Yum Brands Inc (YUM.N) reported an unexpected drop in fourth-quarter revenue as both its KFC and Pizza Hut restaurant outlets struggled to grow, hurt in part by the strong dollar.
The company, which is spinning off its China business this year, said total revenue fell to $3.95 billion in the quarter ended Dec. 26, from nearly $4 billion a year earlier.
Analysts on average were expecting sales to rise to $4.02 billion, according to Thomson Reuters I/B/E/S.
The company's shares dipped 1.4 percent to $71.45 in extended trading on Wednesday.
Yum Brands gets about half its sales from China. But that business has been besieged by food scandals and marketing missteps for the past two years, while the company also faces tough competition from nimbler rivals in the United States.
The company's sales at established restaurants in China rose 2 percent, increasing for only the second time in six quarters. It was also marginally higher than analysts' estimates of a 1.9 percent increase, according to research firm Consensus Metrix.
The increase in KFC's and Pizza Hut's system sales in the fourth quarter was the same as in the third quarter – up 6 percent at KFC and 2 percent at Pizza Hut.
But, Conlumino analyst Hakon Helgesen said KFC system sales fell 5 percent in the latest quarter, including the effect of a strong dollar, while Pizza Hut system sales declined 2 percent.
"One of the key issues for both brands is the relatively slim growth within the United States," Helgesen said.
"Both suffer from the challenge of maturity and, while they remain popular, the rather tired nature of the brands and a lack of meaningful menu innovation means they struggle to compete against rivals ..."
Sales at Pizza Hut restaurants open for more than 13 months rose 1 percent in the quarter, less than analysts' estimates of a 1.5 percent rise.
"Without the boost to growth provided by China, the legacy business will need to work much harder to reestablish its relevance," Helgesen said.
Yum Brands said it was on track to complete the spinoff of its China business by the end of the year.
The company reported a net income of $275 million, or 63 cents per share, in the latest quarter, compared with a loss of $86 million, or 20 cents per share, a year earlier.
Excluding items, it earned 68 per share, beating analysts' estimates of 66 cents.
(Reporting by Subrat Patnaik in Bengaluru; Editing by Savio D'Souza)
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Updated Date: Feb 04, 2016 06:15 AM