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Yum China stock drops as widespread COVID-19 delta variant hurts sales

Yum China Holdings Inc.
YUMC,
-1.16%

9987,
-0.54%

said late Tuesday that the delta variant of COVID-19 is having such a wide impact in China that it expects to report significantly lower operating profit in the third quarter.

U.S. shares of Yum China dropped 4% after hours, following a 1.2% decline to close the regular session at $61.22.

The fast-food franchise company serving China said the delta variant of the virus “has become the most widely spread regional outbreak since the national outbreak in 2020, impacting 16 provinces,” and that most of its important markets were significantly affected.

“As a result of the delta variant outbreak, the company has experienced significant operating deleveraging, and based on the current trend, our adjusted operating profit, which excludes special items, may be reduced by approximately 50% to 60% for the third quarter of 2021, compared to the same period last year,” the company said in a statement.

“This is primarily due to the significant sales deleverage impact from sharply reduced sales, which is especially pronounced in the third quarter, a seasonally strong quarter for sales and margins.” Yum China said.

In the third quarter of 2020, Yum China reported adjusted operating profit of $320 million in adjusted operating profit. A 50% to 60% drop means the company is forecasting $128 million to $160 million in adjusted operating profit.

In Yum China’s second-quarter report, adjusted operating profit had increased 80% to $237 million year-over year.

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