Yum China's quarterly restaurant sales down ahead of spinoff

By Lisa Baertlein

(Reuters) - Yum Brands Inc (YUM.N) on Wednesday posted an unexpected decline in quarterly sales at established China restaurants, citing protests sparked by an international court's rejection of the country's claim to historic rights in the South China Sea.

Shares in Yum, which will spin off its China restaurants on Oct. 31, fell 2.2 percent to $86.71 in after-hours trading.

The owner of the KFC, Pizza Hut and Taco Bell brands said sales at Yum China restaurants open at least one year fell 1 percent during the fiscal third quarter ended Sept. 3.

Analysts polled by research firm Consensus Metrix had expected a 4.1 percent sales gain for the China unit, which is Yum's top profit driver.

Sales at established restaurants in China were flat in the second quarter after rising 6 percent in the first quarter, the company said in a statement.

In July, an international tribunal in The Hague ruled in favor of the Philippines in a landmark case, finding that China had violated international law in the South China Sea.

Yum, the biggest Western restaurant operator in China, said that ruling triggered regional protests against a few multinational companies with well-known Western brands.

"If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth," Yum said. The impact dissipated through August and September, it added.

Chinese investment firm Primavera Capital and an affiliate of Alibaba Group Holding Ltd (BABA.N) said in September they would buy a stake in Yum China for $460 million.

Yum's China business will begin trading as a separate company on Nov. 1 on the New York Stock Exchange under the ticker symbol YUMC.

Yum's net income jumped 48 percent to $622 million, or $1.56 per share, helped by lower taxes, gains from selling restaurants to franchisees, lower food and paper costs and other items.

Total revenue fell 3 percent to $3.32 billion for the third quarter.

The Pizza Hut division underperformed expectations, posting a same-store sales decline of 1 percent. Taco Bell and KFC, excluding China, beat estimates with growth of 3 percent and 4 percent, respectively.

(This version of the story corrects net income increase in 11th paragraph to 48 percent)

(Reporting by Lisa Baertlein in Los Angeles; Editing by Richard Chang)