Yum Brands falls on earnings miss, South China woes

Yum Brands shares took an early morning tumble Thursday after the fast food company reported a slowdown in China sales in its third quarter earnings.

The owner of KFC, Pizza Hut and Taco Bell reported a 1% drop in same-store sales in the region, an important metric in evaluating growth. The company blamed the decline over the the ongoing international dispute over China's sovereignty of the South China Sea.

The issue has "triggered a series of regional protests and negative sentiment against a few international companies with well-known Western brands," said Yum CEO Greg Creed in its earnings release. "If not for this event, we believe the China Division would have delivered its fifth consecutive quarter of positive same-store sales growth."

The China unit is Yum's biggest division, with Pizza Hut and KFC accounting for more than $8 billion in system sales in 2015. On October 31 the company will spin off the division into its own publicly-traded company, Yum China Holdings Inc,  which will begin trading on the New York Stock Exchange the following day under the ticker 'YUMC.'

Outside of China, the company saw worldwide same-store sales increase for KFC and Taco Bell, up 4% and 3% in the quarter respectively. Same-store sales at Pizza Hut dropped 1% in the quarter.

Revenues for the quarter were $3.32 billion for the period, down from the $3.49 billion expected by Wall Street, according to analysts polled by S&P Global Market Intelligence.

Shares of Yum (YUM) were down close to 3% in pre-market trading Thursday, falling $2.47 to $86.15.

Follow Eli Blumenthal on Twitter @eliblumenthal