Yum! Brands, Inc. (NYSE: YUM) today reported results for the
third quarter ended September 30, 2017. Third-quarter GAAP EPS was
$1.18, an increase of 115%. Third-quarter EPS excluding Special
Items was $0.68, an increase of 22%.
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GREG CREED COMMENTS
Greg Creed, CEO, said “I’m pleased to report another strong
quarter with 11% core operating profit growth and 22% EPS growth
excluding special items, as a result of the continued focus on our
four key growth drivers. We are maintaining our full-year 2017
guidance and remain on-track with our multi-year transformation
strategy. As we celebrate both our 1st anniversary from the
spin-off of Yum China and our 20th anniversary as an independent
company, I am proud of our accomplishments. I’m especially proud of
our ability to leverage our culture to rapidly transform to a more
focused, more franchised and more efficient company which delivers
more growth to our shareholders.”
THIRD-QUARTER HIGHLIGHTS
● Worldwide system sales grew 6%, with KFC at 7%, Taco Bell at 6%
and Pizza Hut at 3%. ● We opened 362 net new units for 3% net unit
growth. ● We refranchised 209 restaurants, including 72 KFC, 46
Pizza Hut and 91 Taco Bell units, for gross proceeds of $395
million. We recorded net refranchising gains of $201 million in
Special Items. As of quarter end, our global franchise ownership
mix increased to 95%. ● We repurchased 6.6 million shares totaling
$501 million at an average price of $75. ● Foreign currency
translation favorably impacted divisional operating profit by $2
million.
% Change System Sales
Same-StoreSales
Net New Units
GAAPOperating Profit
CoreOperating Profit
KFC Division +7 +4 +4 +14 +13 Pizza Hut
Division +3 +1 +2 (1) Even Taco Bell Division +6 +3
+3 +3 +3 Worldwide +6 +3
+3 +61 +11
Third Quarter
Year-to-Date 2017 2016 %
Change 2017 2016 %
Change GAAP EPS $1.18 $0.55 +115 $2.52
$1.73 +46 Special Items EPS1 $0.50 $(0.01) NM
$0.51 $0.05 NM EPS Excluding Special Items
$0.68 $0.56 +22 $2.01 $1.68
+20
1See Reconciliation of GAAP results to non-GAAP measurements
within this release for further detail of Special Items.
System sales growth figures exclude foreign currency translation
("F/X") and core operating profit growth figures exclude F/X and
Special Items. Special Items are not allocated to any segment and
therefore only impact worldwide GAAP results. See reconciliation of
GAAP results to non-GAAP measurements within this release for
further details.
All comparisons are versus the same period a year ago. Effective
January 2017, we removed the reporting lags from our international
subsidiary fiscal calendars. To accommodate these changes, Yum!
Brands now reports on a monthly calendar basis though certain
subsidiaries, including our U.S. subsidiaries, continue to be
included in our consolidated results on a periodic basis with 3, 3,
3 & 4 four-week periods in each quarter, respectively. Prior
year figures in this earnings release have been restated to present
comparable results. An 8-K was filed on April 13, 2017 with
restated quarterly 2016 results.
KFC DIVISION
Third Quarter Year-to-Date
%/ppts Change %/ppts
Change 2017 2016 Reported
Ex F/X 2017 2016
Reported Ex F/X Restaurants 21,063 20,284 +4
N/A 21,063 20,284 +4 N/A System Sales ($MM) 6,282
5,833 +8 +7 17,688 16,818 +5 +6 Same-Store Sales Growth (%) +4 +2
NM NM +3 +2 NM NM Franchise & License Fees ($MM) 296 267 +11
+11 831 761 +9 +10 Restaurant Margin (%) 15.9 15.0 0.9 0.8 15.1
14.4 0.7 0.7 Operating Profit ($MM) 260 230 +14 +13 710 618 +15 +16
Operating Margin (%) 32.8 29.2 3.6 3.9
30.9 26.8 4.1 4.3
Third Quarter (% Change) Int'l Emerging
Markets Int'l Developed Markets
U.S. System Sales Growth (Ex F/X) +11
+6 Even Same-Store Sales
Growth +5 +2 +1
● KFC Division opened 291 new international restaurants in
51 countries, including 249 units in emerging markets. ● Operating
margin increased 3.6 percentage points driven by refranchising and
same-store sales growth. ● Foreign currency translation favorably
impacted GAAP operating profit by $2 million.
KFC
Markets1
Percent of KFC
System Sales2
System Sales Growth Ex F/X Third Quarter
(%) Year-to-Date (%) Emerging Markets
China3 26% +14 +8 Asia (e.g. Malaysia, Indonesia,
Philippines) 6% +7 +8 Middle East / Turkey / North Africa 5% (4)
(1) Latin America (e.g. Mexico, Peru) 4% +12 +13 Africa 4% +3 +4
Russia 3% +22 +24 Thailand 2% +9 +4 Continental Europe (e.g.
Poland) 2% +15 +17 India 1% +8 +6
Developed Markets U.S. 19%
Even +1 Asia (e.g. Japan, Korea, Taiwan) 7% (2) Even Australia 7%
+6 +8 U.K. 6% +9 +7 Continental Europe (e.g. France, Germany) 5%
+14 +11 Canada 2% +4 +4 Latin America (e.g. Puerto Rico) 1%
(2) (1)
1Refer to
www.yum.com/investors/financial-information/financial-reports for a
list of the countries within each of the markets.2Reflects Full
Year 2016.3Includes July, August and September; YUMC Q3 reported
results include June, July and August.
PIZZA HUT DIVISION
Third Quarter Year-to-Date
%/ppts Change %/ppts
Change 2017 2016 Reported
Ex F/X 2017 2016
Reported Ex F/X Restaurants 16,551 16,215 +2
N/A 16,551 16,215 +2 N/A System Sales ($MM) 2,966
2,884 +3 +3 8,665 8,629 Even +2 Same-Store Sales Growth (%) +1 (1)
NM NM (1) (1) NM NM Franchise & License Fees ($MM) 148 145 +2
+2 433 433 Even +1 Restaurant Margin (%) 1.9 3.5 (1.6) (1.6) 6.0
7.9 (1.9) (1.9) Operating Profit ($MM) 82 84 (1) Even 250 256 (2)
Even Operating Margin (%) 40.5 33.3 7.2
7.3 38.0 32.0 6.0 6.3
Third Quarter (% Change) Int'l Emerging
Markets Int'l Developed Markets
U.S. System Sales Growth (Ex F/X) +7
+7 (1) Same-Store Sales
Growth Even +4
Even ● Pizza Hut Division opened 192 new international
restaurants in 47 countries, including 144 units in emerging
markets. ●
Operating margin increased 7.2 percentage
points driven by refranchising partially offset by higher franchise
and
license expense due to incremental
advertising spend associated with the Transformation Agreement.
Pizza Hut Markets1
Percent of PizzaHut System
Sales2
System Sales Growth Ex F/X Third
Quarter (%) Year-to-Date (%) Emerging
Markets China3 17% +7 +7 Latin America (e.g. Mexico,
Peru) 5% +5 +5 Middle East / Turkey / Africa 4% (2) +2 Asia (e.g.
Malaysia, Indonesia, Philippines) 4% +16 +13 India 1% +7 +7
Continental Europe (e.g. Poland) 1% +13 +11
Developed
Markets U.S. 48% (1) (4) Asia (e.g. Japan, Korea, Taiwan) 7% +1
+2 U.K. 5% +14 +7 Continental Europe (e.g. France, Germany) 4% +6
+4 Canada 2% Even +3 Australia 1% +35 +25 Latin America (e.g.
Puerto Rico) 1% (2) Even
1Refer to
www.yum.com/investors/financial-information/financial-reports for a
list of the countries within each of the markets.2Reflects Full
Year 2016.3Includes July, August and September; YUMC Q3 reported
results include June, July and August.
TACO BELL DIVISION
Third Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex
F/X 2017 2016
Reported Ex F/X Restaurants 6,738 6,515 +3
N/A 6,738 6,515 +3 N/A System Sales ($MM) 2,423 2,293
+6 +6 7,058 6,523 +8 +8 Same-Store Sales Growth (%) +3 +3 NM NM +5
+1 NM NM Franchise & License Fees ($MM) 124 115 +7 +7 358 327
+9 +9 Restaurant Margin (%) 21.9 21.7 0.2 0.2 22.1 21.7 0.4 0.4
Operating Profit ($MM) 147 143 +3 +3 440 400 +10 +10 Operating
Margin (%) 33.3 29.8 3.5 3.5
32.6 29.2 3.4 3.4 ● Taco Bell Division
opened 70 new restaurants, including 15 international new
restaurants. ● Operating margin increased 3.5 percentage points
driven by refranchising and same-store sales growth partially
offset by food and labor inflation.
OTHER ITEMS
● Year-to-date through the end of the third quarter, we
refranchised 574 restaurants, including 143 KFC, 245 Pizza Hut and
186 Taco Bell units, for gross proceeds of $716 million, recording
net refranchising gains of $331 million in Special Items. ●
Year-to-date through the end of the third quarter, we repurchased
19.1 million shares totaling $1.3 billion at an average price of
$69. As of quarter end, there was $588 million remaining under our
current share repurchase authorization. ●
Disclosures pertaining to outstanding debt
in our Restricted Group capital structure will be provided at the
time of the filing of the third-quarter Form 10-Q.
CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the
company's financial performance and strategies at 8:15 a.m. Eastern
Time Thursday, November 2, 2017. The number is 877/815-2029 for
U.S. callers and 706/645-9271 for international callers, conference
ID 93593025.
The call will be available for playback beginning at 11:15 a.m.
Eastern Time Thursday, November 2, 2017 through Wednesday, December
6, 2017. To access the playback, dial 855/859-2056 in the U.S. and
404/537-3406 internationally, conference ID 93593025.
The webcast and the playback can be accessed via the internet by
visiting Yum! Brands' website,
www.yum.com/investors/events-presentations and selecting “Q3 2017
Yum! Brands, Inc. Earnings Conference Call.”
ADDITIONAL INFORMATION
ONLINE
Quarter end dates for each division, restaurant count details,
definitions of terms and Restricted Group financial information are
available at
www.yum.com/investors/financial-information/financial-reports.
Reconciliation of non-GAAP financial measures to the most directly
comparable GAAP measures are included within this release.
FORWARD-LOOKING
STATEMENTS
This announcement may contain “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. We intend all
forward-looking statements to be covered by the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements generally can be identified by the fact
that they do not relate strictly to historical or current facts and
by the use of forward-looking words such as “expect,”
“expectation,” “believe,” “anticipate,” “may,” “could,” “intend,”
“belief,” “plan,” “estimate,” “target,” “predict,” “likely,”
“seek,” “project,” “model,” “ongoing,” “will,” “should,”
“forecast,” “outlook” or similar terminology. These statements are
based on and reflect our current expectations, estimates,
assumptions and/or projections, our perception of historical trends
and current conditions, as well as other factors that we believe
are appropriate and reasonable under the circumstances.
Forward-looking statements are neither predictions nor guarantees
of future events, circumstances or performance and are inherently
subject to known and unknown risks, uncertainties and assumptions
that could cause our actual results to differ materially from those
indicated by those statements. There can be no assurance that our
expectations, estimates, assumptions and/or projections, including
with respect to the future earnings and performance or capital
structure of Yum! Brands, will prove to be correct or that any of
our expectations, estimates or projections will be achieved.
Numerous factors could cause our actual results and events to
differ materially from those expressed or implied by
forward-looking statements, including, without limitation: food
safety and food borne-illness issues; health concerns arising from
outbreaks of viruses or other diseases; changes in economic and
political conditions in countries and territories outside of the
U.S. where we operate; our ability to protect the integrity and
security of individually identifiable data of our customers and
employees; the impact of social media; our ability to secure and
maintain distribution and adequate supply to our restaurants; the
success of our development strategy in emerging markets; changes in
commodity, labor and other operating costs; the success of our
franchisees and licensees; pending or future litigation and legal
claims or proceedings; changes in or noncompliance with government
regulations, including labor standards and anti-bribery or
anti-corruption laws; tax matters, including disagreements with
taxing authorities; consumer preferences and perceptions of our
brands; changes in consumer discretionary spending and general
economic conditions; competition within the retail food industry;
and risks relating to our significant amount of indebtedness. In
addition, other risks and uncertainties not presently known to us
or that we currently believe to be immaterial could affect the
accuracy of any such forward-looking statements. All
forward-looking statements should be evaluated with the
understanding of their inherent uncertainty.
The forward-looking statements included in this announcement are
only made as of the date of this announcement and we disclaim any
obligation to publicly update any forward-looking statement to
reflect subsequent events or circumstances. You should consult our
filings with the Securities and Exchange Commission (including the
information set forth under the captions “Risk Factors” and
“Forward-Looking Statements” in our most recently filed Annual
Report on Form 10-K and Quarterly Report on Form 10-Q) for
additional detail about factors that could affect our financial and
other results.
Yum! Brands, Inc., based in Louisville, Kentucky, has over
44,000 restaurants in more than 135 countries and territories and
is one of the Aon Hewitt Top Companies for Leaders in North
America. In 2017, Yum! Brands was named to the Dow Jones
Sustainability North America Index and among the top 100 Best
Corporate Citizens by Corporate Responsibility Magazine. The
company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are
the global leaders of the chicken, pizza and Mexican-style food
categories. Worldwide, the Yum! Brands system opens over six new
restaurants per day on average, making it a leader in global retail
development.
YUM! Brands, Inc.
Condensed Consolidated Summary of
Results
(amounts in millions, except per share
amounts)
(unaudited)
Quarter ended
% Change
Year to date % Change 9/30/17 9/30/16 B/(W) 9/30/17
9/30/16 B/(W) Company sales $ 871 $ 992 (12) $ 2,682 $ 2,951
(9) Franchise and license fees and income 565 526 7
1,619 1,519 7 Total revenues 1,436 1,518
(5) 4,301 4,470 (4) Company restaurant
expenses Food and paper 275 303 10 831 897 7 Payroll and employee
benefits 224 260 14 707 780 9 Occupancy and other operating
expenses 218 268 18 685 798 14 Company
restaurant expenses 717 831 14 2,223 2,475 10 General and
administrative expenses 215 270 20 699 767 9 Franchise and license
expenses 61 40 (53) 161 145 (12) Closures and impairment (income)
expenses 1 1 74 3 10 77 Refranchising (gain) loss (201 ) (21 ) NM
(331 ) (75 ) NM Other (income) expense — (1 ) NM —
(14 ) NM Total costs and expenses, net 793 1,120 29
2,755 3,308 17 Operating Profit 643 398 61
1,546 1,162 33 Other pension (income) expense 10 (1 ) NM 42 (2 ) NM
Interest expense, net 109 98 (11) 322 191
(69) Income from continuing operations before income taxes
524 301 75 1,182 973 22 Income tax provision 106 83
(28) 278 263 (6) Income from continuing operations
418 218 92 904 710 27 Income from discontinued operations, net of
tax — 422 NM — 630 NM Net Income 418
640 (35) 904 1,340 (33)
Effective tax rate
from Continuing Operations
20.2 % 27.5 % 7.3 ppts. 23.5 % 27.0 % 3.5 ppts.
Basic EPS from
Continuing Operations
EPS $ 1.21 $ 0.56 116 $ 2.58 $ 1.76 47
Average shares outstanding 345 388 11 351 404
13
Diluted EPS from
Continuing Operations
EPS $ 1.18 $ 0.55 115 $ 2.52 $ 1.73 46
Average shares outstanding 353 395 11 358 410
13
Basic EPS from
Discontinued Operations
EPS N/A $ 1.09 NM N/A $ 1.56 NM Average shares
outstanding N/A 388 NM N/A 404 NM
Diluted EPS from
Discontinued Operations
EPS N/A $ 1.07 NM N/A $ 1.54 NM Average shares
outstanding N/A 395 NM N/A 410 NM Dividends
declared per common share $ — $ 0.51 $ 0.60 $
1.43
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
KFC DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change 9/30/17
9/30/16 B/(W) 9/30/17 9/30/16 B/(W) Company sales $
498 $ 520 (4) $ 1,465 $ 1,541 (5) Franchise and license fees and
income 296 267 11 831 761 9 Total
revenues 794 787 1 2,296 2,302 —
Company restaurant expenses Food and paper 172 178 3 504 526 4
Payroll and employee benefits 114 120 5 345 362 5 Occupancy and
other operating expenses 133 144 8 395 432
9 Company restaurant expenses 419 442 5 1,244 1,320 6
General and administrative expenses 85 89 5 259 276 6 Franchise and
license expenses 29 26 (11) 80 82 2 Closures and impairment
(income) expenses 1 — NM 3 6 51 Other (income) expense — —
NM — — NM Total costs and expenses, net 534
557 4 1,586 1,684 6 Operating Profit $
260 $ 230 14 $ 710 $ 618 15
Company sales 100.0 % 100.0 % 100.0 % 100.0 % Food and paper 34.5 %
34.2 % (0.3) ppts. 34.4 % 34.1 % (0.3) ppts. Payroll and employee
benefits 23.0 % 23.2 % 0.2 ppts. 23.6 % 23.5 % (0.1) ppts.
Occupancy and other operating expenses 26.6 % 27.6 % 1.0 ppts. 26.9
% 28.0 % 1.1 ppts. Restaurant margin 15.9 % 15.0 % 0.9 ppts. 15.1 %
14.4 % 0.7 ppts. Operating margin 32.8 % 29.2 % 3.6 ppts.
30.9 % 26.8 % 4.1 ppts.
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
PIZZA HUT DIVISION Operating
Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change 9/30/17
9/30/16 B/(W) 9/30/17 9/30/16 B/(W) Company sales $
55 $ 106 (47) $ 226 $ 366 (38) Franchise and license fees and
income 148 145 2 433 433 — Total
revenues 203 251 (19) 659 799 (17)
Company restaurant expenses Food and paper 16 29 46 65 101
36 Payroll and employee benefits 19 35 45 74 116 36 Occupancy and
other operating expenses 19 38 49 73 120
38 Company restaurant expenses 54 102 47 212 337 37
General and administrative expenses 44 55 21 151 170 12 Franchise
and license expenses 21 11 (91) 44 35 (27) Closures and impairment
(income) expenses — 1
NM
— 3
NM
Other (income) expense 2 (2 ) NM 2 (2 ) NM Total
costs and expenses, net 121 167 28 409 543
25 Operating Profit $ 82 $ 84 (1) $ 250
$ 256 (2) Company sales 100.0 % 100.0 % 100.0 % 100.0
% Food and paper 29.0 % 28.1 % (0.9) ppts. 28.7 % 27.7 % (1.0)
ppts. Payroll and employee benefits 34.4 % 33.0 % (1.4) ppts. 32.7
% 31.8 % (0.9) ppts. Occupancy and other operating expenses 34.7 %
35.4 % 0.7 ppts. 32.6 % 32.6 % — Restaurant margin 1.9 % 3.5 %
(1.6) ppts. 6.0 % 7.9 % (1.9) ppts. Operating margin 40.5 %
33.3 % 7.2 ppts. 38.0 % 32.0 % 6.0 ppts.
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
TACO BELL DIVISION Operating
Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change 9/30/17
9/30/16 B/(W) 9/30/17 9/30/16 B/(W) Company sales $
318 $ 366 (13) $ 991 $ 1,044 (5) Franchise and license fees and
income 124 115 7 358 327 9 Total
revenues 442 481 (8) 1,349 1,371 (2)
Company restaurant expenses Food and paper 87 96 10 262 270
3 Payroll and employee benefits 91 105 13 288 302 5 Occupancy and
other operating expenses 71 86 17 222 246
10 Company restaurant expenses 249 287 13 772 818 6
General and administrative expenses 41 48 15 122 141 14 Franchise
and license expenses 6 4 (97) 16 13 (30) Closures and impairment
(income) expenses — —
NM
— 1 NM Other (income) expense (1 ) (1 ) NM (1 ) (2 ) (69) Total
costs and expenses, net 295 338 13 909 971
6 Operating Profit $ 147 $ 143 3 $ 440
$ 400 10 Company sales 100.0 % 100.0 % 100.0 % 100.0
% Food and paper 27.0 % 26.1 % (0.9) ppts. 26.5 % 25.9 % (0.6)
ppts. Payroll and employee benefits 28.6 % 28.6 % — 29.0 % 28.9 %
(0.1) ppts. Occupancy and other operating expenses 22.5 % 23.6 %
1.1 ppts. 22.4 % 23.5 % 1.1 ppts. Restaurant margin 21.9 % 21.7 %
0.2 ppts. 22.1 % 21.7 % 0.4 ppts. Operating margin 33.3 %
29.8 % 3.5 ppts. 32.6 % 29.2 % 3.4 ppts.
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
Condensed Consolidated Balance
Sheets
(amounts in millions)
(unaudited)
9/30/17 12/31/16
ASSETS Current Assets Cash
and cash equivalents $ 980 $ 725 Accounts and notes receivable,
less allowance: $20 in 2017 and $14 in 2016 358 370 Inventories 15
37 Prepaid expenses and other current assets 465 236 Advertising
cooperative assets, restricted 181 137
Total
Current Assets 1,999 1,505
Property, plant and equipment, net of
accumulated depreciation and amortization of $1,761 in 2017 and
$1,995 in 2016
1,861 2,113 Goodwill 525 536 Intangible assets, net 116 151 Other
assets 304 376 Deferred income taxes 649 772
Total
Assets $ 5,454 $ 5,453
LIABILITIES AND
SHAREHOLDERS' DEFICIT Current Liabilities Accounts
payable and other current liabilities $ 823 $ 1,067 Income taxes
payable 27 32 Short-term borrowings 372 66 Advertising cooperative
liabilities 181 137
Total Current Liabilities
1,403 1,302 Long-term debt 9,479 9,059 Other liabilities and
deferred credits 693 704
Total Liabilities
11,575 11,065
Shareholders' Deficit
Common stock, no par value, 750 shares authorized; 339 shares and
355 shares issued in 2017 and 2016, respectively — — Retained
earnings (accumulated deficit) (5,817 ) (5,158 ) Accumulated other
comprehensive income (loss) (304 ) (454 )
Total Shareholders'
Deficit (6,121 ) (5,612 )
Total Liabilities and
Shareholders' Deficit $ 5,454 $ 5,453
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of
Cash Flows
(amounts in millions)
(unaudited)
Year to Date 9/30/17 9/30/16
Cash Flows -
Operating Activities from Continuing Operations Net income $
904 $ 1,340 Income from discontinued operations, net of tax — (630
) Depreciation and amortization 195 224 Closures and impairment
(income) expenses 3 10 Refranchising (gain) loss (331 ) (75 )
Contributions to defined benefit pension plans (47 ) (7 ) Deferred
income taxes 122 29 Share-based compensation expense 35 42 Changes
in accounts and notes receivable
17
31 Changes in inventories 7 6 Changes in prepaid expenses and other
current assets (14 ) 19 Changes in accounts payable and other
current liabilities (168 ) (54 ) Changes in income taxes payable
(125 ) 8 Other, net
120
(7 )
Net Cash Provided by Operating Activities from
Continuing Operations
718
936
Cash Flows - Investing Activities from
Continuing Operations Capital spending (228 ) (292 ) Proceeds
from refranchising of restaurants 716 147 Other, net 1 18
Net Cash Provided by (Used in) Investing Activities from
Continuing Operations 489 (127 )
Cash Flows -
Financing Activities from Continuing Operations Proceeds from
long-term debt 1,088 6,900 Repayments of long-term debt (372 ) (310
) Revolving credit facilities, three months or less, net 35 (685 )
Short-term borrowings by original maturity More than three months -
proceeds — 1,400 More than three months - payments — (2,000 ) Three
months or less, net — — Repurchase shares of Common Stock (1,348 )
(4,316 ) Dividends paid on Common Stock (315 ) (559 ) Debt issuance
costs (32 ) (86 ) Net transfers from discontinued operations — 180
Other, net
(85
)
(82
)
Net Cash Provided by (Used in) Financing Activities from
Continuing Operations
(1,029
) 442
Effect of Exchange Rate on Cash and Cash
Equivalents 42 (8 )
Net Increase in Cash and Cash
Equivalents, Restricted Cash and Restricted Cash Equivalents -
Continuing Operations 220 1,243
Cash, Cash Equivalents,
Restricted Cash and Restricted Cash Equivalents - Beginning of
Period 831 351
Cash, Cash Equivalents,
Restricted Cash and Restricted Cash Equivalents - End of Period
$ 1,051 $ 1,594
Cash Provided by Operating
Activities from Discontinued Operations $ — $ 761
Cash Used
in Investing Activities from Discontinued Operations — (231 )
Cash Used in Financing Activities from Discontinued
Operations — (186 )
See accompanying notes.
Reconciliation of Non-GAAP Measurements
to GAAP Results
(amounts in millions, except per share
amounts)
(unaudited)
In addition to the results provided in accordance with U.S.
Generally Accepted Accounting Principles ("GAAP") throughout this
document, the Company has provided non-GAAP measurements which
present Diluted Earnings Per Share from Continuing Operations
excluding Special Items, our Effective Tax Rate excluding Special
Items, System Sales and Core Operating Profit. Core Operating
Profit excludes Special Items and foreign currency translation and
we use Core Operating Profit for the purposes of evaluating
performance internally. Special Items are not included in any of
our division segment results, and we believe the elimination of the
foreign currency translation impact provides better year-to-year
comparability without the distortion of foreign currency
fluctuations. The Special Items are described in (b), (c), (d),
(e), (f) and (g) in the accompanying notes.
These non-GAAP measurements are not
intended to replace the presentation of our financial results in
accordance with GAAP. Rather, the Company believes that the
presentation of Diluted Earnings Per Share from Continuing
Operations excluding Special Items, our Effective Tax Rate
excluding Special Items and Core Operating Profit provide
additional information to investors to facilitate the comparison of
past and present operations, excluding items in the quarters and
years to date ended September 30, 2017 and September 30, 2016 that
the Company does not believe are indicative of our ongoing
operations due to their size and/or nature. System sales and system
sales growth include the results of all restaurants regardless of
ownership, including company-owned and franchise restaurants that
operate our Concepts. Sales of franchise restaurants typically
generate ongoing franchise and license fees for the Company at a
rate of 3% to 6% of sales. Franchise restaurant sales are not
included in Company sales on the Consolidated Statements of Income;
however, the franchise and license fees are included in the
Company’s revenues. We believe system sales and system sales growth
are useful to investors as significant indicators of the overall
strength of our business as they incorporate all of our revenue
drivers, Company and franchise same-store sales as well as net unit
growth.
Quarter ended Year to date 9/30/17
9/30/16 9/30/17 9/30/16
Detail of Special Items
Refranchising gain (loss)(b)
$ 201 $ 21 $ 331 $ 75 YUM's Strategic Transformation Initiatives(c)
(4 ) (30 ) (15 ) (34 ) Costs associated with Pizza Hut U.S.
Transformation Agreement(d) (8 ) — (20 ) — Costs associated with
KFC U.S. Acceleration Agreement(e) (4 ) — (12 ) (17 ) Non-cash
charges associated with share-based compensation(f) — — (18 ) —
Other Special Items Income (Expense) 5 (1 ) 3 (3 )
Special Items Income (Expense) - Operating Profit 190 (10 ) 269 21
Special Items - Other Pension Income (Expense)(g) (1 ) — (23
) — Special Items Income (Expense) from Continuing
Operations before Income Taxes 189 (10 ) 246 21 Tax Benefit
(Expense) on Special Items (13 ) 5 (64 ) — Special
Items Income (Expense), net of tax 176 (5 ) 182 21 Average diluted
shares outstanding 353 395 358 410
Special Items diluted EPS $ 0.50 $ (0.01 ) $ 0.51 $
0.05
Reconciliation of GAAP Operating Profit to
Core Operating Profit
Consolidated
GAAP Operating Profit $ 643 $ 398 $ 1,546 1,162 Special Items
Income (Expense) 190 (10 ) 269 21 Foreign Currency Impact on
Reported Operating Profit 2 N/A (9 ) N/A Core Operating
Profit $ 451 $ 408 $ 1,286 $ 1,141
KFC
Division
GAAP Operating Profit $ 260 $ 230 $ 710 $ 618 Foreign Currency
Impact on Reported Operating Profit 2 N/A (5 ) N/A Core
Operating Profit $ 258 $ 230 $ 715 $ 618
Pizza Hut
Division
GAAP Operating Profit $ 82 $ 84 $ 250 $ 256 Foreign Currency Impact
on Reported Operating Profit — N/A (4 ) N/A Core Operating
Profit $ 82 $ 84 $ 254 $ 256
Taco Bell
Division
GAAP Operating Profit $ 147 $ 143 $ 440 $ 400 Foreign Currency
Impact on Reported Operating Profit — N/A — N/A Core
Operating Profit $ 147 $ 143 $ 440 $ 400
Reconciliation of Non-GAAP Measurements
to GAAP Results (Continued)
(amounts in millions, except per share
amounts)
(unaudited)
Quarter ended Year to date 9/30/17 9/30/16 9/30/17
9/30/16
Reconciliation of Diluted EPS from Continuing
Operations to Diluted EPS from Continuing Operations excluding
Special Items Diluted EPS from Continuing Operations $ 1.18 $
0.55 $ 2.52 $ 1.73
Special Items Diluted EPS
0.50 (0.01 ) 0.51 0.05 Diluted EPS from
Continuing Operations excluding Special Items $ 0.68 $ 0.56
$ 2.01 $ 1.68
Reconciliation of GAAP
Effective Tax Rate to Effective Tax Rate excluding Special
Items GAAP Effective Tax Rate 20.2 % 27.5 % 23.5 % 27.0 %
Impact on Tax Rate as a result of Special Items (7.6 )% (0.5 )% 0.7
% (0.6 )% Effective Tax Rate excluding Special Items 27.8 % 28.0 %
22.8 % 27.6 %
Reconciliation of GAAP Company Sales to
System Sales
Consolidated
GAAP Company sales $ 871 $ 992 $ 2,682 $ 2,951 Franchise sales
10,800 10,018 30,729 29,019 System
sales $ 11,671 $ 11,010 $ 33,411 $ 31,970
KFC
Division
GAAP Company sales $ 498 $ 520 $ 1,465 $ 1,541 Franchise sales
5,784 5,313 16,223 15,277 System sales
$ 6,282 $ 5,833 $ 17,688 $ 16,818
Pizza Hut
Division
GAAP Company sales $ 55 $ 106 $ 226 $ 366 Franchise sales 2,911
2,778 8,439 8,263 System sales $ 2,966
$ 2,884 $ 8,665 $ 8,629
Taco Bell
Division
GAAP Company sales $ 318 $ 366 $ 991 $ 1,044 Franchise sales 2,105
1,927 6,067 5,479 System sales $ 2,423
$ 2,293 $ 7,058 $ 6,523
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 9/30/17 KFC Pizza Hut Taco Bell
CorporateandUnallocated
Consolidated Total revenues $ 794 $ 203
$ 442 $ (3 ) $ 1,436 Company restaurant
expenses 419 54 249 (5 ) 717 General and administrative expenses 85
44 41 45 215 Franchise and license expenses 29 21 6 5 61 Closures
and impairment (income) expenses 1 — — — 1 Refranchising (gain)
loss — — — (201 ) (201 ) Other (income) expense — 2
(1 ) (1 ) — Total costs and expenses, net 534 121
295 (157 ) 793 Operating Profit (loss) $
260 $ 82 $ 147 $ 154
$ 643
Quarter Ended 9/30/16 KFC
Pizza Hut Taco Bell
CorporateandUnallocated
Consolidated Total revenues $ 787 $ 251
$ 481 $ (1 ) $ 1,518 Company restaurant
expenses 442 102 287 — 831 General and administrative expenses 89
55 48 78 270 Franchise and license expenses 26 11 4 (1 ) 40
Closures and impairment (income) expenses — 1 — — 1 Refranchising
(gain) loss — — — (21 ) (21 ) Other (income) expense — (2 )
(1 ) 2 (1 ) Total costs and expenses, net 557 167
338 58 1,120 Operating Profit (loss) $
230 $ 84 $ 143 $ (59 ) $
398
The above tables reconcile segment information, which is based
on management responsibility, with our Condensed Consolidated
Summary of Results. Corporate and unallocated expenses comprise
items that are not allocated to segments for performance reporting
purposes.
The Corporate and Unallocated column in the above tables
includes, among other amounts, all amounts that we have deemed
Special Items. See Reconciliation of Non-GAAP Measurements to GAAP
Results.
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Year to Date 9/30/17 KFC Pizza Hut Taco Bell
CorporateandUnallocated
Consolidated Total revenues $ 2,296 $ 659 $ 1,349
$ (3 ) $ 4,301 Company restaurant expenses
1,244 212 772 (5 ) 2,223 General and administrative expenses 259
151 122 167 699 Franchise and license expenses 80 44 16 21 161
Closures and impairment (income) expenses 3 — — — 3 Refranchising
(gain) loss — — — (331 ) (331 ) Other (income) expense — 2
(1 ) (1 ) — Total costs and expenses, net 1,586
409 909 (149 ) 2,755 Operating Profit
(loss) $ 710 $ 250 $ 440 $ 146 $ 1,546
Year to Date 9/30/16 KFC Pizza Hut Taco
Bell
CorporateandUnallocated
Consolidated Total revenues $ 2,302 $ 799 $ 1,371
$ (2 ) $ 4,470 Company restaurant expenses
1,320 337 818 — 2,475 General and administrative expenses 276 170
141 180 767 Franchise and license expenses 82 35 13 15 145 Closures
and impairment (income) expenses 6 3 1 — 10 Refranchising (gain)
loss — — — (75 ) (75 ) Other (income) expense — (2 ) (2 )
(10 ) (14 ) Total costs and expenses, net 1,684 543
971 110 3,308 Operating Profit (loss) $ 618
$ 256 $ 400 $ (112 ) $ 1,162
The above tables reconcile segment information, which is based
on management responsibility, with our Condensed Consolidated
Summary of Results. Corporate and unallocated expenses comprise
items that are not allocated to segments for performance reporting
purposes.
The Corporate and Unallocated column in the above tables
includes, among other amounts, all amounts that we have deemed
Special Items. See Reconciliation of Non-GAAP Measurements to GAAP
Results.
Notes to the Condensed Consolidated
Summary of Results, Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements
of Cash Flows
(amounts in millions)
(unaudited)
(a)
Amounts presented as of and for the
quarters and years to date ended September 30, 2017 and 2016 are
preliminary.
(b)
In connection with our previously
announced plans to have at least 98% franchise restaurant ownership
by the end of 2018, we recorded net refranchising gains during the
quarters ended September 30, 2017 and 2016 of $201 million and $21
million, respectively, that have been reflected as Special Items.
During the years to date ended September 30, 2017 and 2016, we
recorded net refranchising gains of $331 million and $75 million,
respectively, that have been reflected as Special Items.
The third quarter 2017 net refranchising gains relate
primarily to refranchising Taco Bell restaurants in the U.S. The
third quarter 2016 net refranchising gains relate primarily to
refranchising Pizza Hut and Taco Bell restaurants in the U.S.
(c)
In the fourth quarter of 2016, we
announced our plan to transform our business. Major features of the
Company's strategic transformation plans involve being more focused
on development of our three brands, increasing our franchise
ownership and creating a leaner, more efficient cost structure
(“YUM’s Strategic Transformation Initiatives”). During the quarters
ended September 30, 2017 and 2016, we recognized Special Item
charges of $4 million and $30 million, respectively, related to
these initiatives. During the years to date ended September 30,
2017 and 2016, we recognized Special Item charges of $15 million
and $34 million, respectively. These costs primarily related to
severance and relocation costs that were recorded within
G&A.
(d)
On May 1, 2017, we reached an agreement
with Pizza Hut U.S. franchisees that will improve brand marketing
alignment, accelerate enhancements in operations and technology and
includes a permanent commitment to incremental advertising
contributions by franchisees beginning in 2018. During the quarter
and year to date ended September 30, 2017, we recorded Special Item
charges of $8 million and $20 million, respectively, for these
investments. These amounts were recorded as Franchise and license
expenses or G&A.
(e)
During the first quarter of 2015, we
reached an agreement with our KFC U.S. franchisees that gave us
brand marketing control as well as an accelerated path to improved
assets and customer experience. In connection with this agreement,
we recognized Special Item charges of $4 million and less than $1
million for the quarters ended September 30, 2017 and 2016,
respectively. During the years to date ended September 30, 2017 and
2016, we recognized Special Item charges of $12 million and $17
million, respectively. The majority of these costs were recorded as
Franchise and license expenses.
(f)
In connection with the separation of Yum
China, we modified certain share-based compensation awards held as
part of our Executive Income Deferral Plan in YUM stock to provide
one Yum China share-based award for each outstanding YUM
share-based award. These Yum China awards may now be settled in
cash, as opposed to stock, which requires recognition of the fair
value of these awards each quarter within G&A in our Condensed
Consolidated Income Statement. During the quarter and year to date
ended September 30, 2017, we recorded non-cash Special Item charges
of less than $1 million and $18 million, respectively, related to
these awards.
(g)
Reflects a non-cash charge of $22 million
related to the adjustment of certain historical deferred vested
liability balances in our qualified U.S. plan during the first
quarter of 2017. Additionally, during the fourth quarter of 2016
the Company allowed certain former employees with deferred vested
balances in the YUM Retirement Plan an opportunity to voluntarily
elect an early payout of their pension benefits. In connection with
this program we incurred an additional Special Items settlement
charge of $1 million during the quarter ended September 30, 2017.
These charges are recorded in Other pension (income) expense.
(h)
In March 2017, the Financial Accounting
Standards Board (“FASB”) issued guidance on the presentation of net
periodic pension cost and net periodic postretirement benefit cost.
The standard requires that an employer report the service cost
component in the same line item or items as other compensation
costs arising from services rendered by employees during the
period. The other components of net benefit cost are required to be
presented in the income statement separately from the service cost
component and outside a subtotal of income from operations. We
early adopted the standard beginning with the quarter ended March
31, 2017 on a retrospective basis and have reported the other
components of net benefit costs within Other pension (income)
expense for the quarters and years to date ended September 30, 2017
and 2016.
(i)
In March 2016, the FASB issued guidance
related to stock-based compensation which is intended to simplify
several aspects of the accounting for employee share-based payment
transactions, including their income tax consequences,
classification of awards as either equity or liabilities and
classification on the statement of cash flows. We adopted this
standard beginning with the quarter ended March 31, 2017. The
primary impact of adoption of this standard was that beginning
January 1, 2017 we are required to report excess tax benefits
associated with share-based compensation, which we previously
recognized within Common Stock, within our Income tax
provision.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20171102005405/en/
Yum! Brands, Inc.Analysts are invited to contact:Keith Siegner,
888-298-6986Vice President, Investor Relations, Corporate Strategy
and TreasurerorKelly Knybel, 888-298-6986Director, Investor
RelationsorMembers of the media are invited to contact:Virginia
Ferguson, 502-874-8200Director, Public Relations
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