Taco Bell parent warns of profit decline

NEW YORK Yum Brands (YUM) warned that it expects profit for the year to decline as the parent company of KFC, Pizza Hut and Taco Bell works to recover from a controversy over its chicken suppliers in China.

The company, based in Louisville, Ky., gave the grim forecast after its profit in the fourth quarter declined 5 percent, with a key sales figure in China dropping more than the company had forecast.

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Since an investigation aired on national Chinese television on Dec. 18, Yum has been dealing with an "onslaught of negative media attention" over its chicken suppliers, said spokesman Jonathan Blum said. The TV station had reported that Yum's suppliers were ignoring regulations and giving chickens unapproved levels of antibiotics.

A government investigation into the issue was concluded on Jan. 25 and Yum has agreed to adopt measures to strengthen its oversight of suppliers. But the company says it will take time to recover.

"Our primary emphasis now is to rebuild consumer confidence and sales in China," Blum said, noting that the company plans to mount a "brand reputation" campaign in coming weeks.

For the fourth quarter, a key sales figure fell 8 percent in China, more than the 6 percent decline the company had forecast. It marked the first decline in the region since 2009.

Even though Yum has far more locations in the U.S., its business in China is far more profitable because the cost of doing business there is less. Yum is the biggest Western fast-food chain in China, with about 5,400 locations. The nation's economic growth had until now been a boon for Yum, helping it register an annual profit growth of at least 10 percent over the last several years.

For the period ended Dec. 29, Yum said net income fell to $337 million, or 72 cents per share. That's compared with $356 million, or 75 cents per share, a year ago. Not including one-time items, it earned 83 cents per share.

Revenue rose 1 percent to $3.59 billion.

Analysts expected a profit of 82 cents per share on revenue of $4.13 billion.

In the U.S., sales at restaurants open at least a year rose 3 percent, driven by a 5 percent increase at Taco Bell and a 4 percent increase at KFC. At Pizza Hut, the figure fell 1 percent.