Yum posts unexpected fall in revenue as KFC, Pizza Hut struggle

Posts December quarter revenues of $3.95 b from $4 b a year earlier on slim growth in US, headwinds in China

Yum Brands reported an unexpected drop in fourth-quarter revenue as both its KFC and Pizza Hut restaurant outlets struggled to grow, hurt in part by the strong dollar.

The company, which is spinning off its China business this year, said that the total revenue fell to $3.95 billion in the quarter ended December 26, from nearly $4 billion a year earlier.

Analysts on an average were expecting sales to rise to $4.02 billion, according to Thomson Reuters I/B/E/S.

The company’s shares dipped 1.4% to $71.45 in extended trading on Wednesday.

Yum Brands gets about half of its sales from China. However, that business has been besieged by food scandals and marketing missteps for the past two years, while the company also faces tough competition from nimbler rivals in the United States.

The company’s sales at established restaurants in China rose 2%, increasing for only the second time in six quarters. It was also marginally higher than analysts' estimates of a 1.9% increase, according to research firm Consensus Metrix.

The increase in KFC's and Pizza Hut's system sales in the fourth quarter was the same as in the third quarter — up 6% at KFC and 2% at Pizza Hut.

But, Conlumino analyst Hakon Helgesen said KFC system sales fell 5% in the latest quarter, including the effect of a strong dollar, while Pizza Hut system sales declined 2%.

“One of the key issues for both brands is the relatively slim growth within the United States,” Helgesen said.

“Both suffer from the challenge of maturity and, while they remain popular, the rather tired nature of the brands and a lack of meaningful menu innovation means they struggle to compete against rivals ...”

Sales at Pizza Hut restaurants open for more than 13 months rose 1% in the quarter, less than analysts' estimates of a 1.5% rise.

“Without the boost to growth provided by China, the legacy business will need to work much harder to reestablish its relevance," Helgesen said.

Yum Brands said it was on track to complete the spinoff of its China business by the end of the year.

The company reported a net income of $275 million, or 63 cents per share, in the latest quarter, compared with a loss of $86 million, or 20 cents per share, a year earlier.

Excluding items, it earned 68 per share, beating analysts' estimates of 66 cents.