Yum China Faces Challenges with Chicken Prices, Pizza Hut

(Bloomberg) -- Yum China Holdings Inc.’s KFC remained strong in the latest quarter despite higher chicken prices, while growth from Pizza Hut trailed analysts’ projections.

• Same-store sales rose 2% in the third quarter, compared with the 2.3% growth seen by analysts, according to Consensus Metrix. The same measure at Pizza Hut gained 1%, slightly below estimates, while KFC outperformed with a 3% increase.

Key Insights

• Yum China is feeling the heat from increased chicken prices, as an outbreak of African swine fever disrupts the country’s protein supply. Chief Executive Officer Joey Wat said in a conference call that 2020 will be “another challenging year” for commodity inflation.
• Fast-food competition is getting tough in China, with Western and local brands rushing to provide digital and delivery services. Wat said the company remains “cautiously optimistic” because of China’s opportunities for growth.
• Pizza Hut’s dine-in model has struggled to attract consumers in a space increasingly dominated by to-go options. The chain has tried to improve its menu and expand delivery. The company said margins declined due to investment to revitalize restaurants.

Market Reaction

• Shares of Yum China fell 3.3% in late trading in New York. They had climbed 32% this year through Tuesday’s close.

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• Click here for statement.
• China’s Monetary Policy Is Being Hamstrung By Inflation Surge

To contact the reporters on this story: Leslie Patton in Chicago at lpatton5@bloomberg.net;Jinshan Hong in Hong Kong at jhong214@bloomberg.net

To contact the editors responsible for this story: Anne Riley Moffat at ariley17@bloomberg.net, Jonathan Roeder, Jeff Sutherland

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