Business

Yum's ups and downs

Taco Bell, which accounts for about 60 percent of Yum's U.S. profit, saw sales fall after publicity about a lawsuit that claimed its taco filling didn't contain enough beef to be called that. Yum pointed to new menu items in expecting a turnaround.
Taco Bell, which accounts for about 60 percent of Yum's U.S. profit, saw sales fall after publicity about a lawsuit that claimed its taco filling didn't contain enough beef to be called that. Yum pointed to new menu items in expecting a turnaround. ASSOCIATED PRESS

LOUISVILLE — Fast-food restaurant operator Yum Brands said Thursday that its domestic business remains in the doldrums as Taco Bell, its most profitable brand in the United States, struggles to recover from publicity surrounding a dropped lawsuit over the beef content of its taco filling.

One day after the Louisville-based owner of Pizza Hut, KFC and Taco Bell reported a 10 percent rise in second-quarter profit, mainly driven by surging business in China, the company said it's bracing for another round of operating profit declines in the United States.

Yum generates nearly three-fourths of its operating profit from China and other countries —which together host just less than half of Yum's nearly 38,000 restaurants worldwide.

The company was upbeat about growth in those international markets, especially China. It raised its full-year earnings forecast Wednesday, another sign the overseas business is more than offsetting lackluster U.S. sales.

Yum said its second-quarter U.S. operating profit fell 28 percent as sales slumped at its three largest brands. Yum also operates Long John Silver's and A&W restaurants and has put both those chains on the market.

Chief financial officer Rick Carucci predicted another double-digit drop in U.S. operating profit for the current quarter, but the company said it expects things to get better in the fourth quarter.

Yum chairman and chief executive officer David C. Novak didn't offer sugarcoating.

"Our obviously very disappointing year-to-date U.S. results have frankly taken some of the luster away from what otherwise would be a great year," Novak said during a conference call with industry analysts.

The company's biggest concern is Taco Bell, which accounts for about 60 percent of Yum's U.S. profit. The Mexican-style chain has been reeling from publicity surrounding the dropped lawsuit, which claimed the filling in Taco Bell's tacos and burritos didn't contain enough beef to be called that.

"Frankly, the negative sales that resulted from the lawsuit has lasted longer than any one of us thought it would," Novak said.

High unemployment among young adults, Taco Bell's core consumers, also has hampered the brand's recovery, as have high fuel prices, he said.

Carucci said Thursday that Taco Bell, which saw revenue at restaurants open at least a year fall 5 percent for the quarter, indicated the figure is likely to fall again in the third quarter, though not as much. Novak was upbeat about long-term prospects, pointing to new menu items.

"As far as we're concerned, the meat issue is over," Novak said. "The economy is something we have to deal with. And we just need to be doing a better job building this brand going forward."

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