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Yum Brands Falls After Projecting China Store Sales Drop

Yum! Brands Inc. (YUM), owner of the Taco Bell and KFC fast-food chains, declined the most in more than 10 years after saying same-store sales in China will fall in the fourth quarter.

The shares declined 9.9 percent to $67.08 at the close in New York, for the biggest drop since Oct. 10, 2002. Louisville, Kentucky-based Yum has advanced 14 percent this year.

Chief Executive Officer David Novak said same-store sales in China will decline 4 percent in the fourth quarter compared with a gain of 21 percent a year earlier. China, which accounted for 44 percent of Yum’s total revenue last year, is grappling with an economy where growth has slowed for seven quarters. Earlier this month, McDonald’s Corp. (MCD) said same-store sales fell in China in October.

“China softness may reflect choppy macroeconomic conditions, cautious consumer sentiment surrounding the recent government transition” and the company is going up against “tough” comparable-store sales from last year, David Tarantino, a Milwaukee-based analyst at Robert W. Baird & Co., said in a note today. He rates the company outperform, the equivalent of a buy rating.

Yum said in a statement yesterday it will open at least 700 units in China next year, down from 800 in 2012.

Photographer: Nelson Ching/Bloomberg

Yum! Brands Inc. Chief Executive Officer David Novak said same-store sales in China will decline 4 percent in the fourth quarter compared with a gain of 21 percent a year earlier. Close

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Photographer: Nelson Ching/Bloomberg

Yum! Brands Inc. Chief Executive Officer David Novak said same-store sales in China will decline 4 percent in the fourth quarter compared with a gain of 21 percent a year earlier.

Bryan Elliott, an analyst at Raymond James Financial Inc., downgraded the shares to underperform, the equivalent of a sell rating, calling the slowdown in China “shocking.” Analysts at Susquehanna Financial and UBS AG also reduced their ratings on the company.

Comparable-store sales are forecast to rise 4 percent in Yum’s international division and 3 percent in the U.S. in the fourth quarter. Yum has more than 38,000 restaurants worldwide and also owns the Pizza Hut dining brand.

Yum is scheduled to host an investor and analyst conference on Dec. 6 in New York.

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

To contact the editor responsible for this story: Kevin Orland at korland@bloomberg.net

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