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.
I'm not absolving the company of any wrongdoing. But I appreciate the manner in which the company has handled this situation. Likewise, the company continues to make significant capital investments to repair the damages to its reputation and brand. The good news, though, is that allow China accounts for well over 50% of Yum!'s annual revenue, the company is still doing well in its Yum! Restaurants International division and its U.S. operation, which grew profits by 19% and 5%, respectively, in the recent quarter. So that means, even though there may be some residual effects in the coming quarter regarding China, management has focused resources in other areas to help mitigate the damage on the bottom line. This is while the company continues to expand its lead against McDonald's in emerging markets. Management still expect China to grow by 15% for the full fiscal year, including expansion plans of an additional 700 stores. I have my doubts about how realistic that is, given the revenue and profit deficit that the company has incurred in China. I'm a bit more optimistic, if not certain, that the company will meet its growth target for U.S. and YRI, which are projected to grow by 5% and 10%, respectively. Follow @rsaintvilus
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.