Yum shares fall 3 percent on poor sales in China

Taco Bell store
Chris McGrath | Getty Images
Taco Bell store

Poor third-quarter sales in China caused shares of Yum Brands to fall 3 percent in after-hours trading on Wednesday.

Yum China, which reaps more operating profit for Yum than any other division, saw same-store sales fall 1 percent in the quarter, with KFC down 1 percent and Pizza Hut down 4 percent. Analysts had expected China's same-store sales to rise 4.5 percent.

Greg Creed, CEO of Yum, blamed protests over an international court ruling regarding the South China Sea as the chief reason that sales in China suffered.

"If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth," he said in a statement Wednesday. "The good news is the incident was short-lived and the sales impact continued to dissipate through August and September. Despite the protests, Pizza Hut Casual Dining continued its trend of quarterly sequential improvement."

The company is still on track to spin off its China unit in late October, however. Yum China is expected to begin trading on Nov. 1.

Closer to home, KFC in the U.S. saw same-store sales grow 6 percent, boding well for Yum's future without the China division.

"In the third quarter, I was pleased with both KFC's and Taco Bell's performance, each of which returned to a focus on core menu items, but in ways that were distinctive, disruptive and relevant," Creed said. "Both brands had accelerating same-store sales growth, despite sluggish QSR industry trends, especially in the U.S."

Core operating profit growth rose 11 percent in the U.S. during the third quarter for the brand, leading Yum to increase its guidance for the metric from at least 14 percent to at least 15 percent.

The company reported adjusted earnings of $1.09 per share on $3.3 billion in revenue.

Analysts expected the company to earn about $1.10 a share on $3.5 billion in revenue, according to a consensus estimate from Thomson Reuters.