Ahead of the Bell: Yum Brands

Associated Press

NEW YORK (AP) — Shares of Yum Brands shares skidded in premarket trading Friday after the fast-food operator offered disappointing sales and earnings forecasts and an analyst recommended that investors sell their shares.

Shares lost more than 8 percent before the opening bell on Friday.

Yum Brands Inc., which runs KFC, Pizza Hut and Taco Bell worldwide, said Thursday that its revenue at stores open at least a year should be up about 4 percent in the fourth quarter, compared with a 21 percent increase last year.

In the key Chinese market, that sales metric is expected to fall 4 percent in the fourth-quarter and up about 6 percent for the full-year.

Yum Brands backed its full-year adjusted earnings forecast of $3.24 per share, which represents year-over-year growth of 13 percent. But analysts polled by FactSet expect earnings of $3.28 per share.

Jefferies analyst Andy Barish cut the stock to "Sell" based on its tempered outlook in China, where it has been heavily investing. He added that while Yum has consistently grown adjusted earnings by more than 10 percent each year, it's getting harder for the company to exceed Wall Street's expectations. That's even with better-than-expected results in the U.S. partially offsetting weakness overseas.

Barish said that the company still has several ways to cut costs and hold up earnings, and could also support earnings per share growth through stock buybacks. But he says investors should stay on the sidelines because of concerns about the company's Chinese business and still believes its full-year forecast could be too high for next year considering the possible risks.

Yum Brands shares dropped $6.11, or 8.2 percent, to $68.36 in premarket trading Friday after hitting a 52-week high of $74.75 in Thursday's trading.

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