Yum Brands Declines After Manufacturing Slowdown in China

Yum! Brands Inc. (YUM), which got about 44 percent of revenue last year from stores in China, dropped the most in more than three years after manufacturing in the Asian nation declined for the first time in six months, signaling an economic slowdown.

Yum, owner of KFC and Taco Bell, fell 8 percent to $64.70 at the close in New York, the biggest decline since Nov. 20, 2008. The shares have gained 9.6 percent this year.

China’s Purchasing Managers’ Index expanded at the weakest pace since December, falling to 50.4 from 53.3 in April, the statistics bureau and logistics federation said in Beijing. That compared with a median estimate of 52 in a Bloomberg survey of 27 economists. A reading above 50 indicates expansion.

A slowing Chinese economy “raises real concerns about Yum given 50 percent of its profit comes from company-owned stores in China,” said Bryan Elliott, an analyst at Raymond James Financial Inc. in St. Petersburg, Florida. “Manufacturing is an important part of income for consumers and an increasing amount of that income has been going to purchase meals at KFC in China.”

Yum plans to open 600 new restaurants in China this year. The Louisville, Kentucky-based company’s KFC and Pizza Hut chains have boosted sales in the Asian nation with delivery service and expansion into smaller cities.

The company has about 37,300 stores worldwide.

To contact the reporter on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.