Yum! Brands Reports First-Quarter EPS Decline of 8%, Excluding Special Items

Yum! Brands
Published: April 22nd, 2015

Maintains Full-Year Guidance of at least 10% EPS Growth in 2015

LOUISVILLE, Ky. - April 21, 2015 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the first quarter ended March 21, 2015, including EPS of $0.80, excluding Special Items. Reported EPS was $0.81.

First-Quarter Highlights:

Worldwide system sales grew 4%. Worldwide restaurant margin decreased 1.7 percentage points to 17.5%, and worldwide operating profit decreased 8%.
Total international development was 294 new restaurants; 88% of this development occurred in emerging markets.
China Division system sales declined 6%, as 8% unit growth was offset by a 12% same-store sales decline. Restaurant margin decreased 4.5 percentage points to 18.9%. Operating profit decreased 31%.
KFC Division system sales increased 8%, driven by 2% unit growth and 5% same-store sales growth. Operating margin increased 1.8 percentage points to 26.3%. Operating profit increased 11%.
Pizza Hut Division system sales increased 2%, driven by 2% unit growth. Same-store sales were even. Operating margin decreased 1.5 percentage points to 30.0%. Operating profit declined 2%.
Taco Bell Division system sales increased 9%, driven by 3% unit growth and 6% same-store sales growth. Operating margin increased 5.2 percentage points to 26.6%. Operating profit increased 37%.
India Division system sales increased 1%, as 18% unit growth was largely offset by an 11% same-store sales decline.
Worldwide effective tax rate decreased to 23.3% from 25.8%.
Foreign currency translation negatively impacted operating profit by $20 million.

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Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted. System sales and operating profit figures on this page exclude foreign currency translation; operating margin figures are as reported.

Greg Creed Comments

Greg Creed, CEO, said “While EPS declined in the first quarter, I’m pleased with the strong performance from our KFC and Taco Bell Divisions, as well as the continued progress we are making in China. I’m confident we will deliver full-year EPS growth of at least 10%, with a strong second half in China and solid brand-building initiatives underway at each of our divisions.

Our confidence in China is bolstered by improving sales and upward momentum in customer perceptions. China Division restaurant margins were a healthy 19% even though same-store sales declined 12%, reinforcing our belief in significant operating leverage as sales recover. We remain on track to open at least 700 new restaurants in China this year with strong returns, laying the groundwork for future growth.

Outside of China, our KFC and Taco Bell Divisions are firing on all cylinders. These powerhouse brands produced both strong sales growth and significant margin expansion. KFC delivered 5% same-store sales growth, including an improving U.S. business. Taco Bell continued to go from strength to strength with 6% same-store sales growth, led by industry-leading innovation and a solid breakfast platform. At Pizza Hut, our sales performance was relatively flat, but plans are in place to get the business back on track.

Importantly, we’re on pace to set a new record in international development this year, opening 2,100 new restaurants and extending our lead in emerging markets. We expect overall operating results will enable us to achieve targeted earnings growth this year, despite strengthening headwinds from foreign currency translation.

Our central goal remains building three iconic, global brands people trust and champion. We remain focused on the three keys to driving shareholder value: same-store sales growth, new-unit development and generating high returns on invested capital. I believe this combination of efforts will enable us to reestablish our track record of consistently delivering double-digit EPS growth in 2015 and the years ahead.”

CHINA DIVISION

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China Division same-store sales for the quarter were significantly impacted by adverse publicity in July 2014 surrounding improper food handling practices by a former supplier.
China Division system sales decreased 6%, prior to foreign currency translation.
- Same-store sales declined 12%, including declines of 14% at KFC and 6% at Pizza Hut Casual Dining.
China Division opened 171 new units during the quarter.

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Restaurant margin decreased 4.5 percentage points to 18.9%, driven by sales deleverage.
Operating profit declined 31%, prior to foreign currency translation.
Foreign currency translation negatively impacted operating profit by $6 million.
Consistent with prior years, China Division's first quarter includes January and February results only. The first quarter includes Chinese New Year, which is peak season for the China Division.

KFC DIVISION

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KFC Division system sales increased 8%, excluding foreign currency translation.

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KFC Division opened 72 new international restaurants in 36 countries, including 57 units in emerging markets. 82% of these new units were opened by franchisees.
Operating margin increased 1.8 percentage points, driven by same-store sales growth and new-unit development.
Foreign currency translation negatively impacted operating profit by $13 million.

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PIZZA HUT DIVISION

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Pizza Hut Division system sales increased 2%, prior to foreign currency translation.

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Pizza Hut Division opened 35 new international restaurants in 20 countries, including 16 units in emerging markets. 94% of these new units were opened by franchisees.
Operating margin declined 1.5 percentage points, driven by strategic investments in international G&A.
Foreign currency translation negatively impacted operating profit by $1 million.

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TACO BELL DIVISION

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Taco Bell Division system sales increased 9%, driven by 6% same-store sales growth and 3% unit growth.
Taco Bell Division opened 47 new restaurants; 89% of these new units were opened by franchisees.
Restaurant margin was 19.6%, an increase of 4.0 percentage points, driven by same-store sales growth. The combination of pricing actions and favorable menu mix more than offset inflation during the quarter.
Operating margin increased 5.2 percentage points, including a 0.9 percentage point benefit from the overlap of franchise incentives paid in 2014 to support the national launch of breakfast.

INDIA DIVISION

India Division system sales increased 1% prior to foreign currency translation, as 18% unit growth was largely offset by an 11% same-store sales decline.
Operating loss was $4 million, as compared to an operating loss of $3 million in prior year.

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SHARE REPURCHASE UPDATE

Year-to-date through April 20, 2015, we repurchased 2.6 million shares totaling $200 million at an average price of $76.

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 22, 2015. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at 12:45 p.m. Eastern Time Wednesday, April 22, through midnight Wednesday, May 20, 2015. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 20279960.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q1 2015 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; changes in economic conditions, consumer preferences, tax rates and laws and the regulatory environment, as well as increased competition and other risks in China, where a significant and growing portion of our restaurants are located; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; changes in economic and political conditions in the other countries outside the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our international development strategy; commodity, labor and other operating costs; the continued viability and success of our franchise and license operators; consumer preferences and perceptions of our brands; the impact of social media; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations; tax matters, including disagreements with taxing authorities; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; and competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 41,000 restaurants in more than 125 countries and territories. Yum! is ranked #216 on the Fortune 500 List with revenues of over $13 billion and in 2014 was named among the top 100 Corporate Citizens by Corporate Responsibility Magazine. 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.

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See accompanying notes.