Yum Brands is crashing (YUM)

Yum Brands, the U.S. food giant that has made an enormous push into China, came out with a few grim results late on Tuesday.

Unfortunately the company now estimates full-year same-store sales to be low-single-digit negative in its China division. They were expected to be especially strong, at 9.6 percent, as the company recovers from a supplier scandal previous year, according to a Consensus Metrix estimate. “This is a landmark deal, the first of its kind in the category, that sets up our brands extremely well to leverage the huge opportunity that India has to offer and, in the process, create significant value for all stakeholders”, said Ankush Tuli, CFO at Yum Restaurants.

Same store sales in Pizza Hut edged up 1% and in Taco Bell jumped 4% while same store sales in Indian unit declined 18%.

Yum Brands’ shares sold off because analysts were expecting substantially higher China division growth and total EPS growth of 10% or more. But this growth was below analysts’ consensus estimate of a profit of $1.07 per share from revenues of $3.68 billion, as per data compiled by Thomson Reuters.

Operational earnings per share of US$1.00 were around five cents below the consensus forecast, as cost improvements were offset by materially worse-than-expected sales in China.

During the same period past year, the firm earned $0.87 earnings per share. The continued strength in the greenback as compared to other currencies has been weighing on Yum’s profits, given that a majority of its customers are located in global markets.

On Tuesday, Yum posted its third straight quarter of sales declines in India, where analysts say it is being outpaced by ambitious rivals like Domino’s Pizza Inc and McDonald’s Corp.

A weak third quarter isn’t the only thing holding the company back.

By far the biggest loser in the S&P 500 index was Yum Brands, the parent company of KFC, Taco Bell and Pizza Hut.

Analysts on the company’s conference call lit into Yum! management. The country accounts for over 50% of the company’s revenue and profits.

Buckley said he isn’t anxious that Yum Brands’ problems in China will spill over to other markets. The dividend growth rate has evolved at the pace of 28% over the last 5 years and the payout ratio stands at the high level of 78.34%.

PepsiCo, based in Purchase, New York, bought Pizza Hut in 1977 and snapped up Taco Bell the next year.

Pandora Media Inc (P) dropped 6.1% or $1.35 to $20.63 after the online radio services provider agreed to acquire a live events technology provider Ticketfly, Inc for about $450 million in cash and stock. Meanwhile, restaurant profit margin improved 3.3 percentage points to 18.2%.

Our growth fundamentals in China, counting new-unit development, remain intact.

In a recent marquee deal for the fast food sector, the company sold one-third of its franchisee business to a consortium of funds led by Samara Capital, with participation from firms including Goldman Sachs, for Rs. 750 crore.

I would not own Yum Brands stock, and unless you have a serious appetite for risk, it’s probably not wise to either.