Shares of Yum! Brands were down more than 6% after hours after the company disclosed that authorities in China launched an investigation into its relations with a supplier following media reports.
In a filing with the SEC, Yum! said that a report aired on TV in China depicting improper food handling practices by supplier Shanghai Husi, a division of OSI, which lead to a Shanghai FDA investigation, which alleged illegal activity, and the company terminating its relationship with OSI.
The company said that at this point, it is too early to know how quickly sales in China will rebound, and what the full-year financial impact will be to the company.
Yum! said that if the sales impact is significant, it would have a “material effect” on its full-year earnings.
Earlier this month, Yum! reported earnings and revenue that were in-line with expectations. The company’s comparable-store sales in China also beat expectations, rising 15% against estimates for an 11.4% increase.
With its earnings release, the company also said it was “well on its way” to delivering 20% full-year earnings per share growth.
This disclosure from Yum! also comes after McDonald’s pulled products from its stores in China that were also supplied by Shanghai Husi.