Chicken scare in China hits KFC

February 6, 2013 

LOUISVILLE — Hit with a controversy over its chicken suppliers in China, Louisville-based Yum Brands announced Tuesday it expects its earnings per share to decline 25 percent in the first quarter.

Yum had already warned on Monday when it released fourth-quarter and annual earnings that a key sales figure for the region would plummet by the same percentage during the period. Profit for the full year is now expected to decline as well, snapping an 11-year streak of growth of at least 13 percent.

Since Dec. 18, the company has been reeling from a report on Chinese television that said its suppliers were ignoring regulations and giving chickens unapproved levels of antibiotics. Yum says a subsequent investigation by Shanghai regulators concluded on Jan. 25, with the company agreeing to adopt stricter oversight of its suppliers.

"The onslaught of negative media coverage has been longer lasting and more impactful than we expected," CEO David Novak said in a conference call with investors Tuesday. Although Novak said he expects the KFC brand to recover eventually, he could not say exactly when that would be.

But even before the chicken scare, Yum's China business had been slowing, with sales trending negative as early as October. Yum says that weakening was the result of broader economic conditions and tough comparisons from its growth a year earlier.

For the fourth quarter, the company's profit fell 5 percent to $337 million, or 72 cents per share. That's compared with $356 million, or 75 cents per share, a year ago.

Revenue rose 1 percent to $4.15 billion.

The U.S. was a bright spot for the company, with sales at restaurants open at least a year up 3 percent in the quarter.

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