Raises Full-Year EPS Growth Forecast to 13% from 12%; Plans $4 Billion in Share Repurchases Over Next Two Years
LOUISVILLE, Ky.--(BUSINESS WIRE)--Oct. 8, 2007--Yum! Brands Inc. (NYSE: YUM) today reported results for the third quarter ended September 8, 2007.
THIRD-QUARTER HIGHLIGHTS
* Worldwide system-same-store-sales growth of 4%, including 11% growth in mainland China, 7% growth in Yum! Restaurants International Division (YRI), and 1% growth in the U.S.
* Strong double-digit system-sales growth from mainland China, +33%, and YRI, +16%.
* Continued strong international restaurant unit growth: mainland China, +20%; YRI, +4%, the nineteenth consecutive quarter of at least 3% year-over-year YRI unit growth, our ongoing growth target.
* Strong worldwide operating-profit growth of +16% led by our international divisions: China, +28%, and YRI, +21%.
* Worldwide operating margin improved by 0.5 percentage point to 15.6%.
* Average diluted shares outstanding reduced by 2%, the thirteenth consecutive quarter with year-over-year share reduction as a result of substantial share buybacks. Over the past three years, the company's regular share-repurchase program has reduced share count by a net 12%.
* Favorable foreign currency conversion impact of about $0.02 EPS.
Note: All preceding comparisons are versus the same period a year ago unless noted.
FULL-YEAR 2007 OUTLOOK
We have raised our full-year EPS growth forecast to 13% from 12% based on the continued strong growth from our China and YRI divisions. The new full-year EPS forecast is $1.65 per share.
CONSOLIDATED FINANCIAL HIGHLIGHTS
Third Quarter Year To Date
---------------------- ----------------------
2007 2006 % Change 2007 2006 % Change
------ ------ -------- ------ ------ --------
Traditional Restaurants 32,858 32,146 +2 32,858 32,146 +2
System-Sales Growth +9% +5% NM +7% +5% NM
Reported EPS $0.50 $0.42 +20 $1.24 $1.05 +18
Note: Yum! has 34,917 restaurant locations around the world, which include 2,059 license units.
CHINA DIVISION
Third Quarter Year To Date
($ million, % %
except Change Change
restaurant -------------- --------------
counts and Excl Excl
percentages) 2007 2006 Reported F/x 2007 2006 Reported F/x
----- ----- -------- ----- ----- ----- -------- -----
Key Financial
Measures
System-Sales
Growth +31 +23 +27 +21
MAINLAND CHINA
(MLC) ONLY +33 +26 +30 +24
Same-Store-Sales
Growth MLC ONLY NA +11 NA +9
Company Sales 581 445 +30 +24 1,351 1,066 +27 +21
Restaurant
Margin % 23.2 23.7 (0.5) (0.5) 21.5 21.6 (0.1) (0.1)
Operating Profit 135 105 +28 +20 276 220 +25 +19
----------------------------------------------------------------------
----------------------------------------------------------------------
Key Development
Metrics for
MAINLAND CHINA
ONLY
Total YUM
Restaurants 2,347 1,962 +20 NA 2,347 1,962 +20 NA
KFC 1,995 1,695 +18 NA 1,995 1,695 +18 NA
Pizza Hut
Casual Dining 298 228 +31 NA 298 228 +31 NA
Pizza Hut Home
Service 43 33 +30 NA 43 33 +30 NA
----------------------------------------------------------------------
YUM! RESTAURANTS INTERNATIONAL DIVISION (YRI)
Third Quarter Year To Date
($ million, % %
except Change Change
restaurant -------------- --------------
counts and Excl Excl
percentages) 2007 2006 Reported F/x 2007 2006 Reported F/x
------ ------ -------- ----- ------ ------ -------- -----
Key Financial
Measures
System-Sales
Growth +16 +11 +15 +10
Franchise &
License Fees 137 119 +15 +9 380 337 +13 +9
Franchisee
Sales 2,393 2,187 +9 +5 6,764 6,284 +8 +5
Company Sales 603 399 +51 +44 1,737 1,139 +53 +46
Operating
Margin % 17.2 20.2 (3.0) (3.2) 16.4 19.5 (3.1) (3.1)
Operating
Profit 127 105 +21 +14 347 288 +21 +16
----------------------------------------------------------------------
----------------------------------------------------------------------
Key Financial Measures Excluding Impact from Pizza Hut U.K.
Acquisition (September 2006)
Company Sales +6 Even +7 +1
Operating
Profit +17 +10 +19 +15
----------------------------------------------------------------------
----------------------------------------------------------------------
Key Development
Metrics
Traditional
Restaurants 11,993 11,551 +4 NA 11,993 11,551 +4 NA
KFC 6,760 6,410 +5 NA 6,760 6,410 +5 NA
Pizza Hut 4,753 4,673 +2 NA 4,753 4,673 +2 NA
Franchise
Restaurants 9,732 9,167 +6 NA 9,732 9,167 +6 NA
----------------------------------------------------------------------
Third Quarter Year To Date
($ million, except
restaurant counts
and percentages) 2007 2006 % Change 2007 2006 % Change
------ ------ -------- ------ ------ --------
Key Financial Measures
Blended Same-Store-Sales
Growth %
Company (1) (2) NM (3) Even NM
System +1 (2) NM (1) +1 NM
Franchisee Sales 3,215 3,048 +5 9,244 8,927 +4
Company Sales 1,059 1,145 (8) 3,170 3,515 (10)
Franchise & License Fees 165 155 +6 472 454 +4
Restaurant Margin % 13.0 14.1 (1.1) 13.9 15.1 (1.2)
Operating Profit 187 183 +1 543 565 (4)
Operating Margin % 15.2 14.2 +1.0 14.9 14.2 +0.7
----------------------------------------------------------------------
----------------------------------------------------------------------
Key Development Metrics
Total Traditional
Restaurants 17,999 18,120 (1) 17,999 18,120 (1)
System Multibrand
Restaurants 3,565 3,277 +9 3,565 3,277 +9
Franchise Restaurants 14,029 13,662 +3 14,029 13,662 +3
----------------------------------------------------------------------
FOREIGN CURRENCY IMPACTS
(operating profit $ million) 2007
Division Third Quarter Year To Date
--------------------------
YRI +7 +13
China +8 +13
----------------------------------------------------------------------
2007 Third-Quarter End Dates 2007 Fourth-Quarter End Dates
---------------------------------- ---------------------------------
International Division 8/13/2007 International Division 12/3/2007
China Division 8/31/2007 China Division 12/31/2007
U.S. Business 9/8/2007 U.S. Business 12/29/2007
---------------------------------- ---------------------------------
Analysts are invited to contact
Tim Jerzyk, Senior Vice President, Investor Relations/Treasurer,
at 502/874-8006
Quan Nghe, Director Investor Relations, at 502/874-8918
Members of the media are invited to contact
Amy Sherwood, Vice President Public Relations, at 502/874-8200
Yum! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter % Change Year to date % Change
-------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------ ------ -------- ------ ------- --------
Company sales $2,243 $1,989 13 $6,258 $ 5,720 9
Franchise and
license fees 321 289 11 896 825 9
------ ------ ------ -------
Total revenues 2,564 2,278 13 7,154 6,545 9
------ ------ ------ -------
Costs and expenses
Food and paper 700 606 (16) 1,924 1,746 (10)
Payroll and
employee
benefits 544 492 (11) 1,585 1,461 (9)
Occupancy and
other
operating
expenses 646 570 (13) 1,798 1,607 (12)
------ ------ ------ -------
Company restaurant
expenses 1,890 1,668 (13) 5,307 4,814 (10)
General and
administrative
expenses 281 271 (4) 830 789 (5)
Franchise and
license expenses 12 7 (84) 30 24 (26)
Closures and
impairment
(income) expenses (1) 1 NM 12 25 NM
Refranchising
(gain) loss -- 4 NM (5) (7) NM
Other (income)
expense (19) (17) 13 (47) (33) 42
------ ------ ------ -------
Total costs and
expenses 2,163 1,934 (12) 6,127 5,612 (9)
------ ------ ------ -------
Operating profit 401 344 16 1,027 933 10
Interest expense,
net 38 34 (12) 112 105 (7)
------ ------ ------ -------
Income before
income taxes 363 310 17 915 828 10
Income tax
provision 93 80 (15) 237 236 --
------ ------ ------ -------
Net income $ 270 $ 230 17 $ 678 $ 592 15
====== ====== ====== =======
Effective tax rate 25.5% 25.8% 25.9% 28.5%
------------------ ====== ====== ====== =======
Basic EPS Data
------------------
EPS $ 0.52 $ 0.43 20 $ 1.28 $ 1.09 18
====== ====== ====== =======
Average shares
outstanding 523 537 3 528 544 3
====== ====== ====== =======
Diluted EPS Data
------------------
EPS $ 0.50 $ 0.42 20 $ 1.24 $ 1.05 18
====== ====== ====== =======
Average shares
outstanding 541 555 2 546 563 3
====== ====== ====== =======
Dividends declared
per common share $ -- $ -- $ 0.15 $0.1325
====== ====== ====== =======
See accompanying notes.
Yum! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Change Year to date % Change
--------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------- ------- ----------- ------- ------- -----------
Company sales $ 581 $ 445 30 $ 1,351 $ 1,066 27
Franchise and
license fees 19 15 35 44 34 31
------- ------- ------- -------
Revenues 600 460 31 1,395 1,100 27
------- ------- ------- -------
Company
restaurants
Food and paper 209 156 (34) 485 378 (28)
Payroll and
employee
benefits 68 51 (34) 172 133 (29)
Occupancy and
other
operating
expenses 170 133 (27) 404 325 (24)
------- ------- ------- -------
447 340 (31) 1,061 836 (27)
General and
administrative
expenses 35 30 (24) 90 71 (29)
Franchise and
license
expenses -- -- NM -- -- NM
Closures and
impairment
expenses 2 -- NM 4 2 NM
Other (income)
expense (19) (15) 21 (36) (29) 24
------- ------- ------- -------
465 355 (31) 1,119 880 (27)
------- ------- ------- -------
Operating
profit $ 135 $ 105 28 $ 276 $ 220 25
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 36.0 35.0 (1.0) ppts. 35.9 35.4 (0.5) ppts.
Payroll and
employee
benefits 11.7 11.4 (0.3) ppts. 12.7 12.5 (0.2) ppts.
Occupancy and
other
operating
expenses 29.1 29.9 0.8 ppts. 29.9 30.5 0.6 ppts.
------- ------- ------- -------
Restaurant
margin 23.2% 23.7% (0.5) ppts. 21.5% 21.6% (0.1) ppts.
======= ======= ======= =======
See accompanying notes.
China Division includes mainland China, Thailand and KFC Taiwan
Yum! Brands, Inc.
INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter % Change Year to date % Change
--------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------- ------- ----------- ------- ------- -----------
Company sales $ 603 $ 399 51 $ 1,737 $ 1,139 53
Franchise and
license fees 137 119 15 380 337 13
------- ------- ------- -------
Revenues 740 518 43 2,117 1,476 43
------- ------- ------- -------
Company
restaurants
Food and paper 180 131 (37) 518 377 (37)
Payroll and
employee
benefits 155 95 (63) 452 273 (65)
Occupancy and
other
operating
expenses 188 118 (58) 546 342 (60)
------- ------- ------- -------
523 344 (52) 1,516 992 (53)
General and
administrative
expenses 84 65 (26) 239 187 (28)
Franchise and
license
expenses 5 3 (72) 11 9 (20)
Closures and
impairment
expenses 1 1 NM 8 8 NM
Other (income)
expense -- -- NM (4) (8) (50)
------- ------- ------- -------
613 413 (48) 1,770 1,188 (49)
------- ------- ------- -------
Operating
profit $ 127 $ 105 21 $ 347 $ 288 21
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 29.9 33.0 3.1 ppts. 29.8 33.2 3.4 ppts.
Payroll and
employee
benefits 25.7 23.8 (1.9) ppts. 26.0 24.0 (2.0) ppts.
Occupancy and
other
operating
expenses 31.2 29.8 (1.4) ppts. 31.5 30.0 (1.5) ppts.
------- ------- ------- -------
Restaurant
margin 13.2% 13.4% (0.2) ppts. 12.7% 12.8% (0.1) ppts.
======= ======= ======= =======
Operating
margin 17.2% 20.2% (3.0) ppts. 16.4% 19.5% (3.1) ppts.
======= ======= ======= =======
See accompanying notes. As discussed further at note (e), Company
sales increased $179 million and $516 million, restaurant profit
increased $20 million and $53 million, franchise fees decreased $5
million and $17 million and general and administrative expenses
increased $10 million and $29 million compared to the quarter and
year to date ended September 9, 2006, respectively, due to the
ownership structure change of the Pizza Hut United Kingdom business.
Yum! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
Quarter % Change Year to date % Change
--------------- ---------------
9/8/07 9/9/06 B/(W) 9/8/07 9/9/06 B/(W)
------- ------- ----------- ------- ------- -----------
Company sales $ 1,059 $ 1,145 (8) $ 3,170 $ 3,515 (10)
Franchise and
license fees 165 155 6 472 454 4
------- ------- ------- -------
Revenues 1,224 1,300 (6) 3,642 3,969 (8)
------- ------- ------- -------
Company
restaurants
Food and paper 311 319 2 921 991 7
Payroll and
employee
benefits 321 346 7 961 1,055 9
Occupancy and
other
operating
expenses 288 319 10 848 940 10
------- ------- ------- -------
920 984 6 2,730 2,986 9
General and
administrative
expenses 114 129 13 353 380 7
Franchise and
license
expenses 7 4 (92) 19 15 (29)
Closures and
impairment
(income)
expenses (4) -- NM -- 15 NM
Other (income)
expense -- -- NM (3) 8 NM
------- ------- ------- -------
1,037 1,117 7 3,099 3,404 9
------- ------- ------- -------
Operating
profit $ 187 $ 183 1 $ 543 $ 565 (4)
======= ======= ======= =======
Company sales 100.0% 100.0% 100.0% 100.0%
Food and paper 29.4 27.8 (1.6) ppts. 29.0 28.2 (0.8) ppts.
Payroll and
employee
benefits 30.4 30.2 (0.2) ppts. 30.3 30.0 (0.3) ppts.
Occupancy and
other
operating
expenses 27.2 27.9 0.7 ppts. 26.8 26.7 (0.1) ppts.
------- ------- ------- -------
Restaurant
margin 13.0% 14.1% (1.1) ppts. 13.9% 15.1% (1.2) ppts.
======= ======= ======= =======
Operating
margin 15.2% 14.2% 1.0 ppts. 14.9% 14.2% 0.7 ppts.
======= ======= ======= =======
See accompanying notes.
Yum! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
-----------
9/8/07 12/30/06
----------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 507 $ 319
Accounts and notes receivable, less allowance:
$22 in 2007 and $18 in 2006 250 220
Inventories 96 93
Prepaid expenses and other current assets 139 138
Deferred income taxes 97 57
Advertising cooperative assets, restricted 76 74
----------- --------
Total Current Assets 1,165 901
Property, plant and equipment, net of
accumulated depreciation and amortization of
$3,261 in 2007 and $3,146 in 2006 3,600 3,631
Goodwill 675 662
Intangible assets, net 336 347
Investments in unconsolidated affiliates 140 138
Other assets 388 369
Deferred income taxes 294 305
----------- --------
Total Assets $6,598 $6,353
=========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and other current liabilities $1,400 $1,386
Income taxes payable 99 37
Short-term borrowings 291 227
Advertising cooperative liabilities 76 74
----------- --------
Total Current Liabilities 1,866 1,724
Long-term debt 2,124 2,045
Other liabilities and deferred credits 1,186 1,147
----------- --------
Total Liabilities 5,176 4,916
----------- --------
Shareholders' Equity
Preferred stock, no par value, zero shares and
250 shares authorized in 2007 and 2006,
respectively; no shares issued -- --
Common stock, no par value, 750 shares
authorized; 512 shares and 530 shares issued in
2007 and 2006, respectively -- --
Retained earnings 1,541 1,593
Accumulated other comprehensive loss (119) (156)
----------- --------
Total Shareholders' Equity 1,422 1,437
----------- --------
Total Liabilities and Shareholders' Equity $6,598 $6,353
=========== ========
See accompanying notes.
Yum! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to date
--------------
9/8/07 9/9/06
------ ------
Cash Flows - Operating Activities
Net income $ 678 $ 592
Depreciation and amortization 362 319
Closures and impairment expenses 12 25
Refranchising (gain) loss (5) (7)
Contributions to defined benefit pension plans -- (41)
Deferred income taxes (32) (47)
Equity income from investments in unconsolidated
affiliates (40) (37)
Distributions of income received from unconsolidated
affiliates 28 26
Excess tax benefit from share-based compensation (40) (40)
Share-based compensation expense 43 46
Changes in accounts and notes receivable (19) 22
Changes in inventories (1) 7
Changes in prepaid expenses and other current assets 4 (10)
Changes in accounts payable and other current
liabilities 39 (31)
Changes in income taxes payable 82 69
Other non-cash charges and credits, net 58 114
------ ------
Net Cash Provided by Operating Activities 1,169 1,007
------ ------
Cash Flows - Investing Activities
Capital spending (391) (323)
Proceeds from refranchising of restaurants 83 96
Acquisition of restaurants from franchisees -- (11)
Short-term investments 5 (79)
Sales of property, plant and equipment 42 33
Other, net 5 (16)
------ ------
Net Cash Used in Investing Activities (256) (300)
------ ------
Cash Flows - Financing Activities
Proceeds from long-term debt -- 300
Repayments of long-term debt (11) (207)
Revolving credit facilities, three months or less, net 315 (26)
Short-term borrowings by original maturity
More than three months - proceeds 1 164
More than three months - payments (184) (2)
Three months or less, net (3) --
Repurchase shares of common stock (774) (853)
Excess tax benefit from share-based compensation 40 40
Employee stock option proceeds 78 93
Dividends paid on common shares (196) (104)
Other, net -- (2)
------ ------
Net Cash Used in Financing Activities (734) (597)
------ ------
Effect of Exchange Rate on Cash and Cash Equivalents 9 3
------ ------
Net Increase in Cash and Cash Equivalents 188 113
Cash and Cash Equivalents - Beginning of Period 319 158
------ ------
Cash and Cash Equivalents - End of Period $ 507 $ 271
====== ======
See accompanying notes.
Notes to the Consolidated Summary of Results, Condensed Consolidated
Balance Sheets and Condensed Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)
(a) Percentages may not recompute due to rounding.
(b) Amounts presented as of and for the quarter and year to date ended
September 8, 2007 are preliminary.
(c) On May 17, 2007, the Company announced that its Board of Directors
approved a two-for-one split of the Company's outstanding shares
of Common Stock. The stock split was effected in the form of a
stock dividend and entitled each shareholder of record at the
close of business on June 1, 2007 to receive one additional share
for every outstanding share of Common Stock held. The stock
dividend was distributed on June 26, 2007, with approximately 261
million shares of Common Stock distributed. All per share and
share amounts in the accompanying Consolidated Summary of Results
and Condensed Consolidated Balance Sheets have been adjusted to
reflect the stock split.
(d) Other (income) expense primarily includes equity income from our
investments in unconsolidated affiliates in our China and
International Divisions. In the quarter ended March 24, 2007,
other (income) expense also included recognition of income of $5
million associated with receipt of payment for a note receivable
arising from the 2005 sale of our fifty percent interest in the
entity that operated almost all KFCs and Pizza Huts in Poland and
the Czech Republic to our then partner in the entity. In the
quarter ended March 25, 2006, other (income) expense also included
an $8 million charge associated with the termination of a beverage
agreement in the United States segment.
(e) During the fourth quarter of 2006, we completed the acquisition of
the remaining fifty percent ownership interest of our Pizza Hut
United Kingdom ("PHUK") unconsolidated affiliate. This
unconsolidated affiliate owned over 500 restaurants in the United
Kingdom. Prior to this acquisition, we accounted for our interest
under the equity method. In 2007, our financial statements are
presented consolidating the PHUK's results of operations and cash
flows. As a result of this acquisition, company sales increased
$179 million and $516 million, restaurant profit increased $20
million and $53 million, franchise fees decreased $5 million and
$17 million and general and administrative expenses increased $10
million and $29 million compared to the quarter and year to date
ended September 9, 2006, respectively. The impacts on operating
profit and net income were not significant.
Yum! Brands offers consumers more choice and convenience at one restaurant location from a combination of KFC, Taco Bell & Pizza Hut.