There was a China scandal involving two suppliers to the company's KFC restaurants, and there was also the threat of avian flu in its chicken supply, which scared off some customers.
But you wouldn't necessarily know that from looking at the company's share price, which is up more than 9% so far this year.
The stock's resilience in the face of such bad publicity is a credit to the company's management, which has done an excellent job of mitigating the damage while taking the appropriate steps to ensure consumers that the chickens (if cooked properly) were safe to eat.(MCD) didn't fare any better. But we know that McDonald's wasn't tied to any scandals over health concerns. Let's not also forget that the entire Chinese economy has faced fiscal headwinds for most of the year. So we can't entirely rule out that the magnitude of Yum!'s poor results were ballooned on the basis of the underperforming Chinese economy. I won't use the word "exaggerated" to describe the media's description of Yum!'s health concerns in China, but it certainly looks as if the Street arrived to my conclusion, which is there could have been other factors for the weak profits. Don't get me wrong: I don't want to discount the impact of the avian flu. But given the fact that other restaurants in the region, including Country Style Cooking (CCSC) -- although not linked to the scandal -- posted meaningful declines in same-store-sales, I believe we need a bit of perspective in evaluating Yum!'s total performance.
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