Yum Brands sales fall for forth straight quarter as China woes continue

By Yashaswini Swamynathan
A worker cleans an exterior of a building next to a KFC restaurant in Beijing April 23, 2015. REUTERS/Kim Kyung-Hoon

By Yashaswini Swamynathan

(Reuters) - Yum Brands Inc <YUM.N>, the owner of Pizza Hut and KFC, reported its fourth straight quarter of falling sales, indicating that the company is still struggling to regain lost ground in China after a food scandal last year.

Yum's sales at established KFC and Pizza Hut restaurants in China have taken a hit ever since a television news story in July last year alleged that one of its suppliers was using meat that was past its expiration date.

Food safety is a highly emotive subject in the country, where scandals ranging from toxic baby milk formula to dirty food oil are common. That makes convincing Chinese customers to come back to a tainted brand tough, marketing experts say.

Yum's same-store sales in China plunged 10 percent in the second quarter, much steeper than the 8.40 percent fall analysts had expected, according to research firm Consensus Metrix.

Hedge fund Third Point LLC, which took a stake in Yum in May, has said there is room for the company to split off its China business, a move that another stakeholder, Corvex Management, is pushing for.

"We are bullish on China over the long term and believe our best initiative right now is to get the business back on track," Yum's chief public affairs officer, Jonathan Blum, told Reuters.

Adding to Yum's China woes, calorie-conscious Americans back home are turning to food perceived to be healthier, resulting in the company losing out to newer competitors such as Shake Shack Inc <SHAK.N> and Chipotle Mexican Grill Inc <CMG.N> in the United States.

Yum said in May that it would remove artificial colors and flavors from food served in Pizza Hut and Taco Bell in an attempt to woo back diners.

Despite its efforts, revenue fell 3 percent to $3.11 billion in the second quarter ended June 13 from a year earlier, missing the average analyst estimate of $3.19 billion, according to Thomson Reuters I/B/E/S.

Net income fell 30 percent to $235 million, or 53 cents per share.

Yum also took a $68 million non-cash charge related to carrying down the value of real estate assets in Mexico.

Excluding items, the company earned 69 cents per share, beating the average estimate of a profit of 62 cents.

The company's shares fell 1 percent to $91 in extended trading to Tuesday.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Maju Samuel and Simon Jennings)