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E. coli outbreak impacts Taco Bell’s Q4 earnings

Los Angeles Times reporter Jerry Hirsch wrote about Taco Bell’s five percent drop in earnings in the fourth quarter of 2006, and noted that Taco Bell cited a "produce sourcing" issue as part of the reason for the drop in earnings. E. coli, according to Hirsch’s article, was conspicuously absent in Yum! Brands’ earnings report.

Yum provided almost no financial details about the effect on Taco Bell except to say that sales were recovering from their December low.

Overall, Yum reported a profit of $232 million, or 83 cents a share, a 3% gain from $226 million, or 77 cents, a year earlier. Sales rose 4% to $3 billion. Yum also owns the fast food chains Pizza Hut and KFC.

Before the earnings release, Yum shares rose 29 cents to $60.78. The price, near its 52-week high, was little changed in after-hours trading.

In a report Monday to investors, UBS analyst Palmer said he believed Taco Bell restaurants would bounce back to at least flat sales and might log "slightly positive" growth in April.

Yum also will collect an undetermined level of insurance payments to help offset profit lost because of the E. coli-related drop in sales, he said.

In an article for BusinessWeek.com, Bruce Schreiner wrote that Taco Bell and Yum!’s performance surprised financial analysts:

Larry Miller, a restaurant analyst with RBC Capital Markets, said the drop at the Mexican-style chain wasn’t as severe as he had expected. "I think investors are going to be somewhat relieved with Taco Bell," he said in an interview. "It wasn’t quite as bad as I think some of us thought it might be."

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