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Yum! Brands, Inc. (NYSE:YUM) Shares Drop on Warning China Food Scandal Is Affecting Sales

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Yum! Brands, Inc. (NYSE:YUM) shares declined Thursday, after the Chinese fast-food chain company warned late Wednesday that a food-handling scandal at one of its suppliers caused a drop in same-store sales at its KFC and Pizza Hut operations in China over the past 10 days and may hurt its full-year earnings.

The scandal relates to Shanghai Husi, a unit of OSI Group, which is being investigated by the Shanghai Food and Drug Administration for allegedly selling meat beyond its sell-by date to restaurant chains. In a Securities and Exchange Commission filing late Wednesday, Yum said it immediately terminated its relationship with OSI globally on hearing of the news.

“Yum! Brands is outraged by the alleged illegal activity by Shanghai Husi and its violations of our standards. We reserve the right to take full legal action for the impact this has had to our business once the Shanghai FDA investigation is complete,” it said in an 8K filing.

The company warned it is too early to say how quickly sales will rebound and what the impact will be on full-year results. However, if the current downtrend is sustained, it will have a “material” effect on full-year earnings, the company said. The shares were down 5.9% at $68.70 recently, in a 52-week range of $64.08 to $83.58.

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