Yum! Brands, Inc. (NYSE: YUM) today reported results for the
fourth quarter ended December 31, 2017. Fourth-quarter GAAP EPS was
$1.26, an increase of 53%. Full-year GAAP EPS was $3.77, an
increase of 48%. Fourth-quarter EPS excluding Special Items was
$0.96, an increase of 20%. Full-year EPS excluding Special Items
was $2.96, an increase of 20%.
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GREG CREED & DAVID GIBBS
COMMENTS
Greg Creed, CEO, said “As we close the first full year of our
transformation, I am very proud of the progress we are making
towards becoming a more focused, more franchised and more efficient
company that generates more growth. During 2017, system sales grew
a healthy 5% excluding the impact of lapping the 53rd week in 2016,
with same-store sales growth of 2% and net new unit growth of 3%.
As we move forward into 2018, we are particularly excited about our
investment in ‘Easy’ with our new partnership with Grubhub. We are
confident that the continued focus on our four key growth drivers
supports our vision for a ‘World with More Yum!’ and maximizes the
creation of value for all Yum! stakeholders.”
David Gibbs, President and CFO, continued “The fourth quarter
was a solid ending to a year where Yum! Brands met or exceeded each
component of our full-year guidance. Despite headwinds from
refranchising dilution and lapping a 53rd week, we delivered
full-year core operating profit growth of 7%. We are on track with
our strategic transformation to accelerate growth and made
significant progress towards achieving these objectives in 2017. We
look forward to updating you as we continue on our journey to build
the world’s most loved, trusted and fastest-growing restaurant
brands.”
SUMMARY FINANCIAL TABLE
Fourth Quarter
Full Year 2017 2016 %
Change 2017 2016 %
Change GAAP EPS $1.26 $0.83 +53 $3.77
$2.54 +48 Special Items EPS1 $0.30 $0.03
NM $0.81 $0.08 NM EPS Excluding Special
Items $0.96 $0.80 +20 $2.96
$2.46 +20 1See Reconciliation of Non-GAAP Measurements to
GAAP Results within this release for further detail of Special
Items. 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 and full-year 2016 results. 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 Non-GAAP
Measurements to GAAP Results within this release for further
details. Unless otherwise noted, all results include the
impact of lapping the 53rd week in 2016.
FOURTH-QUARTER
HIGHLIGHTS
● Worldwide system sales grew 4%, with KFC at 6%, Taco Bell at 3%
and Pizza Hut at 1%, excluding the 53rd week. ● We opened 730 net
new units for 3% net unit growth. ●
We refranchised 896 restaurants, including
685 KFC, 144 Pizza Hut and 67 Taco Bell units, for pre-tax proceeds
of $1.1 billion. We recorded net refranchising gains of $752
million in Special Items. As of quarter end, our global franchise
ownership mix increased to 97%.
● We repurchased 7.5 million shares totaling $588 million at an
average price of $79. ● Foreign currency translation favorably
impacted divisional operating profit by $9 million.
% Change System Sales
Same-StoreSales
Net New Units
GAAPOperating Profit
CoreOperating Profit
KFC Division +4 +3 +4 +7 +4 Pizza Hut
Division (2) +1 +2 (18) (19) Taco Bell Division (2)
+2 +4 (8) (8) Worldwide +1 +2
+3 +134 (6)
Results Excluding 53rd Week (% Change) System Sales
CoreOperating Profit KFC Division +6 +8
Pizza Hut Division +1 (14) Taco Bell Division +3 (2)
Worldwide +4 (1)
FULL-YEAR HIGHLIGHTS
● Worldwide system sales grew 5%, with Taco Bell at 7%, KFC at 6%
and Pizza Hut at 2%, excluding the 53rd week. ● We opened 1,407 net
new units for 3% net unit growth. ● We refranchised 1,470
restaurants, including 828 KFC, 389 Pizza Hut and 253 Taco Bell
units, for pre-tax proceeds of $1.8 billion, recording net
refranchising gains of $1.1 billion in Special Items. ● We
repurchased 26.6 million shares totaling $1.9 billion at an average
price of $72.
% Change System
Sales
Same-StoreSales
Net New Units
GAAPOperating Profit
CoreOperating Profit
KFC Division +6 +3 +4 +13 +12 Pizza Hut
Division +1 Even +2 (7) (6) Taco Bell Division +5 +4
+4 +4 +4 Worldwide +4 +2
+3 +64 +7
Results
Excluding 53rd Week (% Change) System Sales
CoreOperating Profit KFC Division +6 +14 Pizza
Hut Division +2 (5) Taco Bell Division +7 +6
Worldwide +5 +9
KFC DIVISION
Fourth Quarter
Full Year %/ppts Change
%/ppts Change 2017 2016
Reported Ex F/X 2017
2016 Reported Ex F/X Restaurants
21,487 20,643 +4 NA 21,487 20,643 +4 NA System Sales
($MM) 6,827 6,424 +6 +4 24,515 23,242 +5 +6 Same-Store Sales Growth
(%) +3 +2 NM NM +3 +2 NM NM Franchise & License Fees ($MM) 351
308 +13 +10 1,182 1,069 +11 +10 Restaurant Margin (%) 14.6 15.5
(0.9) (1.0) 15.0 14.7 0.3 0.3 Operating Profit ($MM) 271 253 +7 +4
981 871 +13 +12 Operating Margin (%) 33.4 27.4
6.0 6.1 31.6 27.0 4.6 4.7
% Change Int'l Emerging
Markets Int'l Developed Markets
U.S.
FourthQuarter
Full Year
FourthQuarter
Full Year
FourthQuarter
Full Year System Sales Growth (Ex F/X) +9 +9
+2
+4
(7) (1) Same-Store Sales Growth +5 +4
+3
+3
(1) +1 ● KFC Division opened 539 new
international restaurants during the quarter. ○ For the year, KFC
Division opened 1,247 new international restaurants in 84
countries, including 1,042 units in emerging markets. ● Operating
margin increased 6.0 percentage points for the quarter and 4.6
percentage points for the year driven by refranchising and
same-store sales growth. ● For the quarter, the 53rd week
negatively impacted system sales growth by 2 percentage points and
core operating profit growth by 4 percentage points. For the year,
the 53rd week negatively impacted core operating profit growth by 2
percentage points. ● Foreign currency translation favorably
impacted operating profit by $8 million for the quarter and $4
million for the year.
KFC
Markets1
Percent of KFCSystem
Sales2
System Sales Growth Ex F/X Fourth
Quarter (%) Full Year (%) Emerging Markets
China3 27% +10 +9 Asia (e.g. Malaysia, Indonesia,
Philippines) 5% +8 +8 Latin America (e.g. Mexico, Peru) 5% +11 +12
Africa 4% (3) +2 Middle East / Turkey / North Africa 4% +6 +1
Russia 4% +26 +24 Continental Europe (e.g. Poland) 2% +14 +16
Thailand 2% +8 +5 India 1% +18 +9
Developed Markets U.S. 18%
(7) (1) Australia 7% Even +5 Asia (e.g. Japan, Korea) 6% Even Even
U.K. 6% +2 +5 Continental Europe (e.g. France, Germany) 6% +12 +11
Canada 2% Even +3 Latin America (e.g. Puerto Rico) 1%
(20) (6)
1Refer to
www.yum.com/investors/financial-information/financial-reports for a
list of the countries within each of the markets.
2Reflects full year 2017. 3Includes October, November and December;
YUMC Q4 reported results include September, October, November and
December.
PIZZA HUT DIVISION
Fourth Quarter
Full Year %/ppts Change
%/ppts Change 2017 2016
Reported Ex F/X 2017
2016 Reported Ex F/X
Restaurants 16,748 16,420 +2 NA 16,748 16,420 +2 NA
System Sales ($MM) 3,369 3,390 (1) (2) 12,034 12,019 Even +1
Same-Store Sales Growth (%) +1 (3) NM NM Even (2) NM NM Franchise
& License Fees ($MM) 175 182 (4) (5) 608 615 (1) (1) Restaurant
Margin (%) 2.4 9.3 (6.9) (6.9) 5.3 8.3 (3.0) (3.0) Operating Profit
($MM) 91 111 (18) (19) 341 367 (7) (6) Operating Margin (%)
38.8 35.9 2.9 3.1 38.2 33.1
5.1 5.4
% Change
Int'l Emerging Markets Int'l Developed
Markets1 U.S.
FourthQuarter
Full Year
FourthQuarter
Full Year
FourthQuarter
Full Year System Sales Growth (Ex F/X) +6 +7
(6) +2 (5) (4) Same-Store Sales Growth
+1 +1 (1) +1 +2 (2)
● Pizza Hut Division opened 340 new international
restaurants during the quarter. ○ For the year, Pizza Hut Division
opened 826 new international restaurants in 77 countries, including
592 units in emerging markets. ● Operating margin increased 2.9
percentage points for the quarter and 5.1 percentage points for the
year driven by refranchising partially offset by higher franchise
and license expense due to incremental advertising spend associated
with the U.S. Transformation Agreement. ● For the quarter, the 53rd
week negatively impacted system sales growth by 3 percentage points
and core operating profit growth by 5 percentage points. For the
year, the 53rd week negatively impacted system sales growth by 1
percentage point and core operating profit growth by 1 percentage
point. ● Foreign currency translation favorably impacted operating
profit by $1 million for the quarter and negatively impacted
operating profit by $4 million for the year.
Pizza Hut Markets2
Percent of Pizza HutSystem
Sales3
System Sales Growth Ex F/X Fourth
Quarter (%) Full Year (%) Emerging Markets
China4 17% +6 +7 Latin America (e.g. Mexico, Peru) 5% +1 +4
Asia (e.g. Malaysia, Indonesia, Philippines) 5% +12 +13 Middle East
/ Turkey / Africa 4% +1 +2 India 1% +18 +10 Continental Europe
(e.g. Poland) 1% +15 +12
Developed Markets U.S. 46% (5) (4)
Asia (e.g. Japan, Korea) 7% +6 +3 U.K.1 5% (23) (2) Continental
Europe (e.g. France, Germany) 4% (1) +3 Canada 2% (3) +1 Australia1
2% (11) +14 Latin America (e.g. Puerto Rico) 1% (20)
(5)
1Pizza Hut U.K. and Pizza Hut Australia,
both of which are International Developed Markets, transitioned
from a periodic weekly calendar to a monthly calendar beginning in
the first quarter of 2017. As a result, system sales growth for
both markets was negatively impacted in the fourth quarter due to
Q4 2017 results having approximately 13 weeks compared to Q4 2016
results having 17 weeks, including a 53rd week. There was not a
significant impact from this calendar change on full-year system
sales growth for either market.
2Refer to
www.yum.com/investors/financial-information/financial-reports for a
list of the countries within each of the markets.
3Reflects full year 2017. 4Includes October, November and December;
YUMC Q4 reported results include September, October, November and
December.
TACO BELL DIVISION
Fourth Quarter
Full Year %/ppts Change
%/ppts Change 2017 2016
Reported Ex F/X 2017
2016 Reported Ex F/X Restaurants
6,849 6,612 +4 NA 6,849 6,612 +4 NA System Sales
($MM) 3,087 3,137 (2) (2) 10,145 9,660 +5 +5 Same-Store Sales
Growth (%) +2 +3 NM NM +4 +2 NM NM Franchise & License Fees
($MM) 163 158 +4 +4 521 485 +7 +7 Restaurant Margin (%) 23.1 23.4
(0.3) (0.3) 22.4 22.2 0.2 0.2 Operating Profit ($MM) 179 195 (8)
(8) 619 595 +4 +4 Operating Margin (%) 33.6 29.8
3.8 3.8 32.9 29.4 3.5 3.5
● Taco Bell Division opened 134 new restaurants during the
quarter. ○ For the year, Taco Bell Division opened 314 new
restaurants, including 77 international new restaurants. ●
Operating margin increased 3.8 percentage points for the quarter
and 3.5 percentage points for the year driven by refranchising and
same-store sales growth. ● For the quarter, the 53rd week
negatively impacted system sales growth by 5 percentage points and
core operating profit growth by 6 percentage points. For the year,
the 53rd week negatively impacted both system sales growth and core
operating profit growth by 2 percentage points.
OTHER ITEMS
● The Tax Cuts and Jobs Act of 2017 (“Tax Act”) that was enacted on
December 22nd required that earnings repatriated from our foreign
entities with a November 30 year-end for tax purposes be included
in the Deemed Repatriation Tax on foreign earnings that was
included in the Tax Act. Our fourth quarter and full year effective
tax rates excluding Special Items were lower than anticipated
because they did not include tax on those earnings repatriated
after November 30. Instead, that tax was included in the one-time
Special Items charge of $434 million that we recorded in the fourth
quarter related to the Tax Act. ● Disclosures pertaining to
outstanding debt in our Restricted Group capital structure will be
provided at the time of the filing of the Form 10-K.
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, February 8, 2018. The number is 877/815-2029 for
U.S. callers and 706/645-9271 for international callers, conference
ID 4894878.
The call will be available for playback beginning at 11:15 a.m.
Eastern Time Thursday, February 8, 2018 through Thursday, March 15,
2018. To access the playback, dial 855/859-2056 in the U.S. and
404/537-3406 internationally, conference ID 4894878.
The webcast and playback can be accessed via the internet by
visiting Yum! Brands' website,
www.yum.com/investors/events-presentations and selecting “Q4 2017
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. Reconciliation of non-GAAP
financial measures to the most directly comparable GAAP results 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; the success of our
franchisees and licensees, and the success of our refranchising
strategy generally; 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; our increasing
dependence on digital commerce platforms and information technology
systems; 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; 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; recent Tax
Legislation (defined below) and other 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.
Information regarding the impact of the Tax Cuts and Jobs Act of
2017 (“Tax Legislation”) consists of preliminary estimates which
are forward-looking statements and are subject to change, possibly
materially, as the company completes its financial statements.
Information regarding the impact of Tax Legislation is based on our
current calculations, as well our current interpretations,
assumptions and expectations relating to Tax Legislation, which are
subject to further change.
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
45,000 restaurants in more than 135 countries and territories and
is one of the Aon Hewitt Top Companies for Leaders in North
America. In 2018, Yum! Brands was recognized as part of the
inaugural Bloomberg Gender-Equality Index. In 2017, Yum! Brands was
named to the Dow Jones Sustainability North America Index and
ranked among the top 100 Best Corporate Citizens by Corporate
Responsibility Magazine. The company’s restaurant brands - KFC,
Pizza Hut and Taco Bell - are global leaders of the chicken, pizza
and Mexican-style food categories. Worldwide, the Yum! Brands
system opens over seven new restaurants per day on average, making
it a leader in global retail development.
YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share
amounts)
(unaudited)
Quarter ended Year ended 12/31/17
12/31/16(As Restated)
% ChangeB/(W)
12/31/17
12/31/16(As Restated)
% ChangeB/(W)
Company sales $ 890 $ 1,238 (28) $ 3,572 $ 4,189 (15)
Franchise and license fees and income 687 648 6 2,306
2,167 6 Total revenues 1,577 1,886 (16)
5,878 6,356 (8) Company restaurant expenses
Food and paper 272 370 26 1,103 1,267 13 Payroll and employee
benefits 232 326 29 939 1,106 15 Occupancy and other operating
expenses 227 318 29 912 1,116 18
Company restaurant expenses 731 1,014 28 2,954 3,489 15
General and administrative expenses 300 362 17 999 1,129 12
Franchise and license expenses 76 56 (35) 237 201 (18) Closures and
impairment (income) expenses — 5 95 3 15 82 Refranchising (gain)
loss (752 ) (88 ) NM (1,083 ) (163 ) NM Other (income) expense 7
17 60 7 3 NM Total costs and expenses,
net 362 1,366 74 3,117 4,674 33
Operating Profit 1,215 520 134 2,761 1,682 64 Interest expense, net
118 114 (4) 440 305 (44) Other pension (income) expense 5 34
84 47 32 (45) Income from continuing
operations before income taxes 1,092 372
193
2,274 1,345 69 Income tax provision 656 64 NM 934
327 NM Income from continuing operations 436 308 42
1,340 1,018 32 Income (loss) from discontinued operations, net of
tax — (5 ) NM — 625 NM Net income 436
303 44 1,340 1,643 (18)
Effective tax rate
from Continuing Operations
60.1 % 17.2 % (42.9) ppts. 41.1 % 24.3 % (16.8) ppts.
Basic EPS from
Continuing Operations
EPS $ 1.29 $ 0.84 54 $ 3.86 $ 2.58 49
Average shares outstanding 337 366 8 347 394
12
Diluted EPS from
Continuing Operations
EPS $ 1.26 $ 0.83 53 $ 3.77 $ 2.54 48
Average shares outstanding 345 372 7 355 400
11
Basic EPS from
Discontinued Operations
EPS N/A $ (0.01 ) NM N/A $ 1.59 NM Average shares
outstanding N/A 366 NM N/A 394 NM
Diluted EPS from
Discontinued Operations
EPS N/A $ (0.01 ) NM N/A $ 1.56 NM Average shares
outstanding N/A 372 NM N/A 400 NM Dividends
declared per common share $ 0.30 $ 0.30 $ 0.90
$ 1.73
See accompanying notes.Percentages may not
recompute due to rounding.
YUM! Brands, Inc.
KFC DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended Year ended 12/31/17
12/31/16(As Restated)
% ChangeB/(W)
12/31/17
12/31/16(As Restated)
% ChangeB/(W)
Company sales $ 463 $ 615 (25) $ 1,928 $ 2,156 (11)
Franchise and license fees and income 351 308 13
1,182 1,069 11 Total revenues 814 923
(12) 3,110 3,225 (4) Company restaurant
expenses Food and paper 160 207 23 664 733 9 Payroll and employee
benefits 106 145 27 451 507 11 Occupancy and other operating
expenses 129 167 23 524 599 13 Company
restaurant expenses 395 519 24 1,639 1,839 11 General and
administrative expenses 111 120 7 370 396 7 Franchise and license
expenses 37 26 (39) 117 108 (8) Closures and impairment (income)
expenses (1 ) 5 NM 2 11 81 Other (income) expense 1 —
NM 1 — NM Total costs and expenses, net 543
670 19 2,129 2,354 10 Operating Profit $ 271
$ 253 7 $ 981 $ 871 13 Company
sales 100.0 % 100.0 % 100.0 % 100.0 % Food and paper 34.7 % 33.9 %
(0.8) ppts. 34.4 % 34.0 % (0.4) ppts. Payroll and employee benefits
23.0 % 23.6 % 0.6 ppts. 23.4 % 23.5 % 0.1 ppts. Occupancy and other
operating expenses 27.7 % 27.0 % (0.7) ppts. 27.2 % 27.8 % 0.6
ppts. Restaurant margin 14.6 % 15.5 % (0.9) ppts. 15.0 % 14.7 % 0.3
ppts. Operating margin 33.4 % 27.4 % 6.0 ppts. 31.6 % 27.0 %
4.6 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 Year ended 12/31/17
12/31/16(As Restated)
% ChangeB/(W)
12/31/17
12/31/16(As Restated)
% ChangeB/(W)
Company sales $ 59 $ 127 (54) $ 285 $ 493 (42) Franchise and
license fees and income 175 182 (4) 608 615
(1) Total revenues 234 309 (24) 893
1,108 (19) Company restaurant expenses Food and paper
18 36 51 83 137 40 Payroll and employee benefits 20 40 51 94 156 40
Occupancy and other operating expenses 21 39 49 94
159 41 Company restaurant expenses 59 115 50 271 452
40 General and administrative expenses 60 72 15 211 242 13
Franchise and license expenses 24 13 (81) 68 48 (42) Closures and
impairment (income) expenses 1 (2 ) NM 1 1 16 Other (income)
expense (1 ) — NM 1 (2 ) NM Total costs and expenses,
net 143 198 28 552 741 26 Operating
Profit $ 91 $ 111 (18) $ 341 $ 367 (7)
Company sales 100.0 % 100.0 % 100.0 % 100.0 % Food and paper
29.8 % 28.0 % (1.8) ppts. 28.9 % 27.7 % (1.2) ppts. Payroll and
employee benefits 33.2 % 31.3 % (1.9) ppts. 32.8 % 31.7 % (1.1)
ppts. Occupancy and other operating expenses 34.6 % 31.4 % (3.2)
ppts. 33.0 % 32.3 % (0.7) ppts. 2.4 % 9.3 % (6.9) ppts. 5.3 % 8.3 %
(3.0) ppts. Operating margin 38.8 % 35.9 % 2.9 ppts. 38.2 %
33.1 % 5.1 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 Year ended 12/31/17 12/31/16
(As Restated)
% ChangeB/(W)
12/31/17 12/31/16
(As Restated)
% ChangeB/(W)
Company sales $ 368 $ 496 (26) $ 1,359 $ 1,540 (12)
Franchise and license fees and income 163 158 4 521
485 7 Total revenues 531 654 (19) 1,880
2,025 (7) Company restaurant expenses Food and
paper 94 127 25 356 397 10 Payroll and employee benefits 106 141 25
394 443 11 Occupancy and other operating expenses 82 112
27 304 358 15 Company restaurant expenses 282
380 26 1,054 1,198 12 General and administrative expenses 66
70 7 188 211 11 Franchise and license expenses 6 8 30 22 21 (6)
Closures and impairment (income) expenses — 2 80 — 3 NM Other
(income) expense (2 ) (1 ) 47 (3 ) (3 ) (19) Total costs and
expenses, net 352 459 23 1,261 1,430 12
Operating Profit $ 179 $ 195 (8) $ 619 $ 595
4 Company sales 100.0 % 100.0 % 100.0 % 100.0 % Food
and paper 25.7 % 25.5 % (0.2) ppts. 26.2 % 25.7 % (0.5) ppts.
Payroll and employee benefits 28.9 % 28.5 % (0.4) ppts. 29.0 % 28.8
% (0.2) ppts. Occupancy and other operating expenses 22.3 % 22.6 %
0.3 ppts. 22.4 % 23.3 % 0.9 ppts. 23.1 % 23.4 % (0.3) ppts. 22.4 %
22.2 % 0.2 ppts. Operating margin 33.6 % 29.8 % 3.8 ppts.
32.9 % 29.4 % 3.5 ppts.
See accompanying notes.Percentages may not
recompute due to rounding.
YUM! Brands, Inc.
Consolidated Balance Sheets
(amounts in millions)
(unaudited)
12/31/2017
12/31/16(As Restated)
ASSETS Current Assets Cash and cash equivalents $
1,522 $ 725 Accounts and notes receivable, less allowance: $19 in
2017 and $14 in 2016 400 370 Inventories 13 37 Prepaid expenses and
other current assets 371 236 Advertising cooperative assets,
restricted 201 137
Total Current Assets 2,507
1,505
Property, plant and equipment, net of
accumulated depreciation and amortization of $1,480 in 2017 and
$1,995 in 2016
1,697 2,113 Goodwill 512 536 Intangible assets, net 110 151 Other
assets 346 376 Deferred income taxes 139 772
Total
Assets $ 5,311 $ 5,453
LIABILITIES AND
SHAREHOLDERS' DEFICIT Current Liabilities Accounts
payable and other current liabilities $ 813 $ 1,067 Income taxes
payable 123 36 Short-term borrowings 375 66 Advertising cooperative
liabilities 201 137
Total Current Liabilities
1,512 1,306 Long-term debt 9,429 9,059 Other liabilities and
deferred credits 704 703
Total Liabilities
11,645 11,068
Shareholders' Deficit
Common stock, no par value, 750 shares authorized; 332 shares and
355 shares issued in 2017 and 2016, respectively — — Accumulated
deficit (6,063 ) (5,157 ) Accumulated other comprehensive loss (271
) (458 )
Total Shareholders' Deficit (6,334 ) (5,615 )
Total Liabilities and Shareholders' Deficit $ 5,311 $
5,453
See accompanying notes.
YUM! Brands, Inc.
Consolidated Statements of Cash
Flows
(amounts in millions)
(unaudited)
Year ended 12/31/17
12/31/16(As Restated)
Cash Flows - Operating Activities from Continuing Operations
Income from continuing operations $ 1,340 $ 1,643 Income from
discontinued operations, net of tax — (625 ) Depreciation and
amortization 253 310 Closures and impairment (income) expenses 3 15
Refranchising (gain) loss (1,083 ) (163 ) Contributions to defined
benefit pension plans (55 ) (41 ) Deferred income taxes 634 28
Share-based compensation expense 65 80 Changes in accounts and
notes receivable (19 ) (23 ) Changes in inventories 3 1 Changes in
prepaid expenses and other current assets (13 ) 12 Changes in
accounts payable and other current liabilities (173 ) (53 ) Changes
in income taxes payable (55 ) 20 Other, net 130 44
Net Cash Provided by Operating Activities from Continuing
Operations 1,030 1,248
Cash Flows -
Investing Activities from Continuing Operations Capital
spending (318 ) (427 ) Proceeds from refranchising of restaurants
1,773 370 Other, net 17 53
Net Cash Used in
Investing Activities from Continuing Operations 1,472 (4
)
Cash Flows - Financing Activities from Continuing
Operations Proceeds from long-term debt 1,088 6,900 Repayments
of long-term debt (385 ) (323 ) Revolving credit facilities, three
months or less, net — (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 (1,960 ) (5,403 ) Dividends paid on Common Stock
(416 ) (744 ) Debt issuance costs (32 ) (86 ) Net transfers from
discontinued operations — 289 Other, net (90 ) (92 )
Net Cash Provided by (Used in)
Financing Activities from Continuing Operations
(1,795 ) (744 )
Effect of Exchange Rate on Cash and Cash
Equivalents 61 (34 )
Net Increase in Cash, Cash Equivalents,
Restricted Cash and Restricted Cash Equivalents - Continuing
Operations
768 466
Cash, Cash Equivalents, Restricted Cash and
Restricted Cash Equivalents - Beginning of Period 831
365
Cash, Cash Equivalents, Restricted Cash and
Restricted Cash Equivalents - End of Period $ 1,599 $
831
Cash Provided by Operating Activities
from Discontinued Operations
— 829
Cash Used in Investing Activities from
Discontinued Operations
— (287 )
Cash Used in Financing Activities from
Discontinued Operations
— (292 )
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, System sales excluding the impact of foreign
currency translation ("FX"), System sales excluding the impact of
FX and 53rd week, Core Operating Profit and Core Operating Profit
excluding 53rd week. Core Operating Profit excludes Special Items
and FX and we use Core Operating Profit for the purposes of
evaluating performance internally. We provide Core Operating Profit
and System sales excluding 53rd week to further enhance the
comparability with the lapping of the 53rd week that was part of
our fiscal calendar in 2016. Special Items are not included in any
of our Division segment results, and we believe the elimination of
FX provides better year-to-year comparability without the
distortion of foreign currency fluctuations. The Special Items are
described in (b), (c), (d), (e), (f), (g) and (h) 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, Core
Operating Profit and Core Operating Profit excluding 53rd week
provide additional information to investors to facilitate the
comparison of past and present operations, excluding items in the
quarters and years ended December 31, 2017 and December 31, 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 ended 12/31/17
12/31/16(As Restated)
12/31/17
12/31/16(As Restated)
Detail of Special Items Refranchising gain (loss)(b) $ 752 $
88 $ 1,083 $ 163 YUM's Strategic Transformation initiatives(c) (8 )
(33 ) (23 ) (67 ) Costs associated with Pizza Hut U.S.
Transformation Agreement(d) (11 ) — (31 ) — Costs associated with
KFC U.S. Acceleration Agreement(e) (5 ) (9 ) (17 ) (26 ) Non-cash
charges associated with share-based compensation(f) — (30 ) (18 )
(30 ) Other Special Items Income (Expense) 4 (2 ) 7
(5 ) Special Items Income - Operating Profit 732 14 1,001 35
Special Items - Other Pension Income (Expense)(g) — (26 )
(23 ) (26 ) Special Items Income (Expense) from Continuing
Operations before Income Taxes 732 (12 ) 978 9 Tax Benefit
(Expense) on Special Items (192 ) 24 (256 ) 24 Tax (Expense) - U.S.
Tax Act(h) (434 ) — (434 ) — Special Items Income,
net of tax $ 106 $ 12 $ 288 $ 33
Average diluted shares outstanding 345 372 355
400 Special Items diluted EPS $ 0.30 $ 0.03 $
0.81 $ 0.08
Reconciliation of GAAP
Operating Profit to Core Operating Profit and Core Operating
Profit, excluding 53rd Week
Consolidated
GAAP Operating Profit $ 1,215 $ 520 $ 2,761 $ 1,682 Special Items
Income 732 14 1,001 35 Foreign Currency Impact on Divisional
Operating Profit 9 N/A — N/A Core Operating Profit
474 506 1,760 1,647 Impact of 53rd Week N/A 28 N/A 28
Core Operating Profit, excluding 53rd Week $ 474 $ 478
$ 1,760 $ 1,619 Quarter ended
Year ended
12/31/17
12/31/16(As Restated)
12/31/17
12/31/16(As Restated)
KFC
Division
GAAP Operating Profit $ 271 $ 253 $ 981 $ 871 Foreign Currency
Impact on Divisional Operating Profit 8 N/A 4 N/A
Core Operating Profit 263 253 977 871 Impact of 53rd Week N/A 11
N/A 11 Core Operating Profit, excluding 53rd Week $
263 $ 242 $ 977 $ 860
Pizza Hut
Division
GAAP Operating Profit $ 91 $ 111 $ 341 $ 367 Foreign Currency
Impact on Divisional Operating Profit 1 N/A (4 ) N/A Core
Operating Profit 90 111 345 367 Impact of 53rd Week N/A 5
N/A 5 Core Operating Profit, excluding 53rd Week $ 90
$ 106 $ 345 $ 362
Taco Bell
Division
GAAP Operating Profit $ 179 $ 195 $ 619 $ 595 Foreign Currency
Impact on Divisional Operating Profit — N/A — N/A
Core Operating Profit 179 195 619 595 Impact of 53rd Week N/A 12
N/A 12 Core Operating Profit, excluding 53rd Week $
179 $ 183 $ 619 $ 583
Reconciliation of Diluted EPS from Continuing Operations to
Diluted EPS from Continuing Operations excluding Special Items
Diluted EPS from Continuing Operations $ 1.26 $ 0.83 $ 3.77 $ 2.54
Special Items Diluted EPS 0.30 0.03 0.81 0.08
Diluted EPS from Continuing Operations excluding Special
Items $ 0.96 $ 0.80 $ 2.96 $ 2.46
Reconciliation of GAAP Effective Tax Rate to Effective
Tax Rate excluding Special Items GAAP Effective Tax Rate 60.1 %
17.2 % 41.1 % 24.3 % Impact on Tax Rate as a result of Special
Items 51.8 % (5.8 )% 22.3 % (2.0 )% Effective Tax Rate excluding
Special Items 8.3 % 23.0 % 18.8 % 26.3 %
Reconciliation
of GAAP Company Sales to System Sales, System Sales excluding FX
and System Sales excluding FX and 53rd Week
Consolidated
GAAP Company sales
$ 890 $ 1,238 $ 3,572 $ 4,189
Franchise sales
12,393 11,713 43,122 40,732
System sales
13,283 12,951 46,694 44,921
Foreign Currency Impact on System
sales
225 N/A (90 ) N/A System sales, excluding FX 13,058 12,951
46,784 44,921 Impact of 53rd week N/A 434 N/A 434
System sales, excluding FX and 53rd Week $ 13,058 $ 12,517
$ 46,784 $ 44,487
KFC
Division
GAAP Company sales
$ 463 $ 615 $ 1,928 $ 2,156
Franchise sales
6,364 5,809 22,587 21,086
System sales
6,827 6,424 24,515 23,242
Foreign Currency Impact on System
sales
178 N/A (28 ) N/A System sales, excluding FX 6,649 6,424
24,543 23,242 Impact of 53rd week N/A 165 N/A 165
System sales, excluding FX and 53rd Week $ 6,649 $ 6,259
$ 24,543 $ 23,077 Quarter ended
Year ended 12/31/17
12/31/16(As Restated)
12/31/17
12/31/16(As Restated)
Pizza Hut
Division
GAAP Company sales
$ 59 $ 127 $ 285 $ 493
Franchise sales
3,310 3,263 11,749 11,526
System sales
3,369 3,390 12,034 12,019
Foreign Currency Impact on System
sales
45 N/A (66 ) N/A System sales, excluding FX 3,324 3,390
12,100 12,019 Impact of 53rd week N/A 113 N/A 113
System sales, excluding FX and 53rd Week $ 3,324 $ 3,277
$ 12,100 $ 11,906
Taco Bell
Division
GAAP Company sales
$ 368 $ 496 $ 1,359 $ 1,540
Franchise sales
2,719 2,641 8,786 8,120
System sales
3,087 3,137 10,145 9,660
Foreign Currency Impact on System
sales
2 N/A 4 N/A System sales, excluding FX 3,085 3,137
10,141 9,660 Impact of 53rd week N/A 156 N/A 156
System sales, excluding FX and 53rd Week $ 3,085 $ 2,981
$ 10,141 $ 9,504
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 12/31/17 KFC Pizza Hut Taco Bell
Corporate andUnallocated
Consolidated Total revenues $ 814 $ 234 $ 531
$ (2 ) $ 1,577 Company restaurant expenses 395 59 282
(5 ) 731 General and administrative expenses 111 60 66 63 300
Franchise and license expenses 37 24 6 9 76 Closures and impairment
(income) expenses (1 ) 1 — — — Refranchising (gain) loss — — — (752
) (752 ) Other (income) expense 1 (1 ) (2 ) 9 7
Total costs and expenses, net 543 143 352
(676 ) 362 Operating Profit (loss) $ 271 $ 91
$ 179 $ 674 $ 1,215
Quarter Ended 12/31/16 (As Restated) KFC Pizza Hut Taco Bell
Corporate andUnallocated
Consolidated Total revenues $ 923 $ 309 $ 654
$ — $ 1,886 Company restaurant expenses 519
115 380 — 1,014 General and administrative expenses 120 72 70 100
362 Franchise and license expenses 26 13 8 9 56 Closures and
impairment (income) expenses 5 (2 ) 2 — 5 Refranchising (gain) loss
— — — (88 ) (88 ) Other (income) expense — — (1 ) 18
17 Total costs and expenses, net 670 198
459 39 1,366 Operating Profit (loss) $
253 $ 111 $ 195 $ (39 ) $ 520
The above tables reconcile segment information, which is based
on management responsibility, with our 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 Ended 12/31/17 KFC Pizza Hut Taco Bell
Corporate andUnallocated
Consolidated Total revenues $ 3,110 $ 893 $ 1,880
$ (5 ) $ 5,878 Company restaurant expenses
1,639 271 1,054 (10 ) 2,954 General and administrative expenses 370
211 188 230 999 Franchise and license expenses 117 68 22 30 237
Closures and impairment (income) expenses 2 1 — — 3 Refranchising
(gain) loss — — — (1,083 ) (1,083 ) Other (income) expense 1
1 (3 ) 8 7 Total costs and expenses, net 2,129
552 1,261 (825 ) 3,117 Operating Profit
(loss) $ 981 $ 341 $ 619 $ 820 $ 2,761
Year Ended 12/31/16 (As Restated) KFC
Pizza Hut Taco Bell
Corporate andUnallocated
Consolidated Total revenues $ 3,225 $ 1,108 $ 2,025
$ (2 ) $ 6,356 Company restaurant expenses
1,839 452 1,198 — 3,489 General and administrative expenses 396 242
211 280 1,129 Franchise and license expenses 108 48 21 24 201
Closures and impairment (income) expenses 11 1 3 — 15 Refranchising
(gain) loss — — — (163 ) (163 ) Other (income) expense — (2
) (3 ) 8 3 Total costs and expenses, net 2,354
741 1,430 149 4,674 Operating Profit
(loss) $ 871 $ 367 $ 595 $ (151 ) $ 1,682
The above tables reconcile segment information, which is based
on management responsibility, with our 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 Consolidated Summary of
Results, Consolidated Balance Sheets
and Consolidated Statements of Cash
Flows
(amounts in millions)
(unaudited)
(a) Amounts presented as of and for the quarters and years
ended December 31, 2017 and December 31, 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 December 31, 2017 and 2016 of $752 million and $88
million, respectively, that have been reflected as Special Items.
During the years ended December 31, 2017 and 2016, we recorded net
refranchising gains of $1.1 billion and $163 million, respectively,
that have been reflected as Special Items. The fourth quarter 2017
net refranchising gains related primarily to refranchising KFC
restaurants in Thailand, Australia and the UK, and the
refranchising of Taco Bell, KFC and Pizza Hut restaurants in the
U.S. The fourth quarter 2016 net refranchising gains related
primarily to refranchising Taco Bell restaurants in the U.S. and
KFC restaurants in Thailand and Germany.
(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 December 31, 2017 and 2016, we recognized Special Item
charges of $8 million and $33 million, respectively, related to
these initiatives. During the years ended December 31, 2017 and
2016, we recognized Special Item charges of $23 million and $67
million, respectively. In the fourth quarter of 2017, these costs
primarily related to contract termination costs, that were recorded
within G&A. During the remainder of 2017 and 2016, these costs
related primarily to severance, a 2016 voluntary retirement program
offered to certain U.S. employees and relocation costs that were
recorded within G&A.
(d)
On May 1, 2017, we reached an agreement
with our 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 ended December 31, 2017, we recorded Special
Item charges of $11 million and $31 million, respectively, for
these investments. The majority of 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 $5 million and $9 million for
the quarters ended December 31, 2017 and December 31, 2016. During
the years ended December 31, 2017 and December 31, 2016, we
recognized Special Item charges of $17 million and $26 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 Consolidated Income Statement. During the quarter
and year ended December 31, 2017, we recorded non-cash Special Item
charges of less than $1 million and $18 million, respectively,
related to these awards. In the fourth quarter of 2016, we recorded
non-cash Special Item charges of $30 million related to these
awards. (g)
We recorded 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. As a
result of payments made of $225 million related to this program
exceeding the sum of service and interest costs within the Plan, we
recorded a Special Items settlement charge of $24 million in
G&A during the quarter and year ended December 31, 2016. In
connection with this program, we incurred an additional Special
Items settlement charge of $1 million during the third quarter of
2017. These charges are recorded in Other pension (income)
expense.
(h)
During the fourth quarter of 2017, we
recorded a one-time charge of $434 million related to the Tax Cuts
and Jobs Act of 2017 (“Tax Act”) as enacted by the United States
government on December 22, 2017. This charge included a deemed
repatriation tax expense of $170 million on undistributed foreign
earnings, $75 million of expense associated with the remeasurement
of net deferred tax assets to the new 21% U.S. corporate tax rate
and $189 million of valuation allowances established against
foreign tax credit carryforwards which we no longer expect to
utilize under the territorial system that is part of the Tax Act.
This one-time charge is based upon our current estimates and
interpretations of the Tax Act, and could be subject to further
change as additional guidance and accounting interpretation is
issued.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20180208005427/en/
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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