Transcript
Page 1: Why Investors Are Flying Yum! Brands Coop Once Again

Why Investors Are Flying Yum! Brands’ Coop Once Again

Page 2: Why Investors Are Flying Yum! Brands Coop Once Again

Yum! Brands stock is crashing

• Poor earnings showed weakness just about everywhere but China.

• U.S. same-store sales at Pizza Hut and Taco Bell either fell from last year or missed analysts’ expectations.

• India, which was identified as a key growth market, saw revenues rise 18%, but only because Yum! opened 25% more stores there. Comps fell 2%.

• A new crisis is unfolding in China…

Page 3: Why Investors Are Flying Yum! Brands Coop Once Again

A new food scandal erupts in China

• Chinese regulators shut down a meat processor for selling meat past its expiration date.

• Supplied meat to both Yum! and McDonald's (NYSE: MCD).

• Local media in China also report use of poor hygiene practices in a local factory.

• Yum! and McDonald's have stopped using the supplier.

Page 4: Why Investors Are Flying Yum! Brands Coop Once Again

Brings back nightmares of two years ago

In 2012 Yum! was caught up in another tainted-meat scandal:

• Its KFC division in China was found to be selling chicken that received excessive levels of antibiotics.

• It was also discovered that the company had known about it for years but did nothing.

Page 5: Why Investors Are Flying Yum! Brands Coop Once Again

Customers flew the coop then, too

• Sales plunged in Yum!'s China division.

• Same-store sales dropped by more than a third at one point in 2013.

• Yum! was also hit by fears of an outbreak of avian flu in China.

Page 6: Why Investors Are Flying Yum! Brands Coop Once Again

A hard-fought battle to regain trust

• It took Yum! Brands over a year to get Chinese consumers to trust its brand again.

• This past quarter revenues surged 21% in China on a 15% jump in comps.

• Because China accounts for more than 60% of revenues and over a third of its operating profits, this latest scandal could be devastating.

Page 7: Why Investors Are Flying Yum! Brands Coop Once Again

China is key to Yum! Brands’ health

Source: Yum! Brands SEC Filings

Page 8: Why Investors Are Flying Yum! Brands Coop Once Again

Impact of new scandal is unknown

• Customers might not be so willing to forgive Yum! a third time.

• It may have significantly damaged its brand this time.

• A half-price bucket of chicken might not be enough to entice consumers to return.

• Apologizing for the "inconvenience" may be seen as halfhearted.

Page 9: Why Investors Are Flying Yum! Brands Coop Once Again

Foolish takeaway

• Weakness in its U.S. earnings was the start of Yum! Brand's most recent decline, but now it has trouble everywhere.

• The sustained turnaround it made in China has likely been undone.

• Management's guidance for 20% earnings growth can no longer be relied upon.

• Yum! Brands has become a globally impaired company.

Page 10: Why Investors Are Flying Yum! Brands Coop Once Again

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