe this is achievable," Grismer said, noting that Yum typically makes 60 percent of its profit in China in the second half of the year.

Analysts on average expect earnings to grow 12.6 percent this year.

To stem the decline in sales, Yum has launched a slew of measures in China that range from new menu items to testing an upmarket diner aimed at customers tired of fried chicken.

The company has added eight new items to its KFC menus for lunch and dinner, including healthier options such as herbal tea and seafood, Chief Executive Greg Creed said on the call.

Yum has also revamped its breakfast menu and rolled out premium coffee at over 2,000 stores in China.

KFC is Yum's biggest brand in China, accounting for 4,889 of Yum's 6,853 restaurants in the country at the end of the second quarter.   Continued...

A worker cleans an exterior of a building next to a KFC restaurant in Beijing April 23, 2015.   REUTERS/Kim Kyung-Hoon