Investing.com -- Shares in Yum! Brands Inc (NYSE:YUM) plummeted more than 15% in after-hours trading, after the owner of prominent fast-food chains such as KFC, Pizza Hut and Taco Bell, slashed its full-year outlook on Tuesday, amid weak forecasts in China.
Yum, which derives approximately 52% of its sales from China, according to Goldman Sachs (NYSE:GS), estimated on Tuesday that its same-restaurant sales in the world's second-largest economy will slump to red figures for the 2015 fiscal year. It comes as a swath of economists have predicted that annual growth in China this year could fall below 7% for the first time in more than a decade. For the current quarter, Yum projects that same-store sales in China will be modest with growth figures expected to hover in the mid-single digits.
On Tuesday, the company announced that sales in China for its third quarter, which ended in early-September, rose by 8% on the quarter, in the midst of weakness in its Pizza Hut division throughout the Asian markets. Among restaurants open for at least a year, sales grew by 2%, halting a longstanding streak of double-digit declines. Yum's China division is currently under new leadership after the resignation of Sam Su in August. Su, who is known mostly for transforming Yum's KFC brand into the largest foreign restaurant in China, was replaced by Micky Pant earlier this summer.
"We’re pleased same-store sales turned positive and we achieved restaurant margins of nearly 20% in our China business. However, the pace of recovery in our China Division is below our expectations. Outside of China, our Taco Bell and KFC Divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat," Yum Brands CEO Greg Creed said in a statement. "Our new China Division CEO, Micky Pant, and his leadership team are taking significant actions to get sales, traffic and profits back to historic levels."
"Outside of China, KFC continued its solid growth across both emerging and developed markets. Taco Bell’s same-store sales growth was boosted by insight-driven innovation coupled with industry-leading value. We remain confident in the actions underway at Pizza Hut to turn this business around longer term."
Overall, Yum Brands reported net profits of $421 million or 0.95 a share during its third quarter, up from $404 million or 0.89 a share over the same period last year. Yum also saw its revenues increase by 2.2% to $3.43 billion. Analysts expected to see revenue of $3.67 billion on earnings of 1.06 per share. Yum also blamed the negative effects of foreign currency translation for lowering its operating profit by $29 million for the three-month period.
"Our central goal remains building three iconic, global brands people trust and champion. We are focused on the three keys to driving shareholder value: new-unit development, same-store sales growth, and high returns on invested capital," Creed added. "I'm confident that this formula will produce strong, sustainable EPS growth over the long term."
Shares in Yum Brands plunged 14.28 or 17.11% to 69.17 a share in after-hours trading.