Bad Times Ahead for Yum! (YUM) Brands

Yum Brands (YUM), the parent company of Pizza Hut, Taco Bell, and KFC, has had tough couple of months. The company, which generates more than half of its revenue from China, initially got hit by the growth hormone chicken scandal, in which the Chinese state media alleged that Yum's chicken suppliers were supplying chemical-tainted poultry to the fast food giant. The debacle reduced Yum's Chinese sales by a third during the fourth quarter.

Just as Yum started to recover from the fiasco, reports of a new strain of the avian flu, H7N9, hit Shanghai and Anhui. Daily Chart
When a company's largest brand in the country is called Kentucky Fried Chicken, an avian flu tends to destroy its core business pretty quickly. KFC, with over 4,200 locations across China, accounts for 40% of the KFC segment's total annual revenue. Pictures on Sina's Chinese Twitter' Weibo microblogging site also revealed pictures of empty KFCs across China. Other Chinese businesses, such as Xiamen Airlines, have removed chicken from their in-flight menu offerings. Other multinational companies, such as McDonald's (MCD) and Tyson Foods (TSN), have also been weighed down by fears of a new outbreak. While the Chinese government has remained adamant that the country's chickens are safe for consumption, these trends all suggest that the country's citizens are not about to take any risks. The 16,000 dead pigs that washed up in Shanghai recently have done little to assuage fears of both avian and swine flu across the country. Initial numbers for March also looked bleak as well. Same-store sales in China plunged 13%, with a 16% drop in KFC locations and a 4% decline in Pizza Hut stores. Although the decline in KFC was expected, negative same-store sales at Pizza Hut, its second largest brand with 1,000 units, is indicative of other macro problems in China. But surprisingly, shares of Yum have held steady over the past month, declining only 1.35%. Many traders have speculated that a massive spike in volume on April 11 and 12 suggest that the company is orchestrating stock buybacks to prop the stock up. However, this is clearly speculation, as those purchases could also have been made by large institutional investors as well. Prior to the double whammy of bad news for Yum, the stock had been outperforming the market by a wide margin. Over the past five years, shares of Yum have risen 81% on its popularity in China and Asia. Shares of Yum trade at 18 times forward earnings, with a 5-year PEG ratio of 1.86. The stock pays a quarterly dividend of $0.34 per share - a 1.98% yield at current prices. Yum Brands is the largest restaurant company in the world in terms of total restaurants - with 39,000 restaurants across 125 countries and territories worldwide. Other News About YUM Bird Flu Fears Drive DownKFC, Yum Brands Sales in China When it rains, it pours for Yum Brands. China Bird Flu Threatens KFC Parent Yum Brands Inc's Winning Streak Can Yum Brands recover from its current rut? Other Stocks in the News Slipping Off the Shoulders of Giants Is Zagg merely a fad? It's Time for Google to Fear Facebook What does the release of Facebook Home really mean for Google shareholders? Copyright 2013 by, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA, Inc.) or its employees responsible.

Published on Apr 15, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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