4. Yum Cries Fowl
A batch of bad Chinese chicken cooked Yum's (YUM) goose. Now here come the vultures.
The official Xinhua news agency confirmed on Friday that chicken sold to KFC's parent Yum Brands in China contained excessive levels of chemicals. The Shanghai Municipal Food Safety Committee said KFC's checks on its suppliers were sloppy, and that it found extreme levels of antibiotics and steroids in the restaurant's supplies.First of all ... ick! The very thought of biting into a drumstick that contains more banned substances than Lance Armstrong makes us ill. Second of all ... ouch! Yum warned the market in early January that its China sales were being jeopardized due to its chicken-supplier problems, but we really thought it would have died down by now. This most recent report only adds to the reputational injury the fast food chain has already sustained in its largest market. Yum shares have fallen half a percent in the past month due to its China woes, even as the S&P 500 has surged almost 8%. For the record, shares of McDonald's (MCD) are slightly outpacing the market over the same period, even though the company admitted to a similar chicken-supplier problem in China. McDonald's CEO Don Thompson said last Wednesday the chicken scare "minimally impacted" McDonald's sales in China during the fourth quarter, although it is weighing on its sales so far this year. The drop in Yum's stock has spurred a slew of class-action lawyers -- yes, those are the vultures -- to sue the company in the past week. The lawsuits allege that Yum "knew but failed to adequately disclose" months ago both the slowdown in its China sales, as well as its chicken-supplier problems. Honestly, we don't know whether the plaintiffs have a leg to stand on in this high-stakes game of chicken. Nevertheless, we do suggest that McDonald's beef up its supplier checks all over the globe. The last thing Mickey Ds needs is for those ravenous class-action lawyers to have a cow over its burgers.
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