The company reported net income of $152 million, or 33 cents a share, which included a non-cash charge of $258 million, or 55 cents a share, related to the write-down of Little Sheep intangible assets. Excluding the charge, earnings of 85 cents a share came in below consensus estimates of 93 cents a share.
Shares were dropping 6.6% to $66.92 in post-markets trading.
Yum! Brands, which operates Taco Bell, KFC and Pizza Hut, said worldwide system sales rose 1%. System sales in China declined 2%, while U.S. sales were flat for the quarter.
More importantly, same-store sales in China dropped 11% in the quarter, were flat in the U.S. and rose 1% at its international locations, which includes emerging market locations, the company said.
Investors were specifically waiting to see how KFC's sales were in China. The company said September same-store sales in China, which will be included in fourth-quarter results, fell 11%. While its Pizza Hut stores there experienced 6% growth, KFC sales dropped 13%, "where sales have not yet fully recovered from the adverse publicity surrounding the December poultry supply incident" and subsequent news of the Avian flu.
"Based on KFC China sales for September, it is now unlikely China Division same-store sales will be positive for the fourth quarter," the company said. "Given lower-than-expected China sales and a higher-than-expected full-year tax rate, the company now estimates a high-single to low-double-digit full-year EPS decline versus prior year, excluding special items. This compares to our previous guidance of a mid-single-digit decline in EPS."