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Why Investors Are Flying Yum! Brands Coop Once Again
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Why Investors Are Flying Yum! Brands Coop Once Again

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  • 1. Why Investors Are Flying Yum! Brands’ Coop Once Again
  • 2. 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’ expectations. • 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…
  • 3. 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: MCD). • Local media in China also report use of poor hygiene practices in a local factory. • Yum! and McDonald's have stopped using the supplier.
  • 4. 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.
  • 5. Customers flew the coop then, too • Sales plunged in Yum!'s China division. • 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.
  • 6. 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.
  • 7. China is key to Yum! Brands’ health Source: Yum! Brands SEC Filings
  • 8. 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 time. • A half-price bucket of chicken might not be enough to entice consumers to return. • Apologizing for the "inconvenience" may be seen as halfhearted.
  • 9. Foolish takeaway • Weakness in its U.S. earnings was the start of Yum! Brand's most recent decline, but now it has trouble everywhere. • The sustained turnaround it made in China has likely been undone. • 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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