Yum (YUM) Guidance Creates Doubts as China Slows

November 29, 2012 5:55 PM EST
Yum! Brands (NYSE: YUM) dropped in after-hours trading on Thursday after the company told investors it expects 2013 EPS growth by at least 10 percent. Yum also reaffirmed 2012 EPS guidance of $3.24.

10 percent EPS growth on top of 2012 EPS of $3.24 would equate to 2013 earnings at $3.56, markedly below street estimates of $3.74. Clearly investors are expecting more from a high flier like Yum.

In October Yum reported same-store sales grew 6 percent in China. However, today Yum said it was seeing soft sales in China and thinks same-store sales in the country will be negative in Q4. The negative turn is in part due to tough comparisons, but this is giving investors little comfort.

Yum’s expansion plans are less than modest. In 2013 it expected to open 700 units in China, 950 in Yum International, and 150 in India.

From an investor standpoint, the elephant in the room is the sustainability of growth considering today’s slip in China. With shares of Yum trading near all time highs, today’s news could be creating doubts.

Yum shares are lower by 6.5 percent late on Thursday.

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