China Meat Supplier Probe Hurting McDonald’s Asia Sales.

http://www.bloomberg.com/news/2014-08-04/mcdonald-s-results-hurt-by-china-supplier-investigation.html

McDonald’s Corp. (MCD), working to resume sales of beef and chicken in China this week after a supplier was accused of repackaging old meat, said the situation is hurting its results in Asia.

“McDonald’s businesses in China, Japan and certain other markets are experiencing a significant negative impact to results,” the Oak Brook, Illinois-based company said in a filing yesterday. While McDonald’s said it can’t yet estimate the full effect on 2014 earnings, the areas at issue make up about 10 percent of consolidated revenue and the company’s global same-store sales forecast for the year is “at risk.”

Separately, McDonald’s Japan business posted a 17.4 percent drop in same-store sales in July from a year earlier partly due to the China supplier scandal, according to the company’s statement to the Tokyo Stock Exchange today, a week after withdrawing its profit forecast because of the case.

The world’s largest restaurant chain has been working to stanch the damage to its sales and reputation since supplier Shanghai Husi, a division of OSI Group LLC, became the subject of a government probe into the altering of expiration dates on food last month. Yum! Brands Inc. (YUM)terminated its relationship with OSI globally after the probe.

New Suppliers

McDonald’s China and Hong Kong aren’t getting products from any OSI Group or affiliate facilities in China, Becca Hary, a company spokeswoman, said in an e-mail yesterday. McDonald’s Japan (2702) is now buying items from Thailand, she said. Previously, the chain was sourcing food from Husi’s Hebei plant while transitioning to a new OSI facility in Henan.

McDonald’s shares were little changed at $94.31 inNew York yesterday. The stock has dropped about 4.7 percent since news of the OSI probe became public.

The fast-food chain’s Japanese outlets will sell chicken burgers and chicken muffins again after resuming a full menu at all its stores starting next week, Kokoro Toyama, a spokeswoman at McDonald’s Japan business, said today.

The restaurant chain said yesterday that it will start selling beef and chicken burgers in Beijing and Guangzhou soon. It’s also increasing orders from other existing suppliers in China while exploring new ones.

Second-Biggest

McDonald’s has 2.6 percent of China’s fast food market with 2,000 outlets, the second-largest restaurant chain in the country by market share after Yum, according to research firm Euromonitor International Ltd.

Louisville, Kentucky-based Yum, which owns KFC and Pizza Hut, has a 5 percent share and derives more than half of its revenue from China. McDonald’s, which doesn’t break out China sales publicly, received 23 percent of its revenue from the Asia Pacific, Middle East and Africa region last year.