UPDATED 2/6/13: Don’t you love that headline? The Chinese are wound up about an American company’s food supply.
In a country where a good air quality day in any industrial city makes a Los Angeles smog alert day look clear by comparison; where food safety outside of said cities is questionable at best; and where people are imprisoned for speaking their minds, there exists a populous bent out of shape about antibiotic-stuffed chickens?
Indeed there is, and its complaint about fast-growth chicken served at KFC units threatens to stall the fast-food juggernaut’s expansion for Yum! China and flatten earnings for Yum! Brands in 2013.
Late last year, an inspection by Chinese officials of Yum! China’s chicken production practices revealed its birds were given hormone boosts that brought them from birth to broiler weight in just 45 days. (Sarcasm alert: Given that the life cycle of factory farm produced chickens here is 49 days, what’s the gripe, right?)
The result was a 6 percent plunge in same-store sales in Q4 2012 on the heels of 9 percent growth in the previous three quarters.
That slide is nothing compared to what Janney Capital analyst Mark Kalinowski is predicting for 2013: Q1 will be down 13 percent; Q2 13 percent, Q3 8 percent; and Q4 4 percent.
The good news is Yum! Brands’ earnings will finish 2012 on course with analysts’ estimates, but the Louisville-based company warned earnings growth will underperform this year.
Janney shaved its 2013 EPS prediction 45 cents to $3.08, and its 2014 EPS by 65 cents to $3.45.
YUM shares fell 3 percent in yesterday’s trading and given after market price declines, it’s expected they’ll fall further today.
But there is good news—for investors and Yum.
For investors: Falling share prices will make YUM shares attractive buys, especially for a company that will overcome the China challenge and return to its formerly positive performance (it’s hardly missed a beat from 1987 to 2012, a heck of a streak). Janney supports this notion by retaining its “Buy” rating on the stock. Though it opened at $63.94 this morning, Janney said a fair market price is still $74.47.
For Yum! Brands: Stateside company stores turned in an impressive Q4 2012. Apparently, los Americanos queremos Taco Bell, pushing its same-store sales up 5 percent, KFC units were up 4 percent, but Pizza Hut SSSs declined 1 percent. (Sales change percentages were updated 2/6/13 to reflect quarterly results rather than annual results.)
Still, steep discounting at those two chains makes me wonder what store-level profitability looked like. We’ll find out today.