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Yum says China sales should recover by end of year

NEW YORK (AP) -- The parent company of KFC is hoping to shake fallout from the avian flu by the end of the year.

Yum Brands Inc., which also owns Pizza Hut and Taco Bell, said Wednesday that it expects sales at established restaurants for its China division to turn positive by the fourth quarter. The projection for a six- to nine-month recovery period is based on its past experiences with avian flu in the country, executives said in a conference call with analysts.

Shares of Yum were up $48.2, or almost 8 percent, at $68.97.

Yum has seen its sales go into a free fall since a Chinese TV report in late last year said some KFC suppliers were giving chickens unapproved levels of antibiotics. For the first quarter, sales at stores open at least a year were down 20 percent.

Since February, however, the company has been waging a marketing campaign called "Operation Thunder" to rebuild trust with customers. The push was just starting to show improved results when a new strain of avian flu was reported at the end of March, sending sales down again. In April, Yum says sales for China are down 30 percent so far.

"We certainly hope this is the low point," said Pat Grismer, the company's chief financial officer. He noted that 2013, in which earnings per share are expected to decline, would be an aberration. He said he expects 2014 to be a "big bounce-back year."

The upbeat comments came after Yum on Tuesday reported a steep drop in net income for the first quarter as a result of the sales hit in China. But investors were encouraged because the results weren't as bad as expected.

China has been a critical growth engine for Yum, given its rapidly growing middle-class population hungry for more convenient foods. With about 5,300 locations, most of them KFC restaurants, Yum is already the country's biggest Western fast-food operator and says its recent troubles won't stop it from forging ahead with its expansion plans.