Yum! Brands Reports Second-Quarter EPS Growth of 30%, Excluding Special Items

China Division System Sales Increased 21% with Operating Profit Growth of 188%; Yum! Reaffirms Full-Year Guidance of at least 20% EPS Growth

LOUISVILLE, Ky. - (BUSINESS WIRE) - July 16, 2014 - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 14, 2014, including EPS of $0.73.

Second-Quarter Highlights

  • Worldwide system sales grew 6%. Worldwide restaurant margin increased 3.0 percentage points to 15.5%, and worldwide operating profit increased 34%.
  • Total international development was 298 new restaurants; 78% of this development occurred in emerging markets.
  • China Division system sales increased 21%, driven by 7% unit growth and 15% same-store sales growth. Restaurant margin increased 6.2 percentage points to 16.8%. Operating profit increased 188%.
  • KFC Division system sales increased 5%, driven by 1% unit growth and 2% same-store sales growth. Restaurant margin increased 0.3 percentage points to 12.9%. Operating profit increased 12%.
  • Pizza Hut Division system sales declined 1%, as 2% unit growth was offset by a 3% same-store sales decline. Restaurant margin decreased 6.4 percentage points to 7.2%. Operating profit decreased 22%.
  • Taco Bell Division system sales increased 3%, driven by 1% unit growth and 2% same-store sales growth. Restaurant margin decreased 2.7 percentage points to 17.7%. Operating profit decreased 2%.
  • India Division system sales increased 18%, driven by 25% unit growth which was partially offset by a 2% same-store sales decline.
  • Worldwide effective tax rate increased to 24.9% from 22.1%.
  • Foreign currency translation negatively impacted operating profit by $7 million.
     
       

Second Quarter

       

Year-to-Date

 
       

2014

   

2013

   

% Change

       

2014

   

2013

   

% Change

 
  EPS Excluding Special Items     $0.73     $0.56     30%         $1.60     $1.26     27%  
  Special Items Gain/(Loss)1     $0.00     $0.05     NM         $0.01     $0.07     NM  
  EPS     $0.73     $0.61     21%         $1.61     $1.33     21%  

1See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items are primarily related to U.S. refranchising gains.

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.

David C. Novak Comments

David C. Novak, Chairman and CEO said, “Yum! Brands is well on its way to delivering full-year EPS growth of at least 20%, with second-quarter EPS growth of 30%. Operating profit grew 188% in China driven by strong sales and margin performance. Just as important, I’m confident we are building momentum behind major initiatives around the world that will sustain double-digit EPS growth in 2015 and beyond.

China Division system sales increased 21% as we opened 104 new restaurants and delivered same-store sales growth of 15%. Restaurant margins were 16.8%, which was 6.2 percentage points above prior year. We are especially pleased with the initial success of our KFC Menu Revamp and excited about our plans balance of year. Overall, we remain on track to open at least 700 new restaurants in China as we further capitalize on the world’s largest and fastest growing consuming class.

Outside of China, we expect to open a record 1,250 new international units this year, further strengthening our leadership position in emerging markets. We also delivered solid sales and profit growth at our KFC division, led by strong international performance. At Taco Bell, we’re very pleased with the initial results of our national breakfast launch and have a strong new product pipeline across all day-parts to drive a strong second half. At Pizza Hut, although second-quarter results were disappointing, we are taking significant actions in our U.S. business to reignite sales and expect to make substantial progress balance of year.

Overall, we have a compelling business model and will continue to invest behind the significant growth opportunities we see around the world. We remain focused on the three keys to driving shareholder value: new-unit development, same-store sales growth and generating high returns on invested capital.”

 

CHINA DIVISION

                     
       

Second Quarter

       

Year-to-Date

 
              % Change               % Change  
     

2014

   

2013

   

Reported

   

Ex F/X

       

2014

   

2013

   

Reported

   

Ex F/X

 
  System Sales Growth                 +21     +21                     +20     +19  
  Same-Store Sales Growth (%)     +15     (20)     NM     NM         +12     (20)     NM     NM  
  Franchise & License Fees ($MM)     26     20     +38     +38         49     38     +32     +30  
  Restaurant Margin (%)     16.8     10.6     6.2     6.2         19.8     13.2     6.6     6.5  
  Operating Profit ($MM)     194     68     +188     +188         479     222     +116     +113  
                                                         

Our new reporting structure does not impact the China Division. For the full year 2013, China Division contributed 35% of Yum!’s total operating profit.

  • China Division system sales increased 21%, prior to foreign currency translation.China Division opened 104 new units during the quarter.
    • System sales grew 25% for KFC and 16% for Pizza Hut Casual Dining.
    • Same-store sales grew 15%, including growth of 21% at KFC. Pizza Hut Casual Dining same-store sales were even.
                         
  China Units         Q2 2014         % Change2  
  Restaurants1         6,387         +7  
  KFC         4,653         +5  
  Pizza Hut                      
  Casual Dining         1,134         +24  
  Home Service         215         +26  
 

1 Total includes East Dawning and Little Sheep units.

 

2 Represents year-over-year change.

   
  • Restaurant margin increased 6.2 percentage points to 16.8%, driven by sales leverage and restaurant operating efficiencies. Excluding the impact of Little Sheep, restaurant margin would have been 17.4%.
  • Foreign currency translation negatively impacted operating profit by $1 million.

KFC DIVISION

                     
       

Second Quarter

       

Year-to-Date

 
                    % Change                     % Change  
       

2014

   

2013

   

Reported

   

Ex F/X

       

2014

   

2013

   

Reported

   

Ex F/X

 
  Restaurants1     13,906     13,711     +1     NA         13,906     13,711     +1     NA  
  System Sales Growth                 +2     +5                     Even     +5  
  Same-Store Sales Growth     +2     +2     NM     NM         +2     +1     NM     NM  
  Franchise & License Fees ($MM)     196     189     +3     +7         391     390     Even     +4  
  Restaurant Margin (%)     12.9     12.6     0.3     0.2         12.9     12.9     Even     Even  
  Operating Profit ($MM)     155     145     +7     +12         318     310     +3     +8  
  Operating Margin (%)     20.6     20.5     0.1     0.4         22.4     22.8     (0.4)     (0.1)  

1Restaurant counts now reflect licensed units.

KFC is a new reporting division and includes all KFC results outside of the China and India divisions. For the full year 2013, KFC Division contributed 29% of Yum!’s total operating profit, 91% of which was generated outside the U.S. This division is 91% franchised.

  • KFC Division system sales increased 5%, excluding foreign currency translation.
    • International system sales grew 12% in emerging markets and 6% in developed markets. U.S. system sales declined 4%.
    • International same-store sales grew 4% in emerging markets and 3% in developed markets. U.S. same-store sales declined 2%.
  • KFC Division opened 110 new international restaurants in 38 countries. This included 79 units in emerging markets.Operating profit increased 12%, prior to foreign currency translation.
    • 75% of these new units were opened by franchisees.
  • Foreign currency translation negatively impacted operating profit by $6 million.
                         
  KFC MARKETS1        

Percent of KFC
System Sales2

        SYSTEM Sales Growth Ex F/X  
                  Second Quarter (%)         Year-to-Date (%)  
  Emerging Markets                                
  Asia (e.g. Malaysia, Indonesia, Philippines)         8%         +4         +5  
  Africa3         7%         +12         +10  
  Latin America (e.g. Mexico, Peru)         6%         +7         +8  
  Middle East / North Africa         6%         +12         +12  
  Russia         3%         +40         +43  
  Thailand         3%         +8         +5  
  Continental Europe (e.g. Poland)         2%         +12         +10  
                                   
                                   
  Developed Markets                                
  U.S.         25%         (4)         (4)  
  Asia (e.g. Japan, Korea, Taiwan)         11%         +1         +2  
  Australia         10%         +4         +3  
  U.K.         8%         +12         +12  
  Continental Europe (e.g. France, Germany)         6%         +8         +8  
  Canada         4%         Even         (1)  
  Latin America (e.g. Puerto Rico)         1%         (4)         (3)  

1 See website www.yum.com under tab “Investors” for a list of the countries within each of the markets.

2 Reflects Full Year 2013.

3 Starting in 2014, Africa market includes Mauritius results. For comparability purposes, systems sales growth excludes Mauritius.

PIZZA HUT DIVISION

                     
       

Second Quarter

       

Year-to-date

 
                    % Change                     % Change  
       

2014

   

2013

   

Reported

   

Ex F/X

       

2014

   

2013

   

Reported

   

Ex F/X

 
  Restaurants1     13,338     13,100     +2     NA         13,338     13,100     +2     NA  
  System Sales Growth                 (2)     (1)                     (2)     Even  
  Same-Store Sales Growth     (3)     Even     NM     NM         (2)     (1)     NM     NM  
  Franchise & License Fees ($MM)     123     123     (2)     (1)         250     252     (1)     Even  
  Restaurant Margin (%)     7.2     13.6     (6.4)     (6.5)         9.0     14.3     (5.3)     (5.4)  
  Operating Profit ($MM)     63     80    

(22)

    (22)         147     179     (18)     (17)  
  Operating Margin (%)     23.5     29.9     (6.4)     (6.3)         27.6     33.6     (6.0)     (6.0)  

1 Restaurant counts now reflect licensed units.

Pizza Hut is a new reporting division and includes all Pizza Hut results outside of the China and Indiadivisions. For the full year 2013, Pizza Hut Division contributed 15% of Yum!’s total operating profit, 54% of which was generated in the U.S. This division is 94% franchised.

  • Pizza Hut Division system sales decreased 1%, excluding foreign currency translation.
    • International system sales grew 4% in emerging markets and declined 1% in developed markets. U.S. system sales decreased 2%.
    • International same-store sales were even in emerging markets and declined 2% in developed markets. U.S. same-store sales declined 4%.
  • Pizza Hut Division opened 109 new restaurants, including 67 international units and 42 U.S. units. This included 32 units in emerging markets.Restaurant margin declined 6.4 percentage points, driven by higher self-insurance costs, sales deleverage and commodity inflation.
    • 88% of these new units were opened by franchisees.
  • Operating profit declined 22%, including a 13 percentage-point impact from higher litigation costs, higher self-insurance costs and strategic investments in international G&A.
  • Foreign currency translation had a negligible impact on operating profit.
                         
  PIZZA HUT MARKETS1        

Percent of Pizza
Hut System Sales2

        SYSTEM Sales Growth Ex F/X  
                  Second Quarter (%)         Year-to-Date (%)  
  Emerging Markets                                
  Latin America (e.g. Mexico, Peru)         6%         +7         +8  
  Asia (e.g. Malaysia, Indonesia, Philippines)         5%         +3         +7  
  Middle East / North Africa         5%         +1         +3  
  Continental Europe (e.g. Poland)         1%         +4         +4  
                                   
  Developed Markets                                
  U.S.         55%         (2)         (3)  
  Asia (e.g. Japan, Korea, Taiwan)         10%         (4)         (1)  
  U.K.         6%         (2)         Even  
  Continental Europe (e.g. France, Germany)         5%         +2         +2  
  Australia         3%         +3         +1  
  Canada         3%         +2         +1  
  Latin America (e.g. Puerto Rico)         1%         (3)         (4)  

1 See website www.yum.com under tab “Investors” for a list of the countries within each of the markets.

2 Reflects Full Year 2013.

TACO BELL DIVISION

                 
       

Second Quarter

   

Year-to-Date

 
                    % Change                 % Change  
       

2014

   

2013

   

Reported

   

Ex F/X

   

2014

   

2013

   

Reported

   

Ex F/X

 
  Restaurants1     6,074     5,987     +1     NA     6,074     5,987     +1     NA  
  System Sales Growth                 +3     +3                 +2     +2  
  Same-Store Sales Growth     +2     +2     NM     NM     +1     +4     NM     NM  
  Franchise & License Fees ($MM)     97     94     +4     +5     182     179     +2     +2  
  Restaurant Margin (%)     17.7     20.4     (2.7)     (2.7)     16.7     19.3     (2.6)     (2.6)  
  Operating Profit ($MM)     109     111     (2)     (2)     193     211     (9)     (9)  
  Operating Margin (%)     24.8     24.7     0.1     0.2     23.2     23.8     (0.6)     (0.6)  

1 Restaurant counts now reflect licensed units.

Taco Bell is a new reporting division, which includes all Taco Bell results outside of the India division. For the full year 2013, Taco Bell Division contributed 21% of Yum!’s total operating profit, 97% of which was generated in the U.S. This division is 85% franchised.

  • Taco Bell Division system sales increased 3%.Taco Bell Division opened 30 new restaurants; 29 of these new units were opened by franchisees.
    • U.S. same-store sales grew 2%.
  • Restaurant margin was 17.7%, a decline of 2.7 percentage points, driven by commodity inflation, investments in breakfast and sales deleverage in other day-parts.

INDIA DIVISION

  • India Division system sales increased 18%, prior to foreign currency translation, driven by 25% unit growth. Same-store sales declined 2%.
  • Operating loss was $1 million, an improvement of $3 million versus prior year.
  • Effective the beginning of 2014, results from our 28 franchised stores in Mauritius are no longer included in the India Division and are included in the KFC and Pizza Hut Divisions, as applicable. India unit and system sales growth as shown here exclude Mauritius from the prior year amounts to enhance comparability.
                         
  India Units         Q2 2014         % Change2  
  Restaurants1         714         +25  
  KFC         341         +29  
  Pizza Hut                      
  Casual Dining         182         +6  
  Home Service         186         +44  
 

1 Total includes 5 Taco Bell units.

 

2 Represents year-over-year change.

   

SHARE REPURCHASE UPDATE

  • Year-to-date through July 15, 2014, we repurchased 4.6 million shares totaling $346 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 Thursday, July 17, 2014. 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 Thursday, July 17, through midnightTuesday, August 12, 2014. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 59103524.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website,www.yum.com/investors and selecting “Q2 2014 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 atwww.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; changes in economic and political conditions in the other countries outside the US where we operate; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; 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; a potential suspension of the Chinese affiliate of our independent auditor; 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 40,000 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.


 
               

YUM! Brands, Inc.

Condensed Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)

                   
      Quarter ended   % Change   Year to date   % Change
      6/14/14   6/15/13   B/(W)   6/14/14   6/15/13   B/(W)
                                   
Company sales     $ 2,758     $ 2,474     12   $ 5,050     $ 4,573     10
Franchise and license fees and income     446     430     4   878     866     1
Total revenues     3,204     2,904     10   5,928     5,439     9
                                   
Company restaurant expenses                                  
Food and paper     886     805     (10)   1,611     1,485     (9)
Payroll and employee benefits     620     590     (5)   1,113     1,080     (3)
Occupancy and other operating expenses     824     769     (7)   1,457     1,365     (7)
Company restaurant expenses     2,330     2,164     (8)   4,181     3,930     (6)
                                   
General and administrative expenses     352     333     (6)   623     606     (3)
Franchise and license expenses     34     34     (1)   67     64     (5)
Closures and impairment (income) expenses     21     6     NM   24     10     NM
Refranchising (gain) loss     (4 )   (32 )   (89)   (7 )   (49 )   (86)
Other (income) expense     (8 )   9     NM   (10 )   1     NM
Total costs and expenses, net     2,725     2,514     (8)   4,878     4,562     (7)
                                   
Operating Profit     479     390     23   1,050     877     20
Interest expense, net     29     32     12   62     63     3
Income before income taxes     450     358     26   988     814     21
Income tax provision     112     82     (38)   251     202     (25)
Net income - including noncontrolling interests     338     276     22   737     612     20
Net income (loss) - noncontrolling interests     4     (5 )   NM   4     (6 )   NM
Net income - YUM! Brands, Inc.     $ 334     $ 281     19   $ 733     $ 618     19
                                   

Effective tax rate

    24.9 %   22.7 %   (2.2 ppts.)   25.4 %   24.8 %   (0.6 ppts.)
                                   

Basic EPS Data

                                 
EPS     $ 0.75     $ 0.62     21   $ 1.64     $ 1.36     21
Average shares outstanding     446     454     2   446     454     2
                                   

Diluted EPS Data

                                 
EPS     $ 0.73     $ 0.61     21   $ 1.61     $ 1.33     21
Average shares outstanding     455     464     2   456     464     2
                                   
Dividends declared per common share     $ 0.37     $ 0.335     10   $ 0.74     $ 0.67     10
                                           
 
See accompanying notes.
 
Percentages may not recompute due to rounding.
                   

YUM! Brands, Inc.

CHINA DIVISION Operating Results

(amounts in millions)

(unaudited)

                   
      Quarter ended   % Change   Year to date   % Change
      6/14/14   6/15/13   B/(W)   6/14/14   6/15/13   B/(W)
                                   
Company sales     $ 1,683     $ 1,429     18   $ 3,039     $ 2,562     19
Franchise and license fees and income     26     20     38   49     38     32
Total revenues     1,709     1,449     18   3,088     2,600     19
                                   
Company restaurant expenses                                  
Food and paper     531     469     (13)   949     844     (12)
Payroll and employee benefits     337     319     (5)   578     550     (5)
Occupancy and other operating expenses     532     489     (9)   912     828     (10)
Company restaurant expenses     1,400     1,277     (9)   2,439     2,222     (10)
General and administrative expenses     102     90     (15)   164     145     (14)
Franchise and license expenses     3     3     (39)   6     5     (36)
Closures and impairment (income) expenses     17     6     NM   19     8     NM
Other (income) expense     (7 )   5     NM   (19 )   (2 )   NM
      1,515     1,381     (10)   2,609     2,378     (10)
Operating Profit     $ 194     $ 68     188   $ 479     $ 222     116
                                   
Company sales     100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper     31.5     32.8     1.3 ppts.   31.2     32.9     1.7 ppts.
Payroll and employee benefits     20.0     22.3     2.3 ppts.   19.0     21.6     2.6 ppts.
Occupancy and other operating expenses     31.7     34.3     2.6 ppts.   30.0     32.3     2.3 ppts.
Restaurant margin     16.8 %   10.6 %   6.2 ppts.   19.8 %   13.2 %   6.6 ppts.
                                   
Operating margin     11.4 %   4.7 %   6.7 ppts.   15.5 %   8.5 %   7.0 ppts.
 
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
      6/14/14   6/15/13   B/(W)   6/14/14   6/15/13   B/(W)
                                   
Company sales     $ 558     $ 514     9   $ 1,027     $ 972     6
Franchise and license fees and income     196     189     3   391     390    
Total revenues     754     703     7   1,418     1,362     4
                                   
Company restaurant expenses                                  
Food and paper     194     180     (8)   358     339     (6)
Payroll and employee benefits     135     123     (10)   249     233     (7)
Occupancy and other operating expenses     157     147     (7)   287     276     (4)
Company restaurant expenses     486     450     (8)   894     848     (6)
General and administrative expenses     94     92       170     173     2
Franchise and license expenses     17     16     (5)   34     31     (10)
Closures and impairment (income) expenses     1         NM   1         NM
Other (income) expense     1         (93)   1         NM
      599     558     (7)   1,100     1,052     (5)
Operating Profit     $ 155     $ 145     7   $ 318     $ 310     3
                                   
Company sales     100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper     34.9     35.0     0.1 ppts.   34.9     34.9    
Payroll and employee benefits     24.2     23.8     (0.4 ppts.)   24.3     23.9     (0.4 ppts.)
Occupancy and other operating expenses     28.0     28.6     0.6 ppts.   27.9     28.3     0.4 ppts.
Restaurant margin     12.9 %   12.6 %   0.3 ppts.   12.9 %   12.9 %  
                                   
Operating margin     20.6 %   20.5 %   0.1 ppts.   22.4 %   22.8 %   (0.4 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
      6/14/14   6/15/13   B/(W)   6/14/14   6/15/13   B/(W)
                                   
Company sales     $ 142     $ 144     (1)   $ 282     $ 282    
Franchise and license fees and income     123     123     (2)   250     252     (1)
Total revenues     265     267     (1)   532     534    
                                   
Company restaurant expenses                                  
Food and paper     43     41     (8)   85     79     (8)
Payroll and employee benefits     44     44     (3)   87     85     (3)
Occupancy and other operating expenses     45     40     (9)   85     78     (8)
Company restaurant expenses     132     125     (6)   257     242     (6)
General and administrative expenses     58     54     (7)   107     96     (12)
Franchise and license expenses     10     9     (1)   18     18     1
Closures and impairment (income) expenses     1     (1 )   NM   2         NM
Other (income) expense     1         NM   1     (1 )   NM
      202     187     (8)   385     355     (9)
Operating Profit     $ 63     $ 80     (22)   $ 147     $ 179     (18)
                                   
Company sales     100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper     30.5     28.0     (2.5 ppts.)   30.1     27.9     (2.2 ppts.)
Payroll and employee benefits     31.0     29.9     (1.1 ppts.)   30.8     29.9     (0.9 ppts.)
Occupancy and other operating expenses     31.3     28.5     (2.8 ppts.)   30.1     27.9     (2.2 ppts.)
      7.2 %   13.6 %   (6.4 ppts.)   9.0 %   14.3 %   (5.3 ppts.)
                                   
Operating margin     23.5 %   29.9 %   (6.4 ppts.)   27.6 %   33.6 %   (6.0 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
      6/14/14   6/15/13   B/(W)   6/14/14   6/15/13   B/(W)
                                   
Company sales     $ 342     $ 358     (5)   $ 648     $ 711     (9)
Franchise and license fees and income     97     94     4   182     179     2
Total revenues     439     452     (3)   830     890     (7)
                                   
Company restaurant expenses                                  
Food and paper     104     102     (1)   196     203     3
Payroll and employee benefits     100     100     2   192     205     7
Occupancy and other operating expenses     77     82     4   151     165     8
Company restaurant expenses     281     284     1   539     573     6
General and administrative expenses     43     48     7   88     93     5
Franchise and license expenses     5     5     4   9     9     3
Closures and impairment (income) expenses     1     1     NM   1     1     NM
Other (income) expense         3     NM       3     NM
      330     341     3   637     679     6
Operating Profit     $ 109     $ 111     (2)   $ 193     $ 211     (9)
                                   
Company sales     100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper     30.5     28.7     (1.8 ppts.)   30.3     28.6     (1.7 ppts.)
Payroll and employee benefits     29.0     28.2     (0.8 ppts.)   29.6     28.9     (0.7 ppts.)
Occupancy and other operating expenses     22.8     22.7     (0.1 ppts.)   23.4     23.2     (0.2 ppts.)
      17.7 %   20.4 %   (2.7 ppts.)   16.7 %   19.3 %   (2.6 ppts.)
                                   
Operating margin     24.8 %   24.7 %   0.1 ppts.   23.2 %   23.8 %   (0.6 ppts.)
                                   

See accompanying notes.

 
Percentages may not recompute due to rounding.
           

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

           
      (unaudited)    
      6/14/14   12/28/13
ASSETS            
Current Assets            
Cash and cash equivalents     $ 597     $ 573
Accounts and notes receivable, less allowance: $15 in 2014 and $11 in 2013     352     319
Inventories     282     294
Prepaid expenses and other current assets     231     276
Short-term investments     234     10
Deferred income taxes     129     123
Advertising cooperative assets, restricted     57     96
Total Current Assets     1,882     1,691
             

Property, plant and equipment, net of accumulated depreciation and amortization of $3,554 in 2014 and $3,391 in 2013

    4,425     4,459
Goodwill     875     889
Intangible assets, net     615     638
Investments in unconsolidated affiliates     49     53
Other assets     557     566
Deferred income taxes     407     399
Total Assets     $ 8,810     $ 8,695
             

LIABILITIES AND SHAREHOLDERS’ EQUITY

           
Current Liabilities            
Accounts payable and other current liabilities     $ 1,836     $ 1,929
Income taxes payable     190     169
Short-term borrowings     70     71
Advertising cooperative liabilities     57     96
Total Current Liabilities     2,153     2,265
             
Long-term debt     3,095     2,918
Other liabilities and deferred credits     1,200     1,244
Total Liabilities     6,448     6,427
             
Redeemable noncontrolling interest     36     39
             

Shareholders’ Equity

           
Common stock, no par value, 750 shares authorized; 440 shares and 443 shares issued in 2014 and 2013, respectively        
Retained earnings     2,258     2,102
Accumulated other comprehensive income (loss)     6     64

Total Shareholders’ Equity - YUM! Brands, Inc.

    2,264     2,166
Noncontrolling interests     62     63

Total Shareholders’ Equity

    2,326     2,229

Total Liabilities, Redeemable Noncontrolling Interest and Shareholders’ Equity

    $ 8,810     $ 8,695
                 

See accompanying notes.

               
       

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

       
      Year to date ended
      6/14/14     6/15/13
Cash Flows - Operating Activities                
Net income - including noncontrolling interests     $ 737       $ 612  
Depreciation and amortization     320       300  
Closures and impairment (income) expenses     24       10  
Refranchising (gain) loss     (7 )     (49 )
Deferred income taxes     (10 )     (5 )
Equity income from investments in unconsolidated affiliates     (22 )     (4 )
Distribution of income received from unconsolidated affiliates     7       12  
Excess tax benefit from share-based compensation     (25 )     (24 )
Share-based compensation expense     25       21  
Changes in accounts and notes receivable     12       4  
Changes in inventories     5       1  
Changes in prepaid expenses and other current assets     (11 )     (8 )
Changes in accounts payable and other current liabilities     (27 )     (229 )
Changes in income taxes payable     96       62  
Other, net     (40 )     26  
Net Cash Provided by Operating Activities     1,084       729  
                 
Cash Flows - Investing Activities                
Capital spending     (408 )     (472 )
Changes in short-term investments, net     (227 )     2  
Proceeds from refranchising of restaurants     17       155  
Acquisitions     (3 )     (89 )
Other, net     7       (6 )
Net Cash Used in Investing Activities     (614 )     (410 )
                 
Cash Flows - Financing Activities                
Repayments of long-term debt     (5 )     (4 )
Short-term borrowings by original maturity                
More than three months - proceeds           55  
More than three months - payments            
Three months or less, net            
Revolving credit facilities, three months or less, net     178        
Repurchase shares of Common Stock     (300 )     (329 )
Excess tax benefit from share-based compensation     25       24  
Employee stock option proceeds     16       11  
Dividends paid on Common Stock     (327 )     (301 )
Other, net     (20 )     (43 )
Net Cash Used in Financing Activities     (433 )     (587 )
Effect of Exchange Rate on Cash and Cash Equivalents     (13 )     (8 )
Net Increase (Decrease) in Cash and Cash Equivalents     24       (276 )
Cash and Cash Equivalents - Beginning of Period     573       776  
Cash and Cash Equivalents - End of Period     $ 597       $ 500  
                     

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 U.S. Generally Accepted Accounting Principles (“GAAP”) throughout this document, the Company has provided non-GAAP measurements which present operating results in 2014 and 2013 on a basis before Special Items. Special Items presented below relate primarily to U.S. refranchising gains, which are further described in (d) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years to date ended June 14, 2014 and June 15, 2013 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

                   
      Quarter ended   Year to Date
      6/14/14   6/15/13   6/14/14   6/15/13
Detail of Special Items                                  
U.S. Refranchising gain (loss)(d)     $ 1     $ 28     $ 3     $ 45  
Total Special Items Income (Expense)     1     28     3     45  
Tax Benefit (Expense) on Special Items         (9 )   (1 )   (15 )
Special Items Income (Expense), net of tax    

$

1

   

$

19

   

$

2

   

$

30

 
Average diluted shares outstanding     455     464     456     464  
Special Items diluted EPS     $     $ 0.05     $ 0.01     $ 0.07  
                                   
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit                                  
Operating Profit Before Special Items     $ 478     $ 362     $ 1,047     $ 832  
Special Items Income (Expense)     1     28     3     45  
Reported Operating Profit     $ 479     $ 390     $ 1,050     $ 877  
                                   
Reconciliation of EPS Before Special Items to Reported EPS                                  
Diluted EPS Before Special Items     $ 0.73     $ 0.56     $ 1.60     $ 1.26  
Special Items EPS         0.05     0.01     0.07  
Reported EPS     $ 0.73     $ 0.61     $ 1.61     $ 1.33  
                                   
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate                                  
Effective Tax Rate Before Special Items     24.9 %   22.1 %   25.4 %   24.4 %
Impact on Tax Rate as a result of Special Items     %   0.6 %   %   0.4 %
Reported Effective Tax Rate     24.9 %   22.7 %   25.4 %   24.8 %
                               

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                               
Quarter Ended 6/14/14     China   KFC   Pizza Hut   Taco Bell   India   Corporate and Unallocated   Consolidated
Total revenues     $ 1,709     $ 754     $ 265     $ 439     $ 37     $     $ 3,204  
                                             
Company restaurant expenses     1,400     486     132     281     31         2,330  
General and administrative expenses     102     94     58     43     7     48     352  
Franchise and license expenses     3     17     10     5     (1 )       34  
Closures and impairment (income) expenses     17     1     1     1     1         21  
Refranchising (gain) loss                         (4 )   (4 )
Other (income) expense     (7 )   1     1             (3 )   (8 )
      1,515     599     202     330     38     41     2,725  
Operating Profit (loss)     $ 194     $ 155     $ 63     $ 109     $ (1 )   $ (41 )   $ 479  
                                                           
                                                           

Quarter Ended 6/15/13

    China   KFC   Pizza Hut   Taco Bell   India   Corporate and Unallocated   Consolidated
Total revenues     $ 1,449     $ 703     $ 267     $ 452     $ 33     $     $ 2,904  
                                             
Company restaurant expenses     1,277     450     125     284     28         2,164  
General and administrative expenses     90     92     54     48     8     41     333  
Franchise and license expenses     3     16     9     5     1         34  
Closures and impairment (income) expenses     6         (1 )   1             6  
Refranchising (gain) loss                         (32 )   (32 )
Other (income) expense     5             3         1     9  
      1,381     558     187     341     37     10     2,514  
Operating Profit (loss)     $ 68     $ 145     $ 80     $ 111     $ (4 )   $ (10 )   $ 390  
                                                           

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 Ended 6/14/14     China   KFC   Pizza Hut   Taco Bell   India   Corporate and Unallocated   Consolidated
Total revenues     $ 3,088     $ 1,418     $ 532     $ 830     $ 60     $     $ 5,928  
                                             
Company restaurant expenses     2,439     894     257     539     52         4,181  
General and administrative expenses     164     170     107     88     11     83     623  
Franchise and license expenses     6     34     18     9             67  
Closures and impairment (income) expenses     19     1     2     1     1         24  
Refranchising (gain) loss                         (7 )   (7 )
Other (income) expense     (19 )   1     1             7     (10 )
      2,609     1,100     385     637     64     83     4,878  
Operating Profit (loss)     $ 479     $ 318     $ 147     $ 193     $ (4 )   $ (83 )   $ 1,050  
                                                           
                                                           
Year to Date Ended 6/15/13     China   KFC   Pizza Hut   Taco Bell   India   Corporate and Unallocated   Consolidated
Total revenues     $ 2,600     $ 1,362     $ 534     $ 890     $ 53     $     $ 5,439  
                                             
Company restaurant expenses     2,222     848     242     573     45         3,930  
General and administrative expenses     145     173     96     93     12     87     606  
Franchise and license expenses     5     31     18     9     1         64  
Closures and impairment (income) expenses     8             1     1         10  
Refranchising (gain) loss                         (49 )   (49 )
Other (income) expense     (2 )       (1 )   3         1     1  
      2,378     1,052     355     679     59     39     4,562  
Operating Profit (loss)     $ 222     $ 310     $ 179     $ 211     $ (6 )   $ (39 )   $ 877  

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)

 
(a)     Amounts presented as of and for the quarter and year to date ended June 14, 2014 are preliminary.
       
(b)     Other (income) expense for the China Division primarily consists of equity income (loss) from investments in unconsolidated affiliates.
       
(c)     Previously, our reporting segments consisted of YUM Restaurants International, the United States, China and India. In the first quarter of 2014, we combined our YUM Restaurants International and United States reporting segments and began reporting this information by three new reporting segments: KFC Division, Pizza Hut Division and Taco Bell Division. China and India remain separate reporting segments. This new structure is designed to drive greater global brand focus, enabling us to more effectively share know-how and accelerate growth. While our consolidated results have not been impacted, we have restated our comparable segment information for consistent presentation.
       
(d)     During the quarters ended June 14, 2014 and June 15, 2013, we recorded gains of $1 million and $28 million, respectively, related to refranchising in the U.S. During the years to date ended June 14, 2014 and June 15, 2013, we recorded gains of $3 million and $45 million, respectively, related to refranchising in the U.S. The 2013 gains primarily related to Taco Bell. We have traditionally not allocated refranchising (gains) losses for segment reporting purposes. Additionally, U.S. refranchising (gains) losses have been reflected as Special Items for certain performance measures (see accompanying reconciliation to reported results) consistent with our historical presentation.

Source: Yum! Brands, Inc.

Yum! Brands, Inc. Contacts:

Steve Schmitt
Analyst Relations
888-298-6986
Vice President Investor Relations & Corporate Strategy

Donny Lau
888-298-6986
Director Investor Relations

Virginia Ferguson
Media Relations
502-874-8200
Director Public Relations

###

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