Yum! Brands Reports Core Operating Profit Growth of 21% in First Quarter 2016

Yum! Brands
Published: April 21st, 2016

Raises Full-Year Core Operating Profit Growth Guidance to 12%

LOUISVILLE, Ky. - April 20, 2016 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the first quarter ended March 19, 2016, including EPS of $0.95 excluding Special Items. On a reported basis, EPS was $0.93 and operating profit growth was 12%.

Core operating profit growth and core operating margin growth figures exclude foreign currency translation and Special Items.

First-Quarter Highlights

Worldwide system sales increased 5%.
Worldwide same-store sales increased 2%.
Worldwide core operating profit increased 21%.
EPS excluding Special Items increased 19% to $0.95. Reported EPS increased 14% to $0.93.
Foreign currency translation negatively impacted operating profit by $28 million.
Opened 295 new restaurants worldwide; 72% of international development occurred in emerging markets.
On track with China separation to be complete by year end.

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^{1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2016 primarily relate to charges associated with the agreement reached in 2015 with KFC U.S. franchisees and costs associated with the planned separation of our China business.}

Effective January 2016, the Company’s India business integrated its three restaurant brands into our global KFC, Pizza Hut and Taco Bell Divisions. Prior year figures have been restated to present comparable results.

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

Greg Creed Comments

Greg Creed, CEO, said “I’m very pleased with our results in the first quarter, including better-than-expected core operating profit growth of 21%, driven by 42% growth in our China business. KFC China had an outstanding Chinese New Year bucket promotion leading to 12% same-store sales growth for the quarter, underscoring the power of delivering insight-driven marketing that resonates with our customers. Companywide, all four of our Divisions posted positive same-store sales and core operating profit growth. I’m especially encouraged by the continued turnaround of our Pizza Hut U.S. business, which delivered 5% same-store sales growth.

While it’s early in the year and there may be bumps in the road, we’re confident in raising core operating profit growth guidance to 12%, from 10% previously. This is a transformational year for our company as we remain on track to finalize the separation of our China business by year end. We look forward to establishing two powerful, independent, focused growth companies dedicated to building on our brand strengths and rewarding our shareholders.”

CHINA DIVISION

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China Division system sales increased 11%, excluding foreign currency translation.
- Same-store sales increased 6%, with an increase of 12% at KFC, partially offset by a decline of 12% at Pizza Hut Casual Dining.
China Division opened 68 new units during the quarter.

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Restaurant margin was 22.4%, an increase of 3.5 percentage points driven by sales leverage at KFC, productivity initiatives and commodity deflation, partially offset by labor inflation.
Foreign currency translation negatively impacted operating profit by $13 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.
Leap year added an extra day in the quarter, resulting in an additional $6 million of operating profit.

KFC DIVISION

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KFC Division system sales increased 5%, excluding foreign currency translation.

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KFC Division opened 79 new international restaurants in 32 countries, including 56 units in emerging markets. 77% of these new units were opened by franchisees.
Operating margin increased 0.5 percentage points driven by new-unit development.
Core operating profit grew 7% in the quarter excluding the incremental advertising expense associated with the 2015 agreement reached with KFC U.S. franchisees.
Foreign currency translation negatively impacted operating profit by $13 million, as approximately 90% of division profits are generated outside the U.S.

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PIZZA HUT DIVISION

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Pizza Hut Division system sales increased 4%, excluding foreign currency translation.

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Pizza Hut Division opened 63 new international restaurants in 27 countries, including 30 units in emerging markets. 87% of these new units were opened by franchisees.
Operating margin increased 3.1 percentage points, driven by same-store sales growth and reduced 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 3%, driven by 1% same-store sales growth and 3% unit growth.
Taco Bell Division opened 49 new restaurants; 90% of these new units were opened by franchisees.
Restaurant margin was 21.0%, an increase of 1.5 percentage points driven by favorable U.S. commodities and prior-year pricing actions, partially offset by labor inflation.
Operating margin increased 1.5 percentage points driven by new-unit development and same-store sales growth, partially offset by increased G&A primarily related to higher legal costs.

Special Items / Share Repurchase Update

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 expanded menu offerings, improved assets and an enhanced customer experience. In connection with this agreement, we recognized a Special Items charge of $9 million during the quarter, primarily related to the funding of investments for new back-of-house equipment for franchisees.
During the quarter, we incurred a Special Items charge of $9 million for costs related to the planned separation of our China business.
Year-to-date through April 19, 2016, we repurchased 13.3 million shares totaling $925 million at an average price of $70. Since we announced our intention to separate the China business, we have repurchased 24.7 million shares totaling $1.8 billion at an average price of $71. This is part of our previously announced plan to return $6.2 billion of capital to shareholders prior to the separation of our China business.

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 Thursday, April 21, 2016. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 67267109.

The call will be available for playback beginning at 12:30 p.m. Eastern Time Thursday, April 21, 2016 through midnight Wednesday, May 18, 2016. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 67267109.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website, www.yum.com/investors and selecting “Q1 2016 Earnings Conference Call” under “Events & Presentations.”

Additional Information Online

Quarter end dates for each division, restaurant-count details and definitions of terms are available online atwww.yum.com/investors.

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,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events, including, without limitation, statements regarding the intended capital return to shareholders as well as the related borrowing required to fund such capital return, the planned separation of the Yum! Brands and Yum! China businesses, the timing of any such separation, the future earnings and performance as well as capital structure of Yum! Brands, Inc. or any of its businesses, including the Yum! Brands and Yum! China businesses on a standalone basis if the separation is completed. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. 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. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to return capital to shareholders at the times and in the amounts currently anticipated, if at all, as well as the corresponding costs of borrowing to fund such capital return as well as other costs; whether the separation of the Yum! Brands and Yum! China businesses is completed, as expected or at all, and the timing of any such separation; whether the operational and strategic benefits of the separation can be achieved; whether the costs and expenses of the separation can be controlled within expectations, including potential tax costs; as well as other risks. 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. 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 or Form 10-K) for additional detail about factors that could affect our financial and other results. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.yum.com/investors.

Yum! Brands, Inc., based in Louisville, Kentucky, has nearly 43,000 restaurants in more than 130 countries and territories. Yum! is ranked #228 on the Fortune 500 List with revenues of over $13 billion in 2015 and is one of the Aon Hewitt Top Companies for Leaders in North America. The Company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in global retail development.

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See accompanying notes.