NEW YORK (TheStreet) - Yum! Brands (YUM) shares plummeted more than 4% on Wednesday following the fast-food chain's disappointing profit outlook as China food sales recover at a "slower pace than expected."
Sales at the Louisville, Ky.-based owner of Taco Bell, Pizza Hut and KFC, have been hit hard this summer after reports surfaced that one of its major suppliers in China reportedly re-labeled expired meat.
The company estimates full-year same-store sales will fall by a mid-single digit percentage over last year, and earnings growth will rise by mid-single-digits for 2014 -- below its previous downward guidance to 6-10% growth compared to last year. Back in July, Yum! Brands had forecast earnings growth of at least 20%.
The company also said it expects to deliver "at least 10% EPS growth in 2015," also below analysts' expectations. The chain issued guidance ahead of its Dec. 11 annual investor meeting.
"We are firmly committed to returning to double-digit EPS growth in 2015, delivering at least 10% growth with the potential to do significantly better," Yum! Brands incoming CEO Greg Creed said in a statement. "We fully expect to bounce-back in China and benefit from tremendous sales leverage as sales rebound."
The stock is down 4% this year. Here's what analysts said.
Jeffrey Bernstein, Barclays (Equal Weight; $74 PT)
Bullish investors will argue the '15 guidance for 10%+ EPS growth is prudently cautious (as there is "meaningful upside opportunity"), and we agree as there is no reason to overpromise (i.e. the start of '14) given the variety of China headwinds. With that said, most would agree the '14 China comp is disappointing, with an implied 4Q down 15%+ (relative to expectation down 5-9%). China "sales continue to recover, but at a slower pace than expected". And based on that comp, '14 EPS is now expected up MSD, down from 6-10%. Bottom line, we expect the shares to underperform tomorrow (Wednesday) on continued China weakness.