GAAP Operating Profit Decline of (2)%; Core
Operating Profit Growth of 7%; System Sales Growth of 1% with
2% Net Unit Growth Offset by a Same-Store Sales Decline
of (2)%
Yum! Brands, Inc. (NYSE: YUM) today reported results for the
third-quarter ended September 30, 2020. Worldwide system sales
excluding foreign currency translation grew 1%, with 2% net-new
unit growth and a (2)% same-store sales decline. Third-quarter GAAP
EPS was $0.92, an increase of 14% over the prior year quarter.
Third-quarter EPS excluding Special Items was $1.01, an increase of
27% over the prior year quarter.
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DAVID GIBBS COMMENTS
David Gibbs, CEO, said “Third-quarter results were encouraging,
demonstrating the resilience of the Yum! portfolio as Yum!
generated year-over-year core operating profit growth, continued to
reopen temporarily closed restaurants and achieved global
same-store sales growth of approximately flat, in aggregate, for
our open store base. For the second consecutive quarter, digital
sales increased by more than $1 billion over the prior year and set
a single quarter record of $4 billion. These results are a
testament to the hard work and collaboration across our four
brands, and I want to thank our entire global system for
exceptional execution of our Recipe for Growth and Good strategy
this quarter. Our employees, franchisees and restaurant team
members continued to adapt to this year's ever-changing environment
while also accelerating progress on our digital and technology
journey. Importantly, our balance sheet and liquidity position are
strong and franchisee health improved. I’m confident that by
continuing to leverage our unmatched scale and champion the
technology-centric customer experience, we will drive global
growth, enhance unit-level economics and maximize long-term value
for all of our stakeholders.”
THIRD-QUARTER HIGHLIGHTS
- Worldwide system sales excluding foreign currency translation
grew 1%, with Taco Bell at 5%, offset by KFC at (1)% and Pizza Hut
at (4)%.
- We reported 2% net unit growth year-over-year and a unit
decline of (267) during the quarter.
- We recorded $8 million of pre-tax investment income related to
the change in fair value of our investment in Grubhub, which
resulted in a $0.02 benefit to EPS on the third-quarter. Our
Grubhub investment favorably impacted year-over-year EPS growth by
$0.17, as we lapped a $60 million of pre-tax investment expense in
the third-quarter of 2019 for a ($0.15) impact to EPS. We disposed
our Grubhub investment during the third-quarter for $206
million.
- Foreign currency translation unfavorably impacted divisional
operating profit by $2 million.
% Change
System Sales Ex
F/X
Same-Store Sales
Net-New Units
GAAP Operating Profit
Core Operating Profit2
KFC Division
(1)
(4)
+5
+3
+4
Pizza Hut Division
(4)
(3)
(4)
+3
+3
Taco Bell Division
+5
+3
+3
+16
+16
Worldwide1
+1
(2)
+2
(2)
+7
Third-Quarter
Year-to-Date
2020
2019
% Change
2020
2019
% Change
GAAP EPS
$0.92
$0.81
+14
$1.86
$2.57
(27)
Special Items EPS2
$(0.09)
$0.01
NM
$(0.61)
$0.02
NM
EPS Excluding Special Items
$1.01
$0.80
+27
$2.47
$2.55
(3)
1 Worldwide system sales ex F/X and
net-new units include the benefit of our acquisition of Habit
Burger Grill on March 18, 2020. Same-store sales reflects the
inclusion of Habit Burger Grill in the prior year base.
2 See reconciliation of Non-GAAP
Measurements to GAAP Results within this release for further detail
of Core Operating Profit and Special Items.
All comparisons are versus the same period
a year ago.
System sales growth figures exclude
foreign currency translation ("F/X") and core operating profit
growth figures exclude F/X and Special Items. Special Items are not
allocated to any segment and therefore only impact worldwide GAAP
results. See reconciliation of Non-GAAP Measurements to GAAP
Results within this release for further details.
Digital sales includes all transactions
where consumers at system restaurants utilize ordering interaction
that is primarily facilitated by automated technology.
KFC DIVISION
Third-Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2020
2019
Reported
Ex F/X
2020
2019
Reported
Ex F/X
Restaurants
24,602
23,435
+5
N/A
24,602
23,435
+5
N/A
System Sales ($MM)
6,909
6,968
(1)
(1)
18,484
20,163
(8)
(7)
Same-Store Sales Growth (%)
(4)
+3
NM
NM
(11)
+5
NM
NM
Franchise and Property Revenues ($MM)
340
344
(1)
(1)
906
999
(9)
(8)
Operating Profit ($MM)
278
270
+3
+4
655
767
(15)
(13)
Operating Margin (%)
47.2
44.3
2.9
2.9
41.9
43.6
(1.7)
(1.9)
Third-Quarter (%
Change)
Year-to-Date (%
Change)
International
U.S.
International
U.S.
System Sales Growth Ex F/X
(2)
+9
(9)
+6
Same-Store Sales Growth
(7)
+9
(14)
+5
- KFC Division opened 358 gross new restaurants in 45
countries.
- Operating margin increased 2.9 percentage points driven by
International franchise bad debt recoveries.
- Foreign currency translation unfavorably impacted operating
profit by $2 million.
KFC Markets1
Percent of KFC System
Sales2
System Sales Growth Ex
F/X
Third-Quarter (%
Change)
Year-to-Date (%
Change)
China
27%
(1)
(7)
United States
16%
+9
+6
Asia
12%
(6)
(4)
Russia, Central & Eastern Europe
8%
(4)
(14)
Australia
7%
+7
+4
United Kingdom
6%
+16
(10)
Western Europe
6%
—
(13)
Latin America
5%
(19)
(19)
Africa
4%
+3
(15)
Middle East / Turkey / North Africa
4%
(8)
(17)
Canada
2%
+7
—
Thailand
2%
(8)
(6)
India
1%
(37)
(39)
1Refer to investors.yum.com under
Financial Reports for a list of the countries within each of the
markets.
2Reflects Full Year 2019.
PIZZA HUT DIVISION
Third-Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2020
2019
Reported
Ex F/X
2020
2019
Reported
Ex F/X
Restaurants
17,842
18,532
(4)
N/A
17,842
18,532
(4)
N/A
System Sales ($MM)
2,994
3,092
(3)
(4)
8,548
9,321
(8)
(8)
Same-Store Sales Growth (%)
(3)
Even
NM
NM
(8)
+1
NM
NM
Franchise and Property Revenues ($MM)
134
143
(5)
(5)
393
431
(9)
(8)
Operating Profit ($MM)
89
86
+3
+3
252
279
(10)
(9)
Operating Margin (%)
36.7
36.0
0.7
0.8
35.4
38.2
(2.8)
(2.8)
Third-Quarter (%
Change)
Year-to-Date (%
Change)
International
U.S.
International
U.S.
System Sales Growth Ex F/X
(8)
+3
(13)
(1)
Same-Store Sales Growth
(9)
+6
(14)
+1
- Pizza Hut Division opened 148 gross new restaurants in 32
countries.
- Operating margin increased 0.7 percentage points driven by U.S.
franchise bad debt recoveries, offset by International same-store
sales declines.
- Foreign currency translation had no material impact on
operating profit.
- Pizza Hut U.S. off-premise channel generated 21% same-store
sales growth when excluding closed Express units, or 17% same-store
sales growth when including closed Express units.
Pizza Hut Markets1
Percent of Pizza Hut System
Sales2
System Sales Growth Ex
F/X
Third-Quarter (%
Change)
Year-to-Date (%
Change)
United States
42%
+3
(1)
China
17%
(6)
(19)
Asia
13%
+3
+6
Latin America / Spain / Portugal
11%
(23)
(22)
Europe (excluding Spain &
Portugal)
9%
(10)
(16)
Middle East / Turkey / North Africa
4%
(15)
(22)
Canada
2%
+16
+13
India
1%
(33)
(36)
Africa
<1%
+1
(7)
1Refer to investors.yum.com under
Financial Reports for a list of the countries within each of the
markets.
2Reflects Full Year 2019.
TACO BELL DIVISION
Third-Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2020
2019
Reported
Ex F/X
2020
2019
Reported
Ex F/X
Restaurants
7,400
7,191
+3
N/A
7,400
7,191
+3
N/A
System Sales ($MM)
2,914
2,772
+5
+5
8,074
8,005
+1
+1
Same-Store Sales Growth (%)
+3
+4
NM
NM
(2)
+5
NM
NM
Franchise and Property Revenues ($MM)
165
158
+4
+4
460
460
Even
Even
Operating Profit ($MM)
186
161
+16
+16
484
458
+6
+6
Operating Margin (%)
37.2
32.9
4.3
4.3
34.5
32.4
2.1
2.1
- Taco Bell Division opened 45 gross new restaurants in 9
countries.
- Operating margin increased 4.3 percentage points due to lower
general and administrative expenses, same-store sales growth and
higher company restaurant margins.
HABIT BURGER GRILL
DIVISION
- The Habit Burger Grill Division same-store sales declined 3%
during the third-quarter.
- The Habit Burger Grill Division opened 5 gross new restaurants
in the U.S and China.
OTHER ITEMS
- We refinanced our 5.00% coupon rate Senior Subsidiary
Restricted Group Notes due in 2024 with newly issued 10.5-year Yum!
Brands, Inc. holding company notes with a coupon rate of
3.625%.
- 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 October 29, 2020. The number is 877/871-3172 for U.S. callers,
412/902-6603 for international callers, conference ID 1665220.
The call will be available for playback beginning at 10:00 a.m.
Eastern Time October 29, 2020 through November 5, 2020. To access
the playback, dial 877/344-7529 in the U.S., 855/669-9658 in
Canada, and 412/317-0088 internationally, conference ID
10148172.
The webcast and the playback can be accessed by visiting Yum!
Brands' website, investors.yum.com/events-and-presentations and
selecting “Q3 2020 Yum! Brands, Inc. Earnings Call.”
ADDITIONAL INFORMATION
ONLINE
Quarter end dates for each division, restaurant count details,
definitions of terms and Restricted Group financial information are
available at investors.yum.com. 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: the
severity and duration of the COVID-19 pandemic, food safety and
food borne-illness issues; health concerns arising from outbreaks
of a significant health epidemic; the success of our franchisees
and licensees; our significant exposure to the Chinese market;
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 ability to successfully
implement technology initiatives; 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 loss of
key personnel, or labor shortages or difficulty finding qualified
employees; the success of our development strategy in emerging
markets; changes in commodity, labor and other operating costs;
harm or dilution to our brands caused by franchisee and third party
activity; 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 changes in tax laws or
disagreements with taxing authorities; consumer preferences and
perceptions of our brands; failure to protect our service marks or
other intellectual property; changes in consumer discretionary
spending and general economic conditions; competition within the
retail food industry; not realizing the anticipated benefits from
past or potential future acquisitions, investments or other
strategic transactions, 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
50,000 restaurants in more than 150 countries and territories
primarily operating the company’s brands – KFC, Pizza Hut and Taco
Bell – global leaders of the chicken, pizza and Mexican-style food
categories. The Company’s family of brands also includes The Habit
Burger Grill, a fast-casual restaurant concept specializing in
made-to-order chargrilled burgers, sandwiches and more. In 2019,
Yum! Brands was named to the Dow Jones Sustainability North America
Index and in 2020, the company ranked among the top 100 Best
Corporate Citizens by 3BL Media.
YUM! Brands, Inc.
Condensed Consolidated Summary
of Results
(amounts in millions, except
per share amounts)
(unaudited)
Quarter ended
% Change
Year to date
% Change
9/30/20
9/30/19
B/(W)
9/30/20
9/30/19
B/(W)
Revenues
Company sales
$
486
$
364
34
$
1,244
$
1,056
18
Franchise and property revenues
639
645
(1)
1,760
1,890
(7)
Franchise contributions for advertising
and other services
323
330
(2)
905
957
(6)
Total revenues
1,448
1,339
8
3,909
3,903
—
Costs and Expenses, Net
Company restaurant expenses
399
292
(38)
1,046
850
(23)
General and administrative expenses
257
208
(24)
724
617
(17)
Franchise and property expenses
13
43
71
107
124
14
Franchise advertising and other services
expense
313
325
4
887
941
6
Refranchising (gain) loss
(9
)
(8
)
17
(30
)
(18
)
70
Other (income) expense
4
(1
)
NM
154
5
NM
Total costs and expenses, net
977
859
(14)
2,888
2,519
(15)
Operating Profit
471
480
(2)
1,021
1,384
(26)
Investment (income) expense, net
(10
)
59
NM
(67
)
50
NM
Other pension (income) expense
4
1
NM
9
4
NM
Interest expense, net
161
120
(34)
411
354
(16)
Income before income taxes
316
300
6
668
976
(31)
Income tax provision
33
45
26
96
170
44
Net Income
$
283
$
255
11
$
572
$
806
(29)
Basic
EPS
EPS
$
0.94
$
0.83
12
$
1.89
$
2.63
(28)
Average shares outstanding
303
306
1
302
307
1
Diluted
EPS
EPS
$
0.92
$
0.81
14
$
1.86
$
2.57
(27)
Average shares outstanding
307
313
2
307
314
2
Dividends declared per common
share
$
0.47
$
0.42
$
1.41
$
1.26
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
9/30/20
9/30/19
B/(W)
9/30/20
9/30/19
B/(W)
Company sales
$
130
$
135
(3)
$
346
$
395
(12)
Franchise and property revenues
340
344
(1)
906
999
(9)
Franchise contributions for advertising
and other services
116
130
(11)
309
365
(15)
Total revenues
586
609
(4)
1,561
1,759
(11)
Company restaurant expenses
109
113
4
307
334
8
General and administrative expenses
81
80
(1)
224
233
4
Franchise and property expenses
7
23
66
69
70
1
Franchise advertising and other services
expense
111
126
12
301
358
16
Other (income) expense
—
(3
)
NM
5
(3
)
NM
Total costs and expenses, net
308
339
9
906
992
9
Operating Profit
$
278
$
270
3
$
655
$
767
(15)
Restaurant margin
16.3
%
16.1
%
0.2 ppts.
11.2
%
15.3
%
(4.1) ppts.
Operating margin
47.2
%
44.3
%
2.9 ppts.
41.9
%
43.6
%
(1.7) 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
9/30/20
9/30/19
B/(W)
9/30/20
9/30/19
B/(W)
Company sales
$
20
$
13
54
$
57
$
35
62
Franchise and property revenues
134
143
(5)
393
431
(9)
Franchise contributions for advertising
and other services
89
85
3
263
264
(1)
Total revenues
243
241
1
713
730
(2)
Company restaurant expenses
18
13
(47)
55
34
(61)
General and administrative expenses
51
47
(7)
141
138
(2)
Franchise and property expenses
(2
)
9
NM
11
23
52
Franchise advertising and other services
expense
85
86
—
256
258
1
Other (income) expense
2
—
NM
(2
)
(2
)
NM
Total costs and expenses, net
154
155
—
461
451
(2)
Operating Profit
$
89
$
86
3
$
252
$
279
(10)
Restaurant margin
8.2
%
4.0
%
4.2 ppts.
3.4
%
3.2
%
0.2 ppts.
Operating margin
36.7
%
36.0
%
0.7 ppts.
35.4
%
38.2
%
(2.8) 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
9/30/20
9/30/19
B/(W)
9/30/20
9/30/19
B/(W)
Company sales
$
218
$
216
1
$
610
$
626
(3)
Franchise and property revenues
165
158
4
460
460
—
Franchise contributions for advertising
and other services
118
115
3
333
328
1
Total revenues
501
489
2
1,403
1,414
(1)
Company restaurant expenses
158
166
5
458
482
5
General and administrative expenses
33
40
16
108
124
13
Franchise and property expenses
8
9
19
24
26
10
Franchise advertising and other services
expense
117
113
(3)
330
325
(2)
Other (income) expense
(1
)
—
NM
(1
)
(1
)
NM
Total costs and expenses, net
315
328
4
919
956
4
Operating Profit
$
186
$
161
16
$
484
$
458
6
Restaurant margin
27.8
%
23.6
%
4.2 ppts.
25.0
%
23.1
%
1.9 ppts.
Operating margin
37.2
%
32.9
%
4.3 ppts.
34.5
%
32.4
%
2.1 ppts.
See accompanying notes.
Percentages may not recompute due to
rounding.
YUM! Brands, Inc.
Condensed Consolidated Balance
Sheets
(amounts in millions)
(unaudited) 9/30/20
12/31/19
ASSETS
Current Assets
Cash and cash equivalents
$
1,110
$
605
Accounts and notes receivable, less
allowance: $72 in 2020 and 2019
522
584
Prepaid expenses and other current
assets
398
338
Total Current Assets
2,030
1,527
Property, plant and equipment, net of
accumulated depreciation of $1,201 in 2020
and $1,136 in 2019
1,229
1,170
Goodwill
590
530
Intangible assets, net
339
244
Other assets
1,361
1,313
Deferred income taxes
512
447
Total Assets
$
6,061
$
5,231
LIABILITIES AND SHAREHOLDERS'
DEFICIT
Current Liabilities
Accounts payable and other current
liabilities
$
1,100
$
960
Income taxes payable
9
150
Short-term borrowings
444
431
Total Current Liabilities
1,553
1,541
Long-term debt
10,647
10,131
Other liabilities and deferred credits
1,780
1,575
Total Liabilities
13,980
13,247
Shareholders' Deficit
Common Stock, no par value, 750 shares
authorized; 302 shares issued in 2020 and 300 issued in 2019
23
—
Accumulated deficit
(7,490
)
(7,628
)
Accumulated other comprehensive loss
(452
)
(388
)
Total Shareholders' Deficit
(7,919
)
(8,016
)
Total Liabilities and Shareholders'
Deficit
$
6,061
$
5,231
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated
Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to date
9/30/20
9/30/19
Cash Flows - Operating
Activities
Net Income
$
572
$
806
Depreciation and amortization
100
84
Impairment and closure (income)
expenses
156
—
Refranchising (gain) loss
(30
)
(18
)
Investment (income) expense, net
(67
)
50
Contributions to defined benefit pension
plans
(2
)
(13
)
Deferred income taxes
(32
)
(10
)
Share-based compensation expense
44
45
Changes in accounts and notes
receivable
46
(4
)
Changes in prepaid expenses and other
current assets
11
(9
)
Changes in accounts payable and other
current liabilities
105
(96
)
Changes in income taxes payable
(152
)
(64
)
Other, net
102
112
Net Cash Provided by Operating
Activities
853
883
Cash Flows - Investing
Activities
Capital spending
(99
)
(109
)
Acquisition of The Habit Restaurants,
Inc.
(408
)
—
Proceeds from sale of investment in
Grubhub, Inc. common stock
206
—
Proceeds from refranchising of
restaurants
13
55
Other, net
19
—
Net Cash Used in Investing
Activities
(269
)
(54
)
Cash Flows - Financing
Activities
Proceeds from long-term debt
1,650
800
Repayments of long-term debt
(1,142
)
(311
)
Revolving credit facilities, three months
or less, net
—
—
Short-term borrowings by original
maturity
More than three months - proceeds
85
80
More than three months - payments
(90
)
(70
)
Three months or less, net
—
—
Repurchase shares of Common Stock
—
(472
)
Dividends paid on Common Stock
(425
)
(385
)
Debt issuance costs
(20
)
(9
)
Other, net
(34
)
(73
)
Net Cash Provided by (Used in)
Financing Activities
24
(440
)
Effect of Exchange Rate on Cash and
Cash Equivalents
(1
)
(27
)
Net Increase in Cash and Cash
Equivalents, Restricted Cash and Restricted Cash
Equivalents
607
362
Cash, Cash Equivalents, Restricted Cash
and Restricted Cash Equivalents - Beginning of Period
768
474
Cash, Cash Equivalents, Restricted Cash
and Restricted Cash Equivalents - End of Period
$
1,375
$
836
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 Generally
Accepted Accounting Principles in the United States of America
("GAAP"), the Company provides the following non-GAAP
measurements.
- Diluted Earnings Per Share ("EPS") excluding Special Items (as
defined below);
- Effective Tax Rate excluding Special Items;
- Core Operating Profit. Core Operating Profit excludes Special
Items and FX and we use Core Operating Profit for the purposes of
evaluating performance internally.
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 these
non-GAAP measurements provide additional information to investors
to facilitate the comparison of past and present operations.
Special Items are not included in any of our Division segment
results as the Company does not believe they are indicative of our
ongoing operations due to their size and/or nature. Our chief
operating decision maker does not consider the impact of Special
Items when assessing segment performance. The Special Items are
described in (a) - (i) in the accompanying notes.
Certain non-GAAP measurements are presented excluding the impact
of FX. These amounts are derived by translating current year
results at prior year average exchange rates. We believe the
elimination of the FX impact provides better year-to-year
comparability without the distortion of foreign currency
fluctuations.
Quarter ended
Year to date
9/30/20
9/30/19
9/30/20
9/30/19
Detail of Special Items
Refranchising gain (loss)(a)
$
2
$
8
$
8
$
18
Costs associated with acquisition and
integration of Habit Burger Grill(b)
—
—
(9
)
—
Impairment of Habit Burger Grill
goodwill(c)
(5
)
—
(144
)
—
Unlocking Opportunity Initiative
contribution(d)
—
—
(50
)
—
Charges associated with resource
optimization(e)
(32
)
—
(32
)
—
Other Special Items Income
(Expense)(f)
1
(3
)
(6
)
(14
)
Special Items Income (Expense) - Operating
Profit
(34
)
5
(233
)
4
Charges associated with resource
optimization - Other Pension Expense(e)
(1
)
—
(1
)
—
Interest expense, net(f)(g)
(34
)
—
(34
)
(2
)
Special Items Income (Expense) before
Income Taxes
(69
)
5
(268
)
2
Tax Benefit on Special Items(h)
17
—
57
2
Tax Benefit - Intra-entity transfer of
intellectual property(i)
25
—
25
—
Special Items Income (Expense), net of
tax
$
(27
)
$
5
$
(186
)
$
4
Average diluted shares outstanding
307
313
307
314
Special Items diluted EPS
$
(0.09
)
$
0.01
$
(0.61
)
$
0.02
Reconciliation of GAAP Operating Profit
to Core Operating Profit
Consolidated
GAAP Operating Profit
$
471
$
480
$
1,021
$
1,384
Special Items Income (Expense)
(34
)
5
(233
)
4
Foreign Currency Impact on Divisional
Operating Profit
(2
)
N/A
(14
)
N/A
Core Operating Profit
$
507
$
475
$
1,268
$
1,380
KFC
Division
GAAP Operating Profit
$
278
$
270
$
655
$
767
Foreign Currency Impact on Divisional
Operating Profit
(2
)
N/A
(13
)
N/A
Core Operating Profit
$
280
$
270
$
668
$
767
Reconciliation of Non-GAAP
Measurements to GAAP Results (Continued) (amounts in
millions, except per share amounts) (unaudited)
Quarter ended
Year to date
9/30/20
9/30/19
9/30/20
9/30/19
Pizza Hut
Division
GAAP Operating Profit
$
89
$
86
$
252
$
279
Foreign Currency Impact on Divisional
Operating Profit
—
N/A
(1
)
N/A
Core Operating Profit
$
89
$
86
$
253
$
279
Taco Bell
Division
GAAP Operating Profit
$
186
$
161
$
484
$
458
Foreign Currency Impact on Divisional
Operating Profit
—
N/A
—
N/A
Core Operating Profit
$
186
$
161
$
484
$
458
Habit Burger Grill
Division
GAAP Operating Profit
$
(7
)
N/A
$
(15
)
N/A
Foreign Currency Impact on Divisional
Operating Profit
—
N/A
—
N/A
Core Operating Profit
$
(7
)
N/A
$
(15
)
N/A
Reconciliation of Diluted EPS to
Diluted EPS excluding Special Items
Diluted EPS
$
0.92
$
0.81
$
1.86
$
2.57
Special Items Diluted EPS
(0.09
)
0.01
(0.61
)
0.02
Diluted EPS excluding Special Items
$
1.01
$
0.80
$
2.47
$
2.55
Reconciliation of GAAP Effective Tax
Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate
10.5
%
15.1
%
14.4
%
17.4
%
Impact on Tax Rate as a result of Special
Items
(8.8
)%
—
%
(4.6
)%
(0.2
)%
Effective Tax Rate excluding Special
Items
19.3
%
15.1
%
19.0
%
17.6
%
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 9/30/2020
KFC
Pizza Hut
Taco Bell
Habit Burger
Corporate and Unallocated
Consolidated
Total revenues
$
586
$
243
$
501
$
118
$
—
$
1,448
Company restaurant expenses
109
18
158
115
(1
)
399
General and administrative expenses
81
51
33
11
81
257
Franchise and property expenses
7
(2
)
8
—
—
13
Franchise advertising and other services
expense
111
85
117
—
—
313
Refranchising (gain) loss
—
—
—
—
(9
)
(9
)
Other (income) expense
—
2
(1
)
(1
)
4
4
Total costs and expenses, net
308
154
315
125
75
977
Operating Profit (Loss)
$
278
$
89
$
186
$
(7
)
$
(75
)
$
471
Quarter Ended 9/30/2019
KFC
Pizza Hut
Taco Bell
Corporate and Unallocated
Consolidated
Total revenues
$
609
$
241
$
489
$
—
$
1,339
Company restaurant expenses
113
13
166
—
292
General and administrative expenses
80
47
40
41
208
Franchise and property expenses
23
9
9
2
43
Franchise advertising and other services
expense
126
86
113
—
325
Refranchising (gain) loss
—
—
—
(8
)
(8
)
Other (income) expense
(3
)
—
—
2
(1
)
Total costs and expenses, net
339
155
328
37
859
Operating Profit (Loss)
$
270
$
86
$
161
$
(37
)
$
480
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 9/30/2020
KFC
Pizza Hut
Taco Bell
Habit Burger
Corporate and Unallocated
Consolidated
Total revenues
$
1,561
$
713
$
1,403
$
232
$
—
$
3,909
Company restaurant expenses
307
55
458
226
—
1,046
General and administrative expenses
224
141
108
22
229
724
Franchise and property expenses
69
11
24
—
3
107
Franchise advertising and other services
expense
301
256
330
—
—
887
Refranchising (gain) loss
—
—
—
—
(30
)
(30
)
Other (income) expense
5
(2
)
(1
)
(1
)
153
154
Total costs and expenses, net
906
461
919
247
355
2,888
Operating Profit
$
655
$
252
$
484
$
(15
)
$
(355
)
$
1,021
Year to Date 9/30/2019
KFC
Pizza Hut
Taco Bell
Corporate and Unallocated
Consolidated
Total revenues
$
1,759
$
730
$
1,414
$
—
$
3,903
Company restaurant expenses
334
34
482
—
850
General and administrative expenses
233
138
124
122
617
Franchise and property expenses
70
23
26
5
124
Franchise advertising and other services
expense
358
258
325
—
941
Refranchising (gain) loss
—
—
—
(18
)
(18
)
Other (income) expense
(3
)
(2
)
(1
)
11
5
Total costs and expenses, net
992
451
956
120
2,519
Operating Profit
$
767
$
279
$
458
$
(120
)
$
1,384
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)
Amounts presented as of and for the
quarters and years to date ended September 30, 2020 and 2019 are
preliminary.
(a)
We have reflected as Special Items those
refranchising gains and losses that were recorded in connection
with our previously announced plans to have at least 98% franchise
restaurant ownership by the end of 2018. As such, refranchising
gains and losses recorded during the quarters and years to date
ended September 30, 2020 and 2019 as Special Items primarily
include true-ups to refranchising gains and losses recorded prior
to December 31, 2018.
During the quarters ended September 30,
2020 and 2019, we recorded net refranchising gains of $2 million
and $8 million, respectively, that have been reflected as Special
Items. During the years to date ended September 30, 2020 and 2019,
we recorded net refranchising gains of $8 million and $18 million,
respectively, that have been reflected as Special Items.
Additionally, during the quarter and year
to date ended September 30, 2020 we recorded refranchising gains of
$7 million and $22 million, respectively, that have not been
reflected as Special Items. These gains relate to the refranchising
of restaurants in 2020 that were not part of our aforementioned
plans to achieve 98% franchise ownership.
(b)
During the year to date ended September
30, 2020, we recorded Special Item charges of $9 million related to
the acquisition and integration of The Habit Restaurants, Inc.
("Habit").
(c)
On March 18, 2020 we acquired all of the
issued and outstanding common shares of Habit for total cash
consideration of $408 million, net of cash acquired. During the
first-quarter of 2020 the operation of substantially all Habit
restaurants was impacted by government recommendations and mandates
arising from containment and mitigation measures related to the
COVID-19 global pandemic. As a result of the impacts of the
COVID-19 pandemic on Habit’s results through March 31, 2020 as well
as general market conditions, during the quarter ended March 31,
2020 we recorded a goodwill impairment charge of $139 million to
Other (income) expense. As we continued to refine our preliminary
purchase price allocation for Habit in the quarter ended September
30, 2020 the impairment charge was adjusted upward by $5 million.
These impairment charges have been reflected as Special Items. We
have also reflected the tax benefit of these impairment charges,
which were $1 million and $33 million for the quarter and year to
date ended September 30, 2020, respectively, as Special Items.
(d)
On June 24, 2020, the Yum! Brands, Inc.
Board of Directors approved the establishment of the Company’s new
global “Unlocking Opportunity Initiative” including a $100 million
investment over the next five years to fight inequality by
unlocking opportunities for employees, restaurant team members and
communities. The Company recorded a Special Item charge of $50
million in the quarter ended June 30, 2020 related to a
contribution made to the Yum! Brands Foundation, Inc. as part of
these efforts and investment.
(e)
During the quarter ended September 30,
2020, we recorded charges of $32 million and $1 million to General
and administrative expenses and Other pension (income) expense,
respectively, associated with a voluntary early retirement program
offered to our U.S. based employees and a worldwide severance
program. These programs were part of our efforts to optimize our
resources, reallocating them toward critical areas of the business
that will drive future growth. These critical areas include
accelerating our digital, technology and innovation capabilities to
deliver a modern, world-class team member and customer experience
and improve unit economics. These charges have been reflected as
Special Items.
(f)
During the second quarter of 2019, we
recorded charges of $8 million and $2 million to Other (income)
expense and Interest expense, net, respectively, related to cash
payments in excess of our recorded liability to settle contingent
consideration associated with our 2013 acquisition of the KFC
Turkey and Pizza Hut Turkey businesses. Consistent with prior
adjustments to the recorded contingent consideration we have
reflected this as a Special Item.
(g)
During the quarter ended September 30,
2020, KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of
America, LLC, each of which a wholly-owned subsidiary of the
Company, issued a notice of redemption for $1,050 million aggregate
principal amount of 5.00% Subsidiary Senior Unsecured Notes due in
2024 (the "2024 Notes"). The redemption amount included a $26
million call premium plus accrued and unpaid interest to the date
of redemption of October 9, 2020. We recorded the call premium, $6
million of unamortized debt issuance costs associated with the 2024
Notes and $2 million of accrued and unpaid interest associated with
the period of time from prepayment of the 2024 Notes with the
Trustee on September 25, 2020 to their redemption date within
Interest expense, net and reflected the charges as Special
Items.
(h)
Tax Expense on Special Items was
determined based upon the impact of the nature, as well as the
jurisdiction of the respective individual components within Special
Items.
(i)
In the fourth quarter of 2019, we
completed an intercompany restructuring that resulted in the
transfer of certain intellectual property rights held by wholly
owned foreign subsidiaries to the United Kingdom (UK). As a result
of the transfer of certain of these rights, we received a step-up
in the tax basis to fair market value for UK tax purposes. To the
extent this step-up in tax basis will be amortizable against future
taxable income, we recognized a one-time deferred tax benefit of
$220 million as a Special Item in the quarter ended December 31,
2019. During the quarter ended September 30, 2020, the UK Finance
Act 2020 was enacted resulting in an increase in the UK corporate
tax rate from 17% to 19%. As a result, in the quarter ended
September 30, 2020, we remeasured the related deferred tax asset
originally recorded in the fourth quarter of 2019 and recognized an
additional $25 million deferred tax benefit as a Special Item.
Category: Earnings
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201029005334/en/
Analysts are invited to contact: Keith Siegner, Vice President,
Investor Relations, M&A and Treasurer at 888/298-6986
Members of the media are invited to contact: Virginia Ferguson,
Senior Director, Public Relations, at 502/874-8200
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