China's appetite for fast food is not as healthy - if that's the right word - as Yum Foods (NYSE:YUM) would like.
The KFC, Pizza Hut and Taco Bell fast food joints operator blamed China for a big earnings miss in its third quarter trading update released after the bell on Tuesday.
The stock was off 16% at US$70.22 in pre-market trading on Wednesday, as it revealed like-for-like sales in China rose just 2%, instead of a figure closer to 10%, which was what Wall Street had been expecting.
"The pace of recovery in our China division is below our expectations," admitted chief executive officer (CEO) Greg Creed.
The company lowered full-year expectations for China and, allied to unhelpful foreign exchange movements, the company expects this will lead to the group's earnings per share growth over the full year "to be well below our target of at least 10%", Creed revealed.
"With the China business facing further unexpected headwinds into 2H, visibility for a turnaround remains low, evidenced by the reduced EPS outlook," said Jefferies, which nevertheless stuck with its 'hold' recommendation.
Around half of Yum's earnings come from China, so sluggish growth in the People's Republic is a real concern.
Adjusted earnings per share for Yum came in at US$1.00, up from 87 cents a year earlier, but seven cents below market expectations.
Revenue climbed to US$3.42bn from US$3.35bn the year before, versus market forecasts of US$3.68bn.