Yum warns on 2013 earnings as chicken scare hurts KFC

(REUTERS) - KFC parent, Yum Brands Inc, on Monday warned that it expects 2013 earnings to shrink rather than grow, as it grapples with a food safety scare that ensnared some of its chicken suppliers in its top market, and shares fell more than 6 per cent.

The company, which gets more than half of its overall sales and operating profit from China, reported a 6 per cent drop in fourth-quarter sales at established restaurants in China due to "adverse publicity" regarding its poultry supply.

Its business there continued to suffer in January, when China same-store sales dropped 37 per cent, including a 41 per cent fall for KFC and a 15 per cent decline for Pizza Hut Casual Dining.

As a result, Yum forecast a "mid-single digit" percentage decline in earnings per share for 2013. Yum previously forecast 2013 earnings per share growth of at least 10 per cent.

Yum has nearly 5,300 restaurants, mostly KFC, in China. Its strong reputation for high food quality helped it grow briskly in a country where there have been some serious food safety scandals.

"I don't think anybody saw this coming," said Mr Edward Jones analyst Jack Russo who, like many others, expects the company to eventually bounce back. "Investors are definitely going to need some patience.

Analysts polled by Consensus Metrix estimate that Yum's first-quarter China same-restaurant sales will drop 9.3 per cent before stabilising later in 2013.

Yum's fourth-quarter net income fell to US$337 million (S$418 million), or 72 US cents per share, from US$356 million, or 75 US cents per share, a year earlier.

Excluding special items, Yum had a profit of 83 US cents per share. That topped analysts' average estimate by a penny, according to Thomson Reuters I/B/E/S.

Total revenue rose to US$4.15 billion from US$4.11 billion.

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