Yum! Brands, Inc. (NYSE: YUM) today reported results for the
third quarter ended September 5, 2015, including EPS of $1.00,
excluding Special Items. Reported EPS was $0.95.
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THIRD-QUARTER HIGHLIGHTS
- Worldwide system sales grew 6%.
Worldwide restaurant margin increased 3.3 percentage points to
18.2%, and worldwide operating profit increased 23%.
- Total international development was 376
new restaurants; 72% of this development occurred in emerging
markets.
- China Division system sales increased
8%, driven by 7% unit growth and 2% same-store sales growth.
Restaurant margin increased 4.7 percentage points to 19.6%.
Operating profit increased 64%.
- KFC Division system sales increased 6%,
driven by 3% unit growth and 3% same-store sales growth. Operating
margin decreased 0.2 percentage points to 21.7%. Operating profit
increased 3%.
- Pizza Hut Division system sales
increased 2%, driven by 2% unit growth and 1% same-store sales
growth. Operating margin decreased 0.7 percentage points to 25.4%.
Operating profit was even.
- Taco Bell Division system sales
increased 7%, driven by 3% unit growth and 4% same-store sales
growth. Operating margin decreased 0.1 percentage points to 28.0%.
Operating profit increased 6%.
- India Division system sales decreased
9%, as 10% unit growth was offset by an 18% same-store sales
decline.
- Worldwide effective tax rate increased
to 24.8% from 22.4%.
- Foreign currency translation negatively
impacted operating profit by $29 million.
FULL-YEAR CHINA SALES AND EPS
UPDATE
While it remains difficult to forecast China sales, we are now
estimating full-year same-store sales to be low-single-digit
negative. For the fourth quarter, this assumes mid-single-digit
same-store sales growth for the Division, with positive same-store
sales growth at KFC and negative same-store sales at Pizza Hut
Casual Dining. Given a slower-than-expected recovery in China
sales, particularly at Pizza Hut Casual Dining, as well as stronger
foreign exchange headwinds, we now expect full-year EPS growth to
be low-single-digit positive.
Third
Quarter
Year-to-Date
2015
2014
%
Change
2015
2014
%
Change
EPS Excluding Special Items $1.00 $0.87 14% $2.50 $2.48 1% Special
Items Gain/(Loss)1 $(0.05) $0.02 NM $(0.21) $0.02 NM EPS
$0.95 $0.89 6% $2.29 $2.50 (9)%
1 See Reconciliation of Non-GAAP
Measurements to GAAP Results for further detail of Special Items.
Special Items in 2015 are primarily related to a non-cash charge
associated with refranchising our Mexico business and payments
related to the recent agreement with KFC U.S. franchisees,
partially offset by U.S. refranchising gains.
Note: All comparisons are versus the same
period a year ago and exclude Special Items unless noted. System
sales and operating profit figures on this page exclude foreign
currency translation; restaurant margin and operating margin
figures are as reported.
GREG CREED COMMENTS
Greg Creed, CEO, said “Third-quarter EPS grew 14%. We’re pleased
same-store sales turned positive and we achieved restaurant margins
of nearly 20% in our China business. However, the pace of recovery
in our China Division is below our expectations. Outside of China,
our Taco Bell and KFC Divisions continued to sustain their positive
sales momentum while Pizza Hut was relatively flat. Given our lower
full-year expectations in China, combined with additional foreign
exchange impact, we now expect 2015 EPS growth to be well below our
target of at least 10%.
Our growth fundamentals in China, including new-unit
development, remain intact. However, we’re experiencing unexpected
headwinds, making the second half of the year more challenging than
we anticipated. Our new China Division CEO, Micky Pant, and his
leadership team are taking significant actions to get sales,
traffic and profits back to historic levels. Outside of China, KFC
continued its solid growth across both emerging and developed
markets. Taco Bell’s same-store sales growth was boosted by
insight-driven innovation coupled with industry-leading value. We
remain confident in the actions underway at Pizza Hut to turn this
business around longer term.
Our central goal remains building three iconic, global brands
people trust and champion. We are focused on the three keys to
driving shareholder value: new-unit development, same-store sales
growth, and high returns on invested capital. I’m confident that
this formula will produce strong, sustainable EPS growth over the
long term. As evidence of this, we’re pleased to announce a 12%
increase to our quarterly dividend, which marks the eleventh
consecutive year we’ve raised our dividend at a double-digit
percentage rate.”
CHINA
DIVISION
Third
Quarter
Year-to-Date
% Change % Change
2015
2014
Reported
Ex
F/X
2015
2014
Reported
Ex
F/X
System Sales Growth +7 +8 (1) Even Same-Store Sales Growth (%) +2
(14) NM NM (6) +1 NM NM Franchise & License Fees ($MM) 34 31
+13 +14 83 80 +4 +6 Restaurant Margin (%) 19.6 14.9 4.7 4.7 17.7
17.9 (0.2) (0.1) Operating Profit ($MM) 327
202 +62 +64
661 681 (3) (1)
- China Division system sales
increased 8%, prior to foreign currency translation.
- Same-store sales increased 2%, with an
increase of 3% at KFC, partially offset by a decline of 1% at Pizza
Hut Casual Dining.
- Negative same-store sales in the first
half of the quarter were more than offset by sales growth in the
second half of the quarter, as sales turned significantly positive
when we overlapped the supplier incident on July 20th of last
year.
- China Division opened 108 new units
during the quarter.
China Units Q3 2015
% Change2 Restaurants1
6,867 +7 KFC 4,889 +5 Pizza Hut Casual
Dining 1,421 +21 Home Service 284
+26
1 Total includes East Dawning and Little
Sheep units.
2 Represents year-over-year change.
- Restaurant margin was 19.6%, an
increase of 4.7 percentage points driven by productivity
initiatives and sales leverage.
- Foreign currency translation negatively
impacted operating profit by $4 million.
KFC
DIVISION
Third
Quarter
Year-to-Date
% Change
% Change
2015
2014
Reported
Ex
F/X
2015
2014
Reported
Ex
F/X
Restaurants 14,316 13,961 +3 NA 14,316 13,961 +3 NA System Sales
Growth (6) +6 (3) +7 Same-Store Sales Growth (%) +3 +3 NM NM +3 +2
NM NM Franchise & License Fees ($MM) 193 205 (6) +6 579 596 (3)
+7 Restaurant Margin (%) 14.0 13.4 0.6 0.7 14.9 13.1 1.8 1.7
Operating Profit ($MM) 150 169 (11) +3 471 487 (3) +8 Operating
Margin (%) 21.7 21.9
(0.2) (0.4) 23.2
22.2 1.0 0.6
- KFC Division system sales
increased 6%, excluding foreign currency translation.
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 +3% +3%
+2%
- KFC Division opened 141 new
international restaurants in 45 countries, including 101 units in
emerging markets. 82% of these new units were opened by
franchisees.
- Operating margin decreased 0.2
percentage points, including higher advertising expense as part of
our recent agreement with KFC U.S. franchisees, partially offset by
an increase of 0.6 percentage points in restaurant margin.
- Foreign currency translation negatively
impacted operating profit by $23 million, as approximately 90% of
division profits are generated outside the U.S.
KFC MARKETS1
Percent of KFC
System Sales2
SYSTEM Sales Growth Ex F/X
Third Quarter (%)
Year-to-Date (%) Emerging Markets Asia
(e.g. Malaysia, Indonesia, Philippines) 8% +6 +5 Africa 7% +6 +11
Latin America (e.g. Mexico, Peru) 6% +8 +8 Middle East / North
Africa 6% +3 +3 Russia 4% +45 +45 Thailand 3% +3 +6 Continental
Europe (e.g. Poland) 2% +14 +14
Developed Markets
U.S.
24% Even +2 Asia (e.g. Japan, Korea, Taiwan) 10% +10 +3 Australia
10% +8 +9 U.K. 9% +1 +4 Continental Europe (e.g. France, Germany)
7% +8 +8 Canada 3% +1 +1 Latin America (e.g. Puerto Rico)
1% (1) +3
1 See website www.yum.com under tab "Investors" for a list of
the countries within each of the markets.
2 Reflects Full Year 2014.
PIZZA HUT
DIVISION
Third
Quarter
Year-to-Date
% Change
% Change
2015
2014
Reported
Ex
F/X
2015
2014
Reported
Ex
F/X
Restaurants 13,616 13,393 +2 NA 13,616 13,393 +2 NA System Sales
Growth (3) +2 (2) +2 Same-Store Sales Growth (%) +1 (1) NM NM Even
(2) NM NM Franchise & License Fees ($MM) 121 124 (3) +3 367 374
(2) +2 Restaurant Margin (%) 7.8 8.9 (1.1) (1.6) 9.8 9.0 0.8 0.3
Operating Profit ($MM) 67 68 (3) Even 208 215 (4) (1) Operating
Margin (%) 25.4 26.1
(0.7) (1.0) 26.0
27.1 (1.1) (1.2)
- Pizza Hut Division system sales
increased 2%, excluding foreign currency translation.
Third Quarter (% Change)
Int'l Emerging Markets Int'l
Developed Markets
U.S. System Sales Growth (Ex F/X) +9%
+1% Even
Same-Store Sales Growth +4% Even
Even
- Pizza Hut Division opened 105 new
international restaurants in 38 countries, including 46 units in
emerging markets. 95% of these new units were opened by
franchisees.
- Operating margin declined 0.7
percentage points, driven by strategic investments in international
G&A.
- Foreign currency translation negatively
impacted operating profit by $2 million.
PIZZA HUT MARKETS1
Percent of Pizza
Hut System Sales2
SYSTEM Sales Growth Ex F/X
Third Quarter (%)
Year-to-Date (%) Emerging Markets Latin
America (e.g. Mexico, Peru) 7% +11 +8 Asia (e.g. Malaysia,
Indonesia, Philippines) 5% +4 +3 Middle East / North Africa 5% +8
+7 Continental Europe (e.g. Poland) 1% +12 +9
Developed
Markets U.S. 55% Even Even Asia (e.g. Japan, Korea, Taiwan) 9%
Even (1) U.K. 6% +6 +4 Continental Europe (e.g. France, Germany) 5%
+2 +3 Australia 3% (9) (6) Canada 3% +7 +5 Latin America (e.g.
Puerto Rico) 1% (5) Even
1 See website www.yum.com under tab "Investors" for a list of
the countries within each of the markets.
2 Reflects Full Year 2014.
TACO BELL
DIVISION
Third
Quarter
Year-to-Date
% Change
% Change
2015
2014
Reported
Ex
F/X
2015
2014
Reported
Ex
F/X
Restaurants 6,314 6,109 +3 NA 6,314 6,109 +3 NA System Sales Growth
+7 +7 +8 +8 Same-Store Sales Growth (%) +4 +3 NM NM +5 +1 NM NM
Franchise & License Fees ($MM) 107 99 +8 +8 309 281 +10 +10
Restaurant Margin (%) 22.1 20.7 1.4 1.4 21.6 18.1 3.5 3.5 Operating
Profit ($MM) 132 124 +6 +6 387 317 +22 +22 Operating Margin (%)
28.0 28.1 (0.1)
(0.1) 28.1 24.9
3.2 3.2
- Taco Bell Division system sales
increased 7%, driven by 4% same-store sales growth and 3% unit
growth.
- Taco Bell Division opened 62 new
restaurants; 81% of these new units were opened by
franchisees.
- Restaurant margin was 22.1%, an
increase of 1.4 percentage points, driven by same-store sales
growth.
- Operating margin decreased 0.1
percentage points, driven by an increase in G&A related to
incentive compensation and pension. This was largely offset by an
increase of 1.4 percentage points in restaurant margin.
INDIA DIVISION
- India Division system sales
decreased 9% prior to foreign currency translation, as 10% unit
growth was offset by an 18% same-store sales decline.
- Operating loss was $8 million, as
compared to an operating loss of $3 million in prior year.
India Units Q3 2015
% Change2 Restaurants1
811 +10 KFC 378 +10 Pizza Hut Casual
Dining 175 (4) Home Service 251
+23
1 Total includes 7 Taco Bell units.
2 Represents year-over-year change.
SPECIAL ITEMS / SHARE REPURCHASE UPDATE
/ DIVIDEND INCREASE
- For the third quarter in the U.S., we
refranchised 24 units, primarily related to Taco Bell, for proceeds
of $30 million. We recorded pre-tax U.S. refranchising gains of $16
million in Special Items. At the end of the third quarter, our
company ownership in the U.S. across our three branded divisions
was 9%.
- During the first quarter of 2015, we
reached an agreement with our KFC U.S. franchisees that will give
us brand marketing control, as well as an accelerated path to
expanded menu offerings, improved assets and an enhanced customer
experience. In connection with this agreement, we recognized a
Special Items charge of $21 million during the quarter, primarily
related to the funding of investments for new back-of-house
equipment for franchisees.
- During the quarter, we recorded a $20
million refranchising loss in Special Items related to the planned
refranchising of certain international markets.
- Year-to-date through October 5, 2015,
we repurchased 4.5 million shares totaling $370 million at an
average price of $82.
- The Company’s Board of Directors
approved a 12% increase in the Company’s quarterly dividend. The
quarterly cash dividend will increase from $0.41 to $0.46 per share
and will be effective with the dividend payment to be distributed
on November 6, 2015 to shareholders of record at the close of
business on October 16, 2015. This increase raises the annual
dividend rate to $1.84 per share. Over the long term, Yum! is now
targeting a payout ratio of 45% to 50% of annual net income, before
Special Items.
CONFERENCE CALL
Yum! Brands, Inc. will host a conference call to review the
Company’s financial performance and strategies at 9:15 a.m. Eastern
Time Wednesday, October 7, 2015. The number is 877/815-2029 for
U.S. callers and 706/645-9271 for international callers.
The call will be available for playback beginning at 12:30 p.m.
Eastern Time Wednesday, October 7, through midnight Saturday,
November 7, 2015. To access the playback, dial 855/859-2056 in the
United States and 404/537-3406 internationally. The playback pass
code is 98023873.
The webcast and the playback can be accessed via the internet by
visiting Yum! Brands’ website, www.yum.com/investors and selecting “Q3 2015
Earnings Conference Call” under “Events & Presentations.” A
podcast will be available within 24 hours.
ADDITIONAL INFORMATION
ONLINE
Quarter end dates for each division, restaurant-count details
and definitions of terms are available online at www.yum.com under
“Investors.”
This announcement, any related announcements and the related
webcast 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 can be identified by the fact that they do not relate
strictly to historical or current facts. Our forward-looking
statements are subject to risks and uncertainties, which may cause
actual results to differ materially from those projected. Factors
that can cause our actual results to differ materially include, but
are not limited to: food safety and food borne-illness issues;
changes in economic conditions, consumer preferences, tax rates and
laws and the regulatory environment, as well as increased
competition and other risks in China, where a significant and
growing portion of our restaurants are located; the impact or
threat of any widespread illness or outbreaks of viruses or other
diseases; changes in economic and political conditions in the other
countries outside the U.S. where we operate; our ability to protect
the integrity and security of individually identifiable data of our
customers and employees; our ability to secure and maintain
distribution and adequate supply to our restaurants; the success of
our international development strategy; commodity, labor and other
operating costs; the continued viability and success of our
franchise and license operators; consumer preferences and
perceptions of our brands; the impact of social media; pending or
future litigation and legal claims or proceedings; changes in or
noncompliance with government regulations; tax matters, including
disagreements with taxing authorities; significant changes in
global economic conditions, including consumer spending, consumer
confidence and unemployment; and competition within the retail food
industry, including with respect to price and quality of food
products, new product development, advertising levels and
promotional initiatives, customer service, reputation, restaurant
location, and attractiveness and maintenance of properties. 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 Annual
Report on Form 10-K) for additional detail about factors that could
affect our financial and other results. Forward-looking statements
are based on current expectations and assumptions and currently
available data and are neither predictions nor guarantees of future
events or performance. You should not place undue reliance on
forward-looking statements, which speak only as of the date hereof.
We are not undertaking to update any of these statements.
Yum! Brands, Inc., based in Louisville, Kentucky, has over
41,000 restaurants in more than 125 countries and territories. Yum!
is ranked #228 on the Fortune 500 List with revenues of over $13
billion in 2014 and is one of the Aon Hewitt Top Companies for
Leaders in North America. The Company’s restaurant brands - KFC,
Pizza Hut and Taco Bell - are the global leaders of the chicken,
pizza and Mexican-style food categories. Outside the United States,
the Yum! Brands system opens over five new restaurants per day on
average, making it a leader in international 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 9/5/15
9/6/14 B/(W) 9/5/15 9/6/14 B/(W)
Company sales $ 2,968 $ 2,891 3 $ 7,806 $ 7,941 (2) Franchise and
license fees and income 459 463 (1) 1,348
1,341 — Total revenues 3,427 3,354 2 9,154
9,282 (1) Company restaurant expenses Food and
paper 933 951 2 2,462 2,562 4 Payroll and employee benefits 625 642
3 1,720 1,755 2 Occupancy and other operating expenses 871
869 — 2,292 2,326 1 Company restaurant
expenses 2,429 2,462 1 6,474 6,643 3 General and
administrative expenses 328 323 (1) 976 946 (3) Franchise and
license expenses 65 42 (54) 146 109 (34) Closures and impairment
(income) expenses 3 6 48 30 30 2 Refranchising (gain) loss 2 (20 )
NM 60 (27 ) NM Other (income) expense (3 ) (9 ) (67) (12 ) (19 )
(38) Total costs and expenses, net 2,824 2,804 (1)
7,674 7,682 — Operating Profit 603 550 10
1,480 1,600 (7) Interest expense, net 32 28 (11) 99
90 (9) Income before income taxes 571 522 10 1,381
1,510 (9) Income tax provision 145 119 (22) 358
370 3 Net income - including noncontrolling interests
426 403 6 1,023 1,140 (10) Net income (loss) - noncontrolling
interests 5 (1 ) NM 5 3 (72) Net income - YUM!
Brands, Inc. $ 421 $ 404 4 $ 1,018 $ 1,137
(10)
Effective tax rate
25.3 % 22.7 % (2.6 ppts.) 25.9 % 24.5 % (1.4 ppts.)
Basic EPS
Data
EPS $ 0.97 $ 0.91 6 $ 2.33 $ 2.55 (9)
Average shares outstanding 436 443 2 437 445
2
Diluted EPS
Data
EPS $ 0.95 $ 0.89 6 $ 2.29 $ 2.50 (9)
Average shares outstanding 444 452 2 445 455
2 Dividends declared per common share $ — $ —
$ 0.82 $ 0.74
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
CHINA DIVISION Operating
Results
(amounts in millions)
(unaudited)
Quarter ended % Change Year to date % Change 9/5/15
9/6/14 B/(W) 9/5/15 9/6/14 B/(W)
Company sales $ 1,935 $ 1,809 7 $ 4,778 $ 4,848 (1) Franchise and
license fees and income 34 31 13 83 80
4 Total revenues 1,969 1,840 7 4,861 4,928
(1) Company restaurant expenses Food and paper 611
598 (2) 1,518 1,547 2 Payroll and employee benefits 356 366 3 933
944 1 Occupancy and other operating expenses 589 576
(2) 1,481 1,488 — Company restaurant expenses 1,556
1,540 (1) 3,932 3,979 1 General and administrative expenses 90 95 5
258 259 — Franchise and license expenses 6 5 (21) 15 11 (34)
Closures and impairment (income) expenses 3 4 23 22 23 6 Other
(income) expense (13 ) (6 ) NM (27 ) (25 ) 5 1,642 1,638
— 4,200 4,247 1 Operating Profit $ 327
$ 202 62 $ 661 $ 681 (3) Company sales
100.0 % 100.0 % 100.0 % 100.0 % Food and paper 31.6 33.1 1.5 ppts.
31.8 31.9 0.1 ppts. Payroll and employee benefits 18.4 20.2 1.8
ppts. 19.5 19.5 — Occupancy and other operating expenses 30.4
31.8 1.4 ppts. 31.0 30.7 (0.3 ppts.)
Restaurant margin 19.6 % 14.9 % 4.7 ppts. 17.7 % 17.9 % (0.2 ppts.)
Operating margin 16.6 % 11.0 % 5.6 ppts. 13.6 % 13.8 % (0.2
ppts.)
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 9/5/15
9/6/14 B/(W) 9/5/15 9/6/14 B/(W)
Company sales $ 501 $ 566 (12) $ 1,451 $ 1,593 (9) Franchise and
license fees and income 193 205 (6) 579 596
(3) Total revenues 694 771 (10) 2,030
2,189 (7) Company restaurant expenses Food and paper
171 197 13 495 555 11 Payroll and employee benefits 120 135 11 342
384 11 Occupancy and other operating expenses 140 158
12 398 445 11 Company restaurant expenses 431 490 12
1,235 1,384 11 General and administrative expenses 92 91 (1) 264
261 (1) Franchise and license expenses 21 20 (6) 59 54 (9) Closures
and impairment (income) expenses — 1 NM 2 2 4 Other (income)
expense — —
NM
(1 ) 1 NM 544 602 10 1,559 1,702
8 Operating Profit $ 150 $ 169 (11) $ 471 $
487 (3) Company sales 100.0 % 100.0 % 100.0 % 100.0 %
Food and paper 34.1 34.8 0.7 ppts. 34.1 34.9 0.8 ppts. Payroll and
employee benefits 23.9 23.8 (0.1 ppts.) 23.6 24.1 0.5 ppts.
Occupancy and other operating expenses 28.0 28.0 —
27.4 27.9 0.5 ppts. Restaurant margin 14.0 % 13.4 %
0.6 ppts. 14.9 % 13.1 % 1.8 ppts. Operating margin 21.7 %
21.9 % (0.2 ppts.) 23.2 % 22.2 % 1.0 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 9/5/15
9/6/14 B/(W) 9/5/15 9/6/14 B/(W)
Company sales $ 141 $ 140 1 $ 430 $ 422 2 Franchise and license
fees and income 121 124 (3) 367 374 (2)
Total revenues 262 264 (1) 797 796 —
Company restaurant expenses Food and paper 40 41 3 120 126 5
Payroll and employee benefits 44 42 (5) 133 129 (3) Occupancy and
other operating expenses 46 44 (5) 135 129
(5) Company restaurant expenses 130 127 (2) 388 384 (1)
General and administrative expenses 58 58 (3) 176 165 (8) Franchise
and license expenses 8 11 27 25 29 14 Closures and impairment
(income) expenses (1 ) — NM 2 2 4 Other (income) expense — —
NM (2 ) 1 NM 195 196 — 589 581
(2) Operating Profit $ 67 $ 68 (3) $ 208
$ 215 (4) Company sales 100.0 % 100.0 % 100.0
% 100.0 % Food and paper 28.0 29.1 1.1 ppts. 27.8 29.8 2.0 ppts.
Payroll and employee benefits 31.5 30.5 (1.0 ppts.) 31.0 30.6 (0.4
ppts.) Occupancy and other operating expenses 32.7 31.5
(1.2 ppts.) 31.4 30.6 (0.8 ppts.) Restaurant
margin 7.8 % 8.9 % (1.1 ppts.) 9.8 % 9.0 % 0.8 ppts.
Operating margin 25.4 % 26.1 % (0.7 ppts.) 26.0 % 27.1 % (1.1
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 9/5/15
9/6/14 B/(W) 9/5/15 9/6/14 B/(W)
Company sales $ 366 $ 344 6 $ 1,071 $ 992 8 Franchise and license
fees and income 107 99 8 309 281 10
Total revenues 473 443 7 1,380 1,273 8
Company restaurant expenses Food and paper 100 101 1 297 297
— Payroll and employee benefits 100 95 (6) 299 287 (5) Occupancy
and other operating expenses 84 78 (9) 243 229
(6) Company restaurant expenses 284 274 (4) 839 813 (3)
General and administrative expenses 50 40 (20) 140 128 (8)
Franchise and license expenses 6 4 (30) 12 13 9 Closures and
impairment (income) expenses 1 1 NM 3 2 (76) Other (income) expense
— — NM (1 ) — NM 341 319 (7) 993
956 (4) Operating Profit $ 132 $ 124 6
$ 387 $ 317 22 Company sales 100.0 % 100.0 %
100.0 % 100.0 % Food and paper 27.3 29.2 1.9 ppts. 27.7 29.9 2.2
ppts. Payroll and employee benefits 27.5 27.6 0.1 ppts. 28.0 28.9
0.9 ppts. Occupancy and other operating expenses 23.1 22.5
(0.6 ppts.) 22.7 23.1 0.4 ppts. Restaurant
margin 22.1 % 20.7 % 1.4 ppts. 21.6 % 18.1 % 3.5 ppts.
Operating margin 28.0 % 28.1 % (0.1 ppts.) 28.1 % 24.9 % 3.2 ppts.
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
Condensed Consolidated Balance
Sheets
(amounts in millions)
(unaudited) 9/5/15 12/27/14
ASSETS Current
Assets Cash and cash equivalents $ 861 $ 578 Accounts and notes
receivable, less allowance: $20 in 2015 and $12 in 2014 355 325
Inventories 230 301 Prepaid expenses and other current assets 248
254 Deferred income taxes 113 93 Advertising cooperative assets,
restricted 112 95
Total Current Assets 1,919
1,646
Property, plant and equipment, net of
accumulated depreciation and amortization of $3,697 in 2015 and
$3,584 in 2014
4,263 4,498 Goodwill 674 700 Intangible assets, net 287 318
Investments in unconsolidated affiliates 53 52 Other assets 561 560
Deferred income taxes 563 571
Total Assets $
8,320 $ 8,345
LIABILITIES AND SHAREHOLDERS'
EQUITY Current Liabilities Accounts payable and other
current liabilities $ 1,811 $ 1,972 Income taxes payable 153 77
Short-term borrowings 566 267 Advertising cooperative liabilities
112 95
Total Current Liabilities 2,642 2,411
Long-term debt 2,651 3,077 Other liabilities and deferred
credits 1,120 1,244
Total Liabilities 6,413
6,732 Redeemable noncontrolling interest 8
9
Shareholders' Equity Common stock, no
par value, 750 shares authorized; 431 shares and 434 shares issued
in 2015 and 2014, respectively 8 — Retained earnings 2,079 1,737
Accumulated other comprehensive income (loss) (248 ) (190 )
Total Shareholders' Equity - YUM! Brands, Inc. 1,839 1,547
Noncontrolling interests 60 57
Total Shareholders'
Equity 1,899 1,604
Total Liabilities,
Redeemable Noncontrolling Interest and Shareholders' Equity $
8,320 $ 8,345
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of
Cash Flows
(amounts in millions)
(unaudited)
Year to date ended 9/5/15 9/6/14
Cash Flows
- Operating Activities Net income - including noncontrolling
interests $ 1,023 $ 1,140 Depreciation and amortization 505 501
Closures and impairment (income) expenses 30 30 Refranchising
(gain) loss 60 (27 ) Contributions to defined benefit pension plans
(83 ) (17 ) Deferred income taxes (42 ) (94 ) Equity income from
investments in unconsolidated affiliates (31 ) (31 ) Distributions
of income received from unconsolidated affiliates 9 12 Excess tax
benefit from share-based compensation (46 ) (29 ) Share-based
compensation expense 40 36 Changes in accounts and notes receivable
(15 ) (25 ) Changes in inventories 62 24 Changes in prepaid
expenses and other current assets (27 ) (3 ) Changes in accounts
payable and other current liabilities
197
59 Changes in income taxes payable 111 (24 ) Other, net 24
60
Net Cash Provided by Operating Activities
1,817
1,612
Cash Flows - Investing Activities
Capital spending (642 ) (655 ) Changes in short-term investments,
net (2 ) (315 ) Proceeds from refranchising of restaurants 72 66
Other, net 50 (16 )
Net Cash Used in Investing
Activities (522 ) (920 )
Cash Flows - Financing
Activities Repayments of long-term debt (10 ) (7 ) Short-term
borrowings by original maturity More than three months - proceeds —
2 More than three months - payments — — Three months or less, net —
— Revolving credit facilities, three months or less, net (116 ) 397
Repurchase shares of Common Stock (370 ) (510 ) Excess tax benefit
from share-based compensation 46 29 Employee stock option proceeds
12 21 Dividends paid on Common Stock (532 ) (490 ) Other, net
(49
) (28 )
Net Cash Used in Financing Activities
(1,019
) (586 )
Effect of Exchange Rate on Cash and Cash
Equivalents 7 6
Net Increase in Cash and Cash
Equivalents 283 112
Cash and Cash Equivalents - Beginning of
Period 578 573
Cash and Cash Equivalents - End
of Period $ 861 $ 685
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 operating results in 2015 and 2014 on a basis before
Special Items. Included in Special Items are gains/(losses)
associated with the refranchising of equity markets outside the
U.S., costs associated with the KFC U.S. Acceleration Agreement and
U.S. refranchising gains. These amounts are described in (c), (d)
and (e) in the accompanying notes. The Company uses earnings
before Special Items as a key performance measure of results of
operations for the purpose of evaluating performance internally and
Special Items are not included in any of our segment results. This
non-GAAP measurement is not intended to replace the presentation of
our financial results in accordance with GAAP. Rather, the Company
believes that the presentation of earnings before Special Items
provides additional information to investors to facilitate the
comparison of past and present operations, excluding items in the
quarters and years to date ended September 5, 2015 and September 6,
2014 that the Company does not believe are indicative of our
ongoing operations due to their size and/or nature.
Quarter ended Year to date 9/5/15
9/6/14 9/5/15 9/6/14
Detail of Special Items
Gains (losses) associated with the refranchising of equity markets
outside the U.S.(c) $ (20 ) $ 7 $ (93 ) $ 7 Costs associated with
KFC U.S. Acceleration Agreement(d) (21 ) — (31 ) — U.S.
Refranchising gain(e) 16 8 24 11 Other Special Items Income
(Expense) (1 ) — 1 — Total Special Items
Income (Expense) (26 ) 15 (99 ) 18 Tax Benefit (Expense) on Special
Items 4 (5 ) 5 (6 ) Special Items Income (Expense),
net of tax $ (22 ) $ 10 $ (94 ) $ 12 Average diluted
shares outstanding 444 452 445 455
Special Items diluted EPS $ (0.05 ) $ 0.02 $ (0.21 ) $ 0.02
Reconciliation of Operating Profit Before Special
Items to Reported Operating Profit Operating Profit Before
Special Items $ 629 $ 535 $ 1,579 $ 1,582 Special Items Income
(Expense) (26 ) 15 (99 ) 18 Reported Operating Profit
$ 603 $ 550 $ 1,480 $ 1,600
Reconciliation of EPS Before Special Items to Reported EPS
Diluted EPS Before Special Items $ 1.00 $ 0.87 $ 2.50 $ 2.48
Special Items EPS (0.05 ) 0.02 (0.21 ) 0.02 Reported
EPS $ 0.95 $ 0.89 $ 2.29 $ 2.50
Reconciliation of Effective Tax Rate Before Special Items to
Reported Effective Tax Rate Effective Tax Rate Before Special
Items 24.8 % 22.4 % 24.6 % 24.4 % Impact on Tax Rate as a result of
Special Items 0.5 % 0.3 % 1.3 % 0.1 % Reported Effective Tax Rate
25.3 % 22.7 % 25.9 % 24.5 %
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 9/5/15 China KFC Pizza Hut Taco Bell
India
CorporateandUnallocated
Consolidated Total revenues $ 1,969 $ 694 $ 262
$ 473 $ 29 $ — $ 3,427
Company restaurant expenses 1,556 431 130 284 28 — 2,429 General
and administrative expenses 90 92 58 50 6 32 328 Franchise and
license expenses 6 21 8 6 3 21 65 Closures and impairment (income)
expenses 3 — (1 ) 1 — — 3 Refranchising (gain) loss — — — — — 2 2
Other (income) expense (13 ) — — — — 10
(3 ) 1,642 544 195 341 37
65 2,824 Operating Profit (loss) $ 327 $ 150
$ 67 $ 132 $ (8 ) $ (65 ) $ 603
Quarter Ended 9/6/14 China KFC Pizza Hut Taco Bell India
CorporateandUnallocated
Consolidated Total revenues $ 1,840 $ 771 $ 264
$ 443 $ 36 $ — $ 3,354
Company restaurant expenses 1,540 490 127 274 31 — 2,462 General
and administrative expenses 95 91 58 40 6 33 323 Franchise and
license expenses 5 20 11 4 2 — 42 Closures and impairment (income)
expenses 4 1 — 1 — — 6 Refranchising (gain) loss — — — — — (20 )
(20 ) Other (income) expense (6 ) — — — —
(3 ) (9 ) 1,638 602 196 319 39
10 2,804 Operating Profit (loss) $ 202
$ 169 $ 68 $ 124 $ (3 ) $ (10 ) $ 550
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 9/5/15 China KFC Pizza Hut Taco Bell
India
CorporateandUnallocated
Consolidated Total revenues $ 4,861 $ 2,030 $ 797
$ 1,380 $ 86 $ — $ 9,154
Company restaurant expenses 3,932 1,235 388 839 80 — 6,474 General
and administrative expenses 258 264 176 140 16 122 976 Franchise
and license expenses 15 59 25 12 4 31 146 Closures and impairment
(income) expenses 22 2 2 3 1 — 30 Refranchising (gain) loss — — — —
— 60 60 Other (income) expense (27 ) (1 ) (2 ) (1 ) — 19
(12 ) 4,200 1,559 589 993 101
232 7,674 Operating Profit (loss) $ 661
$ 471 $ 208 $ 387 $ (15 ) $ (232 ) $ 1,480
Year to Date 9/6/14 China KFC Pizza Hut Taco
Bell India
CorporateandUnallocated
Consolidated Total revenues $ 4,928 $ 2,189 $ 796
$ 1,273 $ 96 $ — $ 9,282
Company restaurant expenses 3,979 1,384 384 813 83 — 6,643 General
and administrative expenses 259 261 165 128 17 116 946 Franchise
and license expenses 11 54 29 13 2 — 109 Closures and impairment
(income) expenses 23 2 2 2 1 — 30 Refranchising (gain) loss — — — —
— (27 ) (27 ) Other (income) expense (25 ) 1 1 —
— 4 (19 ) 4,247 1,702 581
956 103 93 7,682 Operating Profit
(loss) $ 681 $ 487 $ 215 $ 317 $ (7 ) $
(93 ) $ 1,600
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 Sheetsand
Condensed Consolidated Statements of Cash Flows(amounts in
millions)(unaudited)
(a)
Amounts presented as of and for the
quarter and year to date ended September 5, 2015 are
preliminary.
(b)
Other (income) expense for the China
Division primarily consists of equity (income) loss from
investments in unconsolidated affiliates.
(c)
In 2010 we refranchised our then remaining
Company-operated restaurants in Mexico. To the extent we owned it,
we did not sell the real estate related to certain of these
restaurants, instead leasing it to the franchisee. During the
quarter ended June 13, 2015 we initiated plans to sell this real
estate and determined it was held for sale in accordance with GAAP.
On September 28, 2015, subsequent to our quarter end, we sold the
real estate for approximately $58 million. While these proceeds
exceeded the book value of the real estate, the sale represents a
substantial liquidation of our Mexican operations under U.S. GAAP.
Accordingly, we were required to include accumulated translation
losses associated with our Mexican business within our carrying
value when performing impairment evaluations in the quarters
subsequent to determining that the restaurants were held for sale.
As such, we recorded charges of $12 million and $80 million in the
quarter and year to date ended September 5, 2015, respectively,
representing the excess of the sum of the book value of the real
estate and other related assets and our accumulated translation
losses over the then expected sales price. Consistent with the
classification of the original market refranchising transaction,
these charges were classified as Refranchising Loss within Special
Items. We do not expect to record further significant charges as a
result of the consummation of the sale.
Additionally, during the quarter and year to date ended
September 5, 2015 we recognized Special Items charges of $8 million
and $13 million, respectively, associated with the decision to
offer to refranchise our Pizza Hut Korea restaurants. The remaining
carrying value of these restaurants is not significant. While
additional charges may occur as the refranchising plans move
forward, such charges are not expected to be material at this time.
(d)
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 for the quarter and year to date
ended September 5, 2015 of $21 million and $31 million,
respectively, primarily related to the funding of investments for
new back-of-house equipment for franchisees. We continue to expect
a total Special Item charge of approximately $80 million in 2015
for these and other investments we agreed to fund.
(e)
During the quarters ended September 5,
2015 and September 6, 2014, we recorded Special Item gains of $16
million and $8 million, respectively, related to refranchising in
the U.S. During the years to date ended September 5, 2015 and
September 6, 2014, we recorded Special Item gains of $24 million
and $11 million, respectively, related to refranchising in the U.S.
Refranchising gains and losses in the U.S. have been reflected as
Special Items due to the scope of our U.S. refranchising program in
recent years and the volatility in associated gains and losses.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20151006006824/en/
Yum! Brands, Inc.Analysts:Steve Schmitt, Vice President Investor
Relations & Corporate Strategy, 888-298-6986Elizabeth Grenfell,
Director Investor Relations, 888-298-6986orMedia:Virginia Ferguson,
Director Public Relations, 502-874-8200
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