A government probe in China into a major McDonald’s (MCD) supplier there is slamming the hamburger chain’s sales in markets that generate one-tenth of its sales, the company said on Monday. The setback could mean the world’s biggest fast-food chain won’t make its numbers this year.
Regulators last month shut down Shanghai Husi Food Co Ltd, a unit of Illinois-based OSI Group, after a local Chinese TV broadcast aired an incriminating documentary. The program showed footage of meat safety violations, including repacking old meat, among other wrongdoings. McDonald’s and U.S.-based peer Yum Brands Inc (YUM), which is the parent of KFC, Pizza Hut and Taco Bell, both immediately sought to distance themselves from the supplier.
“As a consequence, McDonald’s businesses in China, Japan and certain other markets are experiencing a significant negative impact to results,” McDonald’s said in a regulatory filing. in its first comments about the contretemps “As a result of the China supplier issue, the Company’s global comparable sales forecast for 2014 is now at risk.” McDonald’s said it can’t yet estimate the effect of the episode on its 2014 results.
But McDonald’s, which has been grappling with lackluster sales in the United States, can scarcely afford a slowdown in sales in China, a rare bright spot for the company. McDonald’s does not break out China sales separately, but the company derived 23.6% of sales and 16.8% of its operating profit from the Asia/Pacific, Middle East and Africa region in the first half of 2014. Bloomberg reported earlier that McDonald’s was poised to resume selling beef and chicken in China this week. Shares fell 0.6%, bringing the total loss in its stock price to about 5.5% since the probe became publicly known.