Yum! Brands Reports First-Quarter 2013 EPS Declined 8%, Excluding Special Items; China Division Sales and Profits Declined Significantly

Yum! Brands
Published: April 24th, 2013

LOUISVILLE, Ky. - April 24, 2013 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the first quarter ended March 23, 2013 including EPS of $0.70, excluding Special Items. Reported EPS was $0.72 for the quarter.

First-Quarter Highlights

• China Division sales and profits were significantly impacted by adverse publicity from the poultry supply situation that occurred in late December 2012.
• Worldwide system sales grew 1%, prior to foreign currency translation, including 4% at Yum! Restaurants International (YRI) and 2% in the U.S. System sales declined 9% in China.
• Same-store sales declined 20% in China. Same-store sales grew 1% at YRI and 2% in the U.S.
• Total international development was 380 new restaurants; 88% of this development occurred in emerging markets.
• Worldwide restaurant margin declined 2.7 percentage points to 15.9%, including a decline of 7.0 percentage points in China. Restaurant margin increased 1.4 percentage points at YRI and 2.4 percentage points in the U.S.
• Worldwide operating profit declined 14%, prior to foreign currency translation, including a 41% decline in China. Operating profit grew 19% at YRI and 5% in the U.S.
• Worldwide effective tax rate, prior to Special Items, decreased to 26.0% from 27.5%. The decrease in the tax rate positively impacted EPS growth by 2 percentage points.

FULL-YEAR OUTLOOK

Estimated mid-single-digit full-year EPS decline versus prior year, excluding Special Items, remains unchanged.

View Original for Full Data Table

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

David Novak Comments

David C. Novak, Chairman and CEO, said, “While better than expected, the first quarter was extremely difficult for Yum! Brands. As anticipated, intense media attention surrounding poultry supply in China significantly impacted KFC sales and profit. Earnings per share declined 8% versus prior year, as our China Division operating profit fell 41%. Operating profit increased 19% at Yum! Restaurants International and 5% in our U.S. business.

The negative media surrounding poultry supply in China has subsided. We have taken steps to enhance our industry-leading supply chain practices, and we're now in the midst of an aggressive quality assurance marketing campaign. However, our sales recovery has been adversely affected by the recent news of Avian flu. This news surfaced during the first week of April and continues to negatively impact same-store sales. We continue to remind consumers that properly cooked chicken is perfectly safe to eat. Historically, the sales impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived. We will stay the course with our plans to develop at least 700 new units in China this year to lay the foundation for future growth. We have complete confidence in a full sales recovery.

Outside of China, we expect solid, on-target performance for Yum! Brands. Taco Bell continues to deliver strong results with its combination of great value, innovation and world-class operations. Additionally, our emerging market new-unit pipeline is stronger than ever at Yum! Restaurants International and in India.

There is no doubt 2013 will be a challenging year for our company. With news of Avian flu, there will obviously be more volatility with our China sales recovery. However, given better-than-expected first-quarter performance, our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. I'm confident we will end the year with momentum and restore our track record of consistently delivering double-digit EPS growth in 2014 and beyond.”

CHINA DIVISION

View Original for Full Data Table

• China Division sales and profits were negatively impacted as a result of the intense media attention surrounding poultry supply that occurred in late December 2012.
• System sales decreased 9%, prior to foreign currency translation.
  • Same-store sales declined 20%, including a 24% decline at KFC and 2% decline at Pizza Hut Casual Dining.
• New-unit development of 226 restaurants benefited from Chinese New Year falling late in the quarter this year.

View Original for Full Data Table

• Restaurant margin decreased 7.0 percentage points to 16.6%, primarily due to sales deleverage.
• For the quarter, the Little Sheep acquisition had a positive impact of 4 percentage points on system sales growth, a negligible impact on restaurant margin and a positive impact of 4 percentage points on operating profit growth.
• Foreign currency translation positively impacted operating profit by $2 million.

CURRENT CHINA SALES UPDATE

• Beginning the first week of April, publicity surrounding Avian flu in China has had a significant, negative impact on KFC sales. Historically, the impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived. In the past, we reminded consumers that properly cooked chicken is perfectly safe to eat, and we continue to do so.
• Based on our results through the first three weeks of April, we expect China Division same-store sales to decline about 30% for the month.
• We are temporarily providing monthly same-store sales releases until sales have recovered. We will release April same-store sales for our China Division on May 10, 2013, after market hours.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

View Original for Full Data Table

• YRI Division system sales increased 4% driven by new-unit development and 1% same-store sales growth.
  • Emerging markets system sales grew 10%, driven by 4% same-store sales growth and 7% unit growth.
  • Developed markets system sales were flat, including a 1% decline in same-store sales and 1% unit growth.
• YRI opened 147 new units in 44 countries, including 103 in emerging markets.
  • Our franchise partners opened 90% of all new units.
• Restaurant margin increased 1.4 percentage points. This was primarily driven by the refranchising of our Pizza Hut UK Dine-In business.
• Operating profit growth benefited 8 percentage points from a major franchise ownership change, which added transfer and renewal fees, and from changes to a pension plan. Additionally, the refranchising of the Pizza Hut UK Dine-In business late last year was accretive to operating profit growth by 3 percentage points.
• Foreign currency translation had a negligible impact on operating profit growth.

View Original for Full Data Table

U.S. DIVISION

View Original for Full Data Table

• U.S. Division same-store sales increased 2%, including growth of 6% at Taco Bell. Same-store sales declined 1% at Pizza Hut and 1% at KFC.
• Restaurant margin increased 2.4 percentage points, driven primarily by refranchising and sales leverage at Taco Bell.
• Operating profit growth was adversely impacted by 2 percentage points due to refranchising.

INDIA DIVISION

• India Division system sales increased 16%, prior to foreign currency translation. The system sales increase was driven by unit growth of 26%, partially offset by a 3% decline in same-store sales.

View Original for Full Data Table

Ownership / Special Items Update

In the U.S., we refranchised 85 Taco Bell units for proceeds of $81 million. We recorded pre-tax U.S. refranchising gains of $17 million in Special Items.

Other Item Update

Through April 22, 2013, we repurchased 1.7 million shares at an average price of $65 totaling $112 million.

Conference Call

Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. Eastern Time Wednesday, April 24, 2013. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at noon Eastern Time Wednesday, April 24, through midnight Wednesday, May 8, 2013. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 34472493.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' Web site, www.yum.com/investors and selecting “Q1 2013 Earnings Conference Call” under “Investment Events.” A podcast will be available within 24 hours.

Additional Information Online

Quarter end dates for each division, restaurant-count details and definitions of terms are available online at www.yum.com under “Investors.”

This announcement, any related announcements and the related webcast may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: food safety and food borne-illness issues; economic conditions, consumer preferences, adverse publicity, tax rates, the regulatory environment, increased competition and other risks in China, where a significant and growing portion of our restaurants are located; economic and political conditions in the other countries where we operate; the success of our international development strategy; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future litigation and legal claims or proceedings; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; consumer preferences and perceptions of our brands; the success of our refranchising strategy; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; new and changing government regulations; our effective tax rates and disagreements with taxing authorities; our ability to protect the integrity and security of individually identifiable data of our customers and employees; competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties; and risks associated with the Little Sheep business. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

About Yum! Brands, Inc

Yum! Brands, Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants with over 39,000 restaurants in more than 130 countries and territories. Yum! was ranked #213 on the Fortune 500 List for 2011 and had revenues of over $13 billion in 2012. The Company's restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opened over five new restaurants per day, making it a leader in international retail development.

Contacts:

Yum! Brands Inc.
Analysts:

Steve Schmitt
Vice President Investor Relations
888-298-6986

Donny Lau
Director Investor Relations
888-298-6986

Media:

Amy Sherwood
Vice President Public Relations
502-874-8200