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Why the Chinese bird flu won’t hurt KFC

Talking Numbers

Should YUM! Brands investors worry about sales in China?

It’s tough selling chicken in a country afraid of the bird flu.

That’s what YUM! Brands is finding out as its same-stores sales took a 10% hit in China last month compared to August 2012. While its Pizza Hut restaurants’ sales fell 5%, KFC same-store sales were down 12% from last year. For the entire second quarter of 2013, YUM! Brands sales fell 20% versus the previous year.

(Read: McLaren starts its engines in China)

There are two reasons why YUM! Brands was hurt in China: Sick birds and dirty water.

At the end of last year, KFC was accused of selling bad chickens in China after several batches from a supplier were found with too many antibiotics. In the spring of this year, a new strain of bird flu began spreading in China, with over 130 cases and nearly four dozen deaths. KFC is not linked to any of the cases but the scare affected the demand for chicken.

Then, over the summer, China’s official news agency broadcasted a segment alleging KFC’s ice contained twelve times more bacteria than toilet water.

(Read: Stocks rally 1%, Dow surges 150 points; all key S&P sectors higher)

KFC’s sales in China, at more than $4 billion, are close in size to that of its United States revenues. So, should YUM! Brand investors worry?

Looking at YUM! Brands’ fundamentals is CNBC contributor Gina Sanchez, founder of Chantico Global. On the charts is Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson.

To see Sanchez and Ross analyze YUM! Brands, watch the video above.

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