Photographer: How Hwee Young/EPA

Yum Blames South China Sea Dispute for Hurting Results in Asia

  • Fast-food giant posts disappointing third-quarter earnings
  • Company plans to spin off Chinese business later this month

Yum! Brands Inc., the fast-food giant that owns KFC, Pizza Hut and Taco Bell, had an unusual reason for its results falling short of expectations last quarter: the dispute over the South China Sea.

After an international arbitration court invalidated Chinese claims to a wide swath of the region in July, consumers in the country lashed out against Western companies. That took a toll on Yum’s sales, Chief Executive Officer Greg Creed said on Wednesday.

Analysts had projected a same-store sales gain of 4.1 percent in China during the third quarter, according to Consensus Metrix. Instead, they fell 1 percent, marring the final full quarter that the Chinese business will be part of the company. Yum plans to complete a spinoff of the operations on Oct. 31.

“Sales were off to a good start in the first six weeks of the quarter,” Creed said in a statement announcing the results. However, the court ruling “triggered a series of regional protests and negative sentiment against a few international companies with well-known Western brands. If not for this event, we believe the China division would have delivered its fifth consecutive quarter of positive same-store sales growth.”

Earnings Miss

Profit was $1.09 a share in the quarter, excluding some items, the Louisville, Kentucky-based company said. Analysts had projected $1.10 on average, according to data compiled by Bloomberg. Revenue was $3.32 billion in the period, which ended Sept. 3, missing the $3.49 billion estimated by analysts.

The shares fell as much as 2.4 percent to $86.50 in New York on Thursday. Through Wednesday’s close, Yum climbed 21 percent this year, while the Standard & Poor’s 500 Index gained 5.7 percent.

The good news, Creed said, is Chinese consumers appear to have moved on from the protests.

“The incident was short-lived and the sales impact continued to dissipate through August and September,” Creed said.

As part of its spinoff plan, Yum will give one share of Yum China Holdings Inc. for each share of Yum Brands held. The new company will begin trading Nov. 1 on the New York Stock Exchange under the YUMC ticker.

Last month, Yum agreed to sell a combined $460 million stake in its Chinese operations to Primavera Capital Group and Ant Financial Services Group. Fred Hu, founder of Primavera and also the former Goldman Sachs Group Inc. chairman in charge of Greater China, will be chairman of Yum China.

Yum is performing better in other countries, said Jack Russo, an analyst at Edward Jones & Co.

“The other brands outside of China did well,” he said.

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