Customers take a nap at a KFC restaurant in Beijing
Yum Brands lowered its profit outlook for the fourth quarter due to tepid sales in China Reuters

Yum Brands, the parent company behind KFC, Pizza Hut and Taco Bell, saw its share price plunge more than 18% in extended trading after it posted weaker-than-expected earnings for the third quarter and cutting fourth quarter forecasts. The fast food giant reported a 4% annual increase in revenue for the three months to 5 September of $3.43bn (£2.25bn, €3.04bn), falling short of a Thomson Reuters forecast for sales of $3.68bn.

Net profit was up by 2% to $421m with earnings per share (EPS) at $0.95. Yum lowered its profit forecast for the fourth quarter as a result of slowing sales in its key Chinese market and the stronger dollar.

Its share prices dived 18.4% to $68.11 in after-hours trading in New York, wiping out more than $6bn from its market value.

'Unexpected headwinds'

"Our growth fundamentals in China, including new-unit development, remain intact. However, we're experiencing unexpected headwinds, making the second half of the year more challenging than we anticipated," Yum Brands chief executive Greg Creed said in a statement.

"Outside of China, our Taco Bell and KFC divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat. Given our lower full-year expectations in China, combined with additional foreign exchange impact, we now expect 2015 EPS growth to be well below our target of at least 10%."

KFC restaurant, Yangon
KFC opened its first restaurant in Myanmar in June Reuters

Sales in China were up 8% from a year earlier in the third quarter but same-store sales, which exclude sales from newly-opened stores, were up just 2%. Yum has been trying to rebuild its image in the country after a July 2014 news report alleged that one of its suppliers was selling meat that was past its expiry date.

Global system sales were up 6% from a year earlier, with KFC reporting a 6% increase, Taco Bell a 7% rise, and Pizza Hut a 2% rise. Yum opened 376 new restaurants in the third quarter, with about three-quarters of this development occurring in emerging markets.