US-based Yum! Brands lowers its 2014 Profit forecast due to lower sales in China
Yum! Brands or Yum!, the United States-based fast food company that is the operator and parent company for KFC, Pizza Hut and Taco Bell, has reportedly lowered its 2014 earnings forecast. The company blamed the drop of nearly 14% in the store sales across China in the third quarter on a food safety scare.
The major drop in the sale in China is of a major concern considering the fact that the sale in this market accounts for Yum's biggest market for revenue and profit. The company expects that the sales will fall again in the fourth quarter at established restaurants will have a continued fallout from the allegations that a former supplier used expired meat.
A lot of Chinese customs are avoiding the KFC and Pizza Hut restaurants ever since July 20 when a television news story showed that in China an alleged supplier of these chains, Shanghai Husi was using meat past its expiration date. This is the reason why the company has cut its forecast for full-year earnings per share growth to a range of 6-10% from its previous call for growth of at least 20%.
Yum, which has nearly 6,420 restaurants in China, did not conduct significant business with Shanghai Husi earlier as well. However, after the news the company severed all ties with Shanghai Husi and its parent company, US- based meat supplier OSI Group.
OSI and its affiliates are also major suppliers to McDonald's, which also reported a 14.5% drop in August same-store sales for its unit that includes China. McDonald's had much deeper ties to OSI spanning different markets. McDonald's business was far more affected by the supplier scandal as many restaurants were unable to even serve basic items like burgers and chicken.
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