KFC's China sales plunge on tainted food scare

NEW YORK (CNNMoney)

Shares of Yum! (YUM) fell in early trading after the company disclosed in a regulatory filing late Wednesday that same-store sales in the company's China division plunged 13% in the quarter that ended in August.

The reason? The food safety scare from earlier this summer.

Shanghai Husi, a supplier to Yum, McDonald's (MCD) and others in China, is under investigation for allegedly selling meat products that were past their expiration date.

Related: Pizza with mangoes and crayfish? Crazy experiments in Chinese fast food

Yum! is a powerhouse in China. The company generated more than 40% of its overall operating profits and more than half of its total sales from its KFC and Pizza Hut restaurants in China. So it goes without saying that any slowdown in China is a major setback for the company.

Although Yum! immediately stopped using meat from Shanghai Husi, a subsidiary of Illinois-based OSI Group, following the revelations of the tainted meat in late July, Chinese consumers clearly are still nervous. It may be due to the fact that this is not Yum!'s first problem with food safety in China.

Related: China's tainted meat scandal explained

The company had to deal with allegations from Chinese regulators about excessive levels of antibiotics and growth hormones from a KFC poultry supplier in late 2012 and early 2013. Those problems, combined with worries about a new strain of bird flu in the spring of 2013, led to a drop in China sales last year.

Now the company is once again dealing with food safety woes.

Shares of Yum are down more than 6% in 2014. It's doing about as poorly as rivals McDonald's and Wendy's (WEN).

But Yum's stock is the equivalent of a rubber chicken compared to some upstarts in the fast food sector that it also competes against.

Shares of Chipotle (CMG) are on fire. So is the stock of Jack in the Box (JACK), which owns Mexican chain Qdoba as well as its namesake burger joint.

Shares of Pizza Hut rival Domino's (DPZ) and KFC competitor Popeyes Louisiana Kitchen (PLKI) are also up this year. And then there's grilled chicken chain El Pollo Loco (LOCO) -- one of the hottest IPOs of 2014.

So if Yum! can't turn things around soon, Wall Street and Shanghai may want to demote KFC's famous Harland Sanders from Colonel to Major or Captain.

First Published: September 4, 2014: 9:59 AM ET

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Health spending on the rise

NEW YORK (CNNMoney)

But those growth rates are not as high as what the country saw for the two decades before the Great Recession, according to the report from the Centers for Medicare & Medicaid Services Office of the Actuary, issued Wednesday.

The actuaries estimate that health spending grew just 3.6% in 2013, the fifth year of historically low rates of spending growth. But it will accelerate to 5.6% this year. They also forecast that the average growth rate for 2015-2023 would be 6%. That is up just slightly from last year's projection.

The findings also suggest that health care will outpace growth in the gross domestic product over the next decade. Health care's share of GDP, which has remained fairly stable since 2009, will rise from 17% in 2012 to more than 19% in 2023.

Related: U.S. health care: We pay more, wait longer than other countries

While some health care analysts and Obama administration officials have said the Affordable Care Act is reducing costs, CMS actuaries are no longer measuring the effects of the law on health care spending. Also, it is too soon to estimate the impact of the health law's delivery system changes on the nation's health care system.

Both the weak economy and changes within the health care industry contributed to the slowdown, said Paul Ginsburg, a public policy professor at the University of Southern California.

"This very steep recession and this very slow recovery from it, especially when you look at the very low growth in wages, is something that has definitely depressed health care spending. The implication of higher deductibles, of greater cost sharing, that's important as well," he said.

Related: No more smokes at CVS

Better economic conditions, the aging of the baby boomer generation into Medicare and increased number of people with insurance are expected to result in greater demand for health care goods and services and faster rates of spending growth, the researchers said.

Those trends will be countered by somewhat slower growth in Medicare payment rates mandated by the health law and cuts made to hospitals and doctors in the congressional budget-cutting efforts. Also, the increasing use of higher deductibles in private insurance plans has cut down on consumer health spending.

Other key takeaways from the CMS report include:

-- Medicare spending growth slowed from 4.8% in 2012 to 3.3% last year. Ongoing enrollment of baby boomers and more spending on older beneficiaries will cause Medicare expenditures to rise 7.9% in 2020.

-- Medicaid's growth rate is expected to rise from 3.3% in 2012 to 6.7% last year, reflecting the health law's Medicaid expansion and the effect of the law's temporary payment increase for primary care physicians, among other factors. Medicaid spending will spike nearly 13% this year, but the growth rate will fall back to 6.7% the following year.

-- In 2014, private health insurance premiums are projected to grow 6.8%, largely a result of higher per-enrollee spending and increased insurance coverage through the online exchanges and individually purchased insurance.

-- The number of uninsured people is projected to fall from about 45 million in 2012 to 23 million by 2023.

First Published: September 4, 2014: 10:08 AM ET

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Arrests start in fast-food worker strike

NEW YORK (CNNMoney)

There have been up to 30 arrests so far in Detroit and 19 in New York., according to police in both cities. Protesters were charged with disorderly conduct for blocking traffic.

"We will be ready for anything," said Public Information Officer Adam Madera of the Detroit Police Department, when asked if he expected more arrests throughout the day.

Organizers say that fast-food workers at McDonald's (MCD), Burger King (BKW), Wendy's (WEN) and KFC, which is owned by Yum! Brands (YUM), are walking off the job in dozens of cities.

Related: I work in fast food and I'm not a teenager

The actions are the latest in a two-year effort by fast-food workers to get employers to pay a minimum wage of $15 an hour and allow them to form unions.

Currently, the median pay for fast-food workers is just over $9 an hour, or about $18,500 a year. That's roughly $4,500 lower than the Census Bureau's poverty threshold level of $23,000 for a family of four.

Thursday's protests come more than a month after the National Labor Relations Board's general counsel ruled that McDonald's is a joint employer that exerts substantial power over working conditions at its franchisees. The ruling, if upheld, means McDonald's could be held liable for labor violations at its more than 12,000 franchisee-owned restaurants.

Related: "My boss doesn't rule my destiny"

McDonald's has contended that franchisees operate as independent businesses and that, therefore, it's not liable.

In March, McDonald's workers filed class-action lawsuits in New York, California and Michigan over wage theft violations. The suits allege that McDonald's has forced employees to work off the clock, not paid them overtime and struck hours off their time cards.

Union organizers say the movement has elevated the debate about inequality in the United States and helped raise the minimum wage in some states, including Connecticut and New Jersey.

First Published: September 4, 2014: 10:20 AM ET

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Stocks soar on Ukraine ceasefire talk

NEW YORK (CNNMoney)

U.S. stocks climbed to all-time highs on the news Wednesday morning and investors in Europe and Russia cheered even louder. The S&P 500 is at a record level above 2,007, and the Dow isn't far off from its peak.

"There is now a glimmer of hope that at last the presidents of Russia and Ukraine will endorse a political and not disastrous military solution to the crisis," said Lilit Gevorgyan, an analyst covering Russia and Europe at IHS Global Insight.

Too soon to party? However, the rallies in global markets were limited a bit by confusion over what exactly the two countries agreed to.

After Ukraine initially said a ceasefire had been reached, Russia denied it. Kiev later rephrased its statement, saying a ceasefire "regime" -- or framework -- had been reached.

Related: Morgan Stanley predicts stock market surge

"The danger is that the rally is quickly reversed as it starts to emerge that, in fact, we are still some way off from the end to the conflict," said Liza Ermolenko, an emerging market economist at Capital Economics.

Still, investors applauded the progress. Russia's stock market surged 3.3%. This comes mere hours after Russia's ruble hit its lowest point ever in trading against the U.S. dollar.

The ceasefire would also have a big impact on Europe, especially Germany which does a lot of trade with Russia and Ukraine. The sanctions and fighting have taken a toll on the European economy, so much so that Europe stalled to nearly zero growth in the second quarter.

On Wednesday, Germany's DAX climbed almost 1.5%.

Related: Revolving door: Washington to Wall Street

The global stock rally extends to America: In the U.S., the S&P 500 advanced 0.3% and set a new intraday record of 2,007.75. If it closes above 2,003, the index would notch its 33rd record close of this year alone.

The Dow jumped about 80 points to about 17,145. The benchmark needs to end above 17,138 for its 16th record close of 2014.

Not to be outdone, the Nasdaq is once again trading at levels unseen since March 2000. The index, which is home to tech giants like Google (GOOGL, Tech30) and Apple (AAPL, Tech30), is still 9% away from its all-time highs.

First Published: September 3, 2014: 9:52 AM ET

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Dog-kicking video costs CEO his job

A video from the security camera that showed Centterplate CEO Desmond Hague kicking a dog has led to his departure from the company.

NEW YORK (CNNMoney)

Centerplate, which runs food concessions at more than 300 stadiums, arenas and other venues, said Desmond Hague resigned as CEO after a company investigation into his "personal misconduct involving the mistreatment of an animal in his care."

Hague was filmed by a security camera kicking the dog, a Doberman Pincher puppy, and lifting it up by the leash so that it was hanging by its neck in the elevator of a condo building in Vancouver, British Columbia. The B.C. Society for the Prevention of Cruelty to Animals became involved in the case once the video surfaced.

Related: Bosses from hell

A petition on Change.org's Web site gathered nearly 193,000 signatures.

"I hope Sade the dog is safe and will find a home where she will be able to live in peace," wrote Erica Perry, the woman who posted the petition. "Animal abuse has no place in our society, and I hope this helps deter future acts of cruelty because there are many terrible acts which are not caught on camera."

Related: Making bullet proof vests for police dogs

"We want to reiterate that we do not condone nor would we ever overlook the abuse of animals," said Joe O'Donnell, chairman of the board of directors for Centerplate, in a statement Tuesday. He apologized for Hague's action and the distress it caused the company's "employees, clients and guests."

Last week, Hague issued a statement apologizing for his actions, saying that he had become frustrated while caring for the dog, who belonged to a friend. "This incident is completely and utterly out of character and I am ashamed and deeply embarrassed," he said.

The company initially sought to place Hague on probation, ordering him to donate $100,000 to set up a foundation in the dog's name to combat animal cruelty, and to perform 1,000 hours of community service to an organization that works to protect the welfare and safety of animals.

Related: Big dogs suffer as Hong Kong status symbols

But the drumbeat of those demanding his ouster proved too much for the company to ignore. Many of the facilities where privately held Centerplate has contracts are owned by public entities such as city governments or universities. In response to news reports about the video, many entities issued statements that they were reviewing their contracts with Centerplate.

The company said it had appointed its chief operating officer as its acting CEO.

First Published: September 3, 2014: 7:34 AM ET

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Why you should worry about Europe

The crisis in Ukraine has knocked Europe's recovery off course but it's not the only reason to worry.

LONDON (CNNMoney)

Even anemic growth has evaporated and the eurozone risks slipping back into recession. The euro has fallen 5% against the dollar over the past three months.

Now investors are betting that the European Central Bank, which meets on Thursday, may finally embark on a policy of printing money akin to the Federal Reserve's bond-buying program.

Here are three reasons you should be worried:

1. Russia: Markets got a lift Wednesday from news that Moscow and Kiev had agreed on steps needed to establish a ceasefire in eastern Ukraine. But that's a far cry from ending the fighting.

Signs of diplomatic progress may give the West reason to pause before pulling the trigger on another round of economic sanctions -- Europe says it will have identified new targets by the end of the week.

But there's a significant risk that the accord between Russian President Vladimir Putin and his Ukrainian counterpart will unravel as quickly as previous deals.

That would mean more pain for Russia's economy and Western businesses operating there, and further dent business and consumer confidence in Europe.

And it's unlikely that existing sanctions will be lifted anytime soon. After all, Putin is not about to hand back Crimea.

"Western trust in Putin-run Russia has been shattered for good," wrote Holger Schmieding at Berenberg. "Even without new sanctions, a mild version of the cold war will likely ensue for a long time."

2. Deflation: Consumer prices are falling, or barely rising, in eight of 18 eurozone member states, and that tally may have increased in August. Regional inflation fell to just 0.3% last month, its lowest level since October 2009.

And prices for goods leaving Europe's factories have fallen all year -- except for June.

Very low inflation can be as damaging to an economy as excessive price increases, particularly against the backdrop of high eurozone unemployment.

Why? Because if households and businesses expect inflation to stay depressed for a long period, they may postpone spending and investment, triggering a downward spiral.

It also makes it harder for countries to pay off debts, and forces weak European economies to cut wages to compete with stronger countries like Germany.

Many economists say the ECB won't announce quantitative easing on Thursday, but even when it comes the boost to the economy may be very limited.

3. Stagnation: Germany, whose economy has slipped into reverse, can reasonably blame Russia. But the eurozone's second and third largest economies -- France and Italy -- are suffering the consequences of years of wasted opportunities to become more competitive.

Italy is now back in its third recession in five years, and France hasn't managed to grow since 2011. Both are now trying to step up the pace of change.

France's new economy minister last week took aim at one sacred cow -- the country's 35-hour work week. But any attempt at change is likely to face stiff opposition from unions and members of his Socialist government.

Italian Prime Minister Matteo Renzi is modernizing his country's justice system to encourage more investment, but the benefits are likely years away.

France, Italy and others may push next month for a relaxation of European austerity rules, in exchange for a commitment to make their economies more flexible.

First Published: September 3, 2014: 10:19 AM ET

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Anonymous says Chinese chemical company is 'a massive fraud'

HONG KONG (CNNMoney)

Anonymous Analytics published a 67-page report targeting Tianhe Chemicals, a firm that listed in Hong Kong just three months ago and is valued at $7.6 billion.

The report claims the company vastly overstated its revenue and profits, produced contradictory tax data and kept two sets of books.

Tianhe denied the allegations. Its shares were suspended after falling 5% on Tuesday.

"The report contains errors of fact, misleading statements and malicious accusations against the company and its directors," it said in a regulatory filing.

Tianhe said short sellers had targeted the company, adding it was working on a longer statement to refute the allegations "as soon as practicable."

Short sellers profit by betting a company's shares will fall, often releasing damaging information about the firm.

They've gone after other Chinese publicly-traded companies before, making similar claims of fraud and accounting regularities.

Related: American businesses feel targeted by China

One of the most notable examples was a takedown of Sino-Forest by Carson Block of Muddy Waters Research. The Toronto-listed Chinese firm eventually filed for bankruptcy after Block accused the company of fraud.

The Anonymous Analytics authors -- who remain anonymous -- have already targeted Qihoo 360, another mainland Chinese firm. Investors shrugged off those allegations, and the company's shares are up 10% this year.

Beijing has complained that short sellers have unfairly focused their efforts on Chinese companies.

While the accusations against Tianhe could not be corroborated, they are serious in nature and could lead to criminal prosecutions if proven.

Anonymous Analytics claims that Tianhe told investors revenue was growing by more than 20% a year, while filing documents to Chinese regulators that showed significantly lower revenue and income.

"We have conducted months of due diligence, field research and analysis which show that Tianhe is a massive fraud and one of the largest stock market scams ever conceived,' the report says.

Tianhe made headlines earlier this year after questions were raised over connections between Joyce Wei, the daughter of the company's chairman, and banks that worked on the company's initial public offering.

Major shareholders, apart from chairman Qi Wei, include Morgan Stanley (MS) with nearly 9% and Investec with 5%, according to FactSet.

First Published: September 3, 2014: 6:08 AM ET

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No more smokes at CVS

CVS stops selling cigarettes today.

NEW YORK (CNNMoney)

"The sale of cigarettes and tobacco at CVS pharmacy stores ends today," said Larry Merlo, president and CEO of CVS, in a video statement on the company web site. "By eliminating the sale of cigarettes and tobacco products in our stores, we can make a difference in the health of all Americans."

CVS (CVS) stopped selling cigarettes nearly a month earlier than expected, since the chain had previously announced the ban would go into effect by Oct. 1.

Related: WHO seeks ban on indoor e-cigs

CVS, which has about 7,700 retail pharmacies, announced earlier this year that it would be the first major pharmacy chain to stop selling cigarettes at all its stores. Prior to the companywide ban, the chain sold cigarettes at all but two stores in San Francisco and dozens of stores in Massachusetts, in compliance with local anti-tobacco ordinances.

The company has estimated that it could lose about $2 billion in annual sales. But that's a fraction of its revenue, which totaled $126 billion in 2013. Much of the revenue comes from healthcare services such as walk-in clinics and prescription drug coverage.

First Published: September 3, 2014: 7:22 AM ET

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Dog-kicking video costs CEO his job

NEW YORK (CNNMoney)

Centerplate, which runs food concessions at more than 300 stadiums, arenas and other venues, said Desmond Hague resigned as CEO after a company investigation into his "personal misconduct involving the mistreatment of an animal in his care."

Hague was filmed by a security camera kicking the dog, a Doberman Pincher puppy, and lifting it up by the leash so that it was hanging by its neck in the elevator of a condo building in Vancouver, British Columbia. The B.C. Society for the Prevention of Cruelty to Animals became involved in the case once the video surfaced.

Related: Bosses from hell

A petition on Change.org's Web site gathered nearly 193,000 signatures.

"I hope Sade the dog is safe and will find a home where she will be able to live in peace," wrote Erica Perry, the woman who posted the petition. "Animal abuse has no place in our society, and I hope this helps deter future acts of cruelty because there are many terrible acts which are not caught on camera."

Related: Making bullet proof vests for police dogs

"We want to reiterate that we do not condone nor would we ever overlook the abuse of animals," said Joe O'Donnell, chairman of the board of directors for Centerplate, in a statement Tuesday. He apologized for Hague's action and the distress it caused the company's "employees, clients and guests."

Last week, Hague issued a statement apologizing for his actions, saying that he had become frustrated while caring for the dog, who belonged to a friend. "This incident is completely and utterly out of character and I am ashamed and deeply embarrassed," he said.

The company initially sought to place Hague on probation, ordering him to donate $100,000 to set up a foundation in the dog's name to combat animal cruelty, and to perform 1,000 hours of community service to an organization that works to protect the welfare and safety of animals.

Related: Big dogs suffer as Hong Kong status symbols

But the drumbeat of those demanding his ouster proved too much for the company to ignore. Many of the facilities where privately held Centerplate has contracts are owned by public entities such as city governments or universities. In response to news reports about the video, many entities issued statements that they were reviewing their contracts with Centerplate.

The company said it had appointed its chief operating officer as its acting CEO.

First Published: September 3, 2014: 7:34 AM ET

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1-800-Flowers is buying Harry & David

1-800-Flowers is buying fruit basket company Harry and David for $142.5 million.

NEW YORK (CNNMoney)

1-800-Flowers.com (FLWS) has agreed to buy the retailer Harry & David Holdings for $142.5 million in cash, the companies announced Tuesday.

The 80-year-old Harry & David specializes in its so-called Fruit of the Month gift baskets, but it also ships chocolate and wine.

The Oregon company operates as an online retailer, though it also has 47 stores throughout the U.S.

First Published: September 2, 2014: 8:40 AM ET

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