Why Investors Are Flying
Yum! Brands’ Coop Once Again
Yum! Brands stock is crashing
• Poor earnings showed weakness
just about everywhere but China.
• U.S. same-store sales at Pizza Hut
and Taco Bell either fell from last
year or missed analysts’
• India, which was identified as a
key growth market, saw revenues
rise 18%, but only because Yum!
opened 25% more stores there.
Comps fell 2%.
• A new crisis is unfolding in China…
A new food scandal erupts in China
• Chinese regulators shut down a meat processor for
selling meat past its expiration date.
• Supplied meat to both Yum! and McDonald's (NYSE:
• Local media in China also report use of poor hygiene
practices in a local factory.
• Yum! and McDonald's have stopped using the supplier.
Brings back nightmares of two years ago
In 2012 Yum! was caught up in another tainted-meat scandal:
• Its KFC division in China was found to be selling chicken
that received excessive levels of antibiotics.
• It was also discovered that the company had known
about it for years but did nothing.
Customers flew the coop then, too
• Sales plunged in Yum!'s
• Same-store sales dropped
by more than a third at
one point in 2013.
• Yum! was also hit by
fears of an outbreak of
avian flu in China.
A hard-fought battle to regain trust
• It took Yum! Brands over a year to get Chinese
consumers to trust its brand again.
• This past quarter revenues surged 21% in China
on a 15% jump in comps.
• Because China accounts for more than 60% of
revenues and over a third of its operating profits,
this latest scandal could be devastating.
China is key to Yum! Brands’ health
Source: Yum! Brands SEC Filings
Impact of new scandal is unknown
• Customers might not be so willing to forgive
Yum! a third time.
• It may have significantly damaged its brand this
• A half-price bucket of chicken might not be
enough to entice consumers to return.
• Apologizing for the "inconvenience" may be seen
• Weakness in its U.S. earnings was the start of Yum!
Brand's most recent decline, but now it has trouble
• The sustained turnaround it made in China has likely
• Management's guidance for 20% earnings growth can
no longer be relied upon.
• Yum! Brands has become a globally impaired company.
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