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Yum! Brands (YUM) Drops After Soft China Sales Forecast

 November 30, 2012 09:27 AM

(By Balaseshan) Yum! Brands Inc. (NYSE: YUM) shares fell 8.66% in premarket after the quick service restaurant company expects fourth quarter same-store sales in China to decline 4%.

The company anticipates fourth quarter same-store sales to be up 4% at Yum! Restaurants International and 3% in the U.S. The fourth quarter will include an overlap headwind due to an additional week in fiscal 2011 which produced a combined $26 million operating profit benefit to the U.S. and Yum! Restaurants International.

Yum! Brands said stronger than expected operating performance from Yum! Restaurants International and U.S. division for the fourth quarter is offsetting softer sales in China, where the company now expects same-store sales to be negative as it overlap 21% same-store sales growth from last year.

[Related -Yum! Brands, Inc.(NYSE:YUM): An Attractive Stock To Own Given Potential EPS Growth]

"Next year will be another strong year for our China division, given this year's record development of at least 800 new units and significant innovation in the pipeline, underpinned by world class operations. We are extremely confident Yum! China remains the best growth story in the restaurant industry," said David Novak, Chairman and CEO of Yum! Brands.

For the fiscal 2012, Yum! Brands still projects adjusted earnings per share (EPS) of $3.24, while Street predicts $3.28. The EPS forecast is driven by double-digit operating profit growth, prior to foreign currency translation, in China, Yum! Restaurants International and the U.S.

[Related -Yum! Brands, Inc. (YUM): What To Watch At China Investor Day]

Yum! also expects to once again deliver at least 10% adjusted EPS growth in 2013, while Street analysts predict 14% growth. The company intends to open at least 1,800 new international units in 2013, with 700 in China, 950 in Yum! Restaurants International and 150 in India.

On November 16, the Board of Directors authorized the company to repurchase up to $1 billion in additional shares of common stock through May 31, 2014.

YUM closed Thursday's regular session at $74.47. The stock has been trading between $55.88 and $74.75 for the past 52 weeks.

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