Yum! Brands Reports Second-Quarter EPS of $0.69, a Decline of 5%, Excluding Special Items

Expects Strong Second Half in China; Reconfirms 2015 Full-Year EPS Growth of at least 10%

LOUISVILLE, Ky. - July 14, 2015 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 13, 2015, including EPS of $0.69, excluding Special Items. Reported EPS was $0.53.

Second-Quarter Highlights

  • Worldwide system sales grew 3%. Worldwide restaurant margin was even at 15.5%, and worldwide operating profit decreased 1%.
  • Total international development was 291 new restaurants; 75% of this development occurred in emerging markets.
  • China Division system sales declined 4%, as 7% unit growth was offset by a 10% same-store sales decline. Restaurant margin decreased 2.2 percentage points to 14.6%. Operating profit decreased 25%.
  • KFC Division system sales increased 6%, driven by 2% unit growth and 3% same-store sales growth. Operating margin increased 1.3 percentage points to 21.9%. Operating profit increased 10%.
  • Pizza Hut Division system sales increased 1%, driven by 2% unit growth. Same-store sales were even. Operating margin decreased 0.9 percentage points to 22.6%. Operating profit decreased 1%.
  • Taco Bell Division system sales increased 9%, driven by 3% unit growth and 6% same-store sales growth. Operating margin increased 4.7 percentage points to 29.5%. Operating profit increased 29%.
  • India Division system sales were even, as 16% unit growth was offset by an 11% same-store sales decline.
  • Worldwide effective tax rate increased to 25.6% from 24.9%.
  • Foreign currency translation negatively impacted operating profit by $22 million.
           
   

Second Quarter

   

Year-to-Date

   

2015

 

2014

 

% Change

   

2015

 

2014

 

% Change

EPS Excluding Special Items   $0.69   $0.73   (5)%     $1.50   $1.60   (7)%
Special Items Gain/(Loss)1   $(0.16)   $0.00   NM     $(0.16)   $0.01   NM
EPS   $0.53   $0.73   (28)%     $1.34   $1.61   (17)%

See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2015 are primarily related to a non-cash charge associated with refranchising our Mexico business.

                           

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; restaurant margin and operating margin figures are as reported.

Greg Creed Comments

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

China Division restaurant margin in the second quarter was an encouraging 14.6%, even though same-store sales declined 10%, reinforcing our belief in significant profit leverage as sales recover. We expect substantial same-store sales and profit growth in the second half given overall trends in sales and brand perceptions. Furthermore, the China Division remains on track to open at least 700 new restaurants this year, laying the groundwork for future growth.

Outside of China, Taco Bell is firing on all cylinders driven by industry-leading innovation and a solid breakfast platform. KFC continues to produce consistently positive results in both emerging and developed markets, including our U.S. business. At Pizza Hut, results continue to be soft, but we are taking clear steps to get the business back on track.

Internationally, we’re on pace to set a new record this year by opening 2,100 new restaurants, extending our lead in emerging markets. All of this should help us to achieve double-digit earnings growth this year, despite ongoing headwinds from foreign currency translation.

Our goal remains building three iconic, global brands people trust and champion, while delivering shareholder value through our three key drivers: same-store sales growth, new-unit development and high returns on invested capital. As we continue to strengthen our business around the world, I'm confident that this formula will produce consistent double-digit EPS growth over the long term.”

CHINA DIVISION

             
     

Second Quarter

   

Year-to-Date

          % Change         % Change
   

2015

 

2014

 

Reported

 

Ex F/X

   

2015

 

2014

 

Reported

 

Ex F/X

System Sales Growth             (4)   (4)             (6)   (5)
Same-Store Sales Growth (%)     (10)   +15   NM   NM     (11)   +12   NM   NM
Franchise & License Fees ($MM)     28   26   +2   +2     49   49   (1)   Even
Restaurant Margin (%)     14.6   16.8   (2.2)   (2.2)     16.4   19.8   (3.4)   (3.3)
Operating Profit ($MM)     144   194   (26)   (25)     334   479   (30)   (29)
                                     
  • China Division system sales decreased 4%, prior to foreign currency translation.
    • Same-store sales declined 10%, including declines of 12% at KFC and 4% at Pizza Hut Casual Dining, reflecting continued recovery from adverse supplier publicity in July 2014.
  • China Division opened 80 new units during the quarter.

 

         
China Units   Q2 2015   % Change2
Restaurants1   6,853   +7
KFC   4,889   +5
Pizza Hut        
Casual Dining   1,388   +22
Home Service   276   +28

1 Total includes East Dawning and Little Sheep units.

2 Represents year-over-year change.

         
  • Restaurant margin was 14.6% in a seasonally low period, a decrease of 2.2 percentage points, driven by sales deleverage.
  • Foreign currency translation negatively impacted operating profit by $1 million.

KFC DIVISION

 

             
     

Second Quarter

   

Year-to-Date

              % Change             % Change
     

2015

 

2014

 

Reported

 

Ex F/X

   

2015

 

2014

 

Reported

 

Ex F/X

Restaurants     14,234   13,906   +2   NA     14,234   13,906   +2   NA
System Sales Growth             (4)   +6             (2)   +7
Same-Store Sales Growth (%)     +3   +2   NM   NM     +4   +2   NM   NM
Franchise & License Fees ($MM)     189   196   (3)   +7     386   391   (1)   +7
Restaurant Margin (%)     15.3   12.9   2.4   2.2     15.3   12.9   2.4   2.2
Operating Profit ($MM)     152   155   (2)   +10     321   318   +1   +11
Operating Margin (%)     21.9   20.6   1.3   0.8     24.0   22.4   1.6   1.0
                                     
  • KFC Division system sales increased 6%, excluding foreign currency translation.

 

     
    Second Quarter (% Change)
    Int'l Emerging Markets   Int'l Developed Markets   U.S.
System Sales Growth (Ex F/X)   +12%   +5%   +1%
Same-Store Sales Growth   +3%   +2%   +3%
             
  • KFC Division opened 122 new international restaurants in 39 countries, including 89 units in emerging markets. 85% of these new units were opened by franchisees.
  • Operating margin increased 1.3 percentage points, driven by same-store sales growth and new-unit development.
  • Foreign currency translation negatively impacted operating profit by $19 million, as approximately 90% of division profits are generated outside the U.S.
         
KFC MARKETS1  

Percent of KFC 
System Sales 2

  SYSTEM Sales Growth Ex F/X
    Second Quarter (%)   Year-to-Date (%)
Emerging Markets            
Asia (e.g. Malaysia, Indonesia, Philippines)   8%   +6   +5
Africa   7%   +13   +14
Latin America (e.g. Mexico, Peru)   6%   +7   +8
Middle East / North Africa   6%   +2   +3
Russia   4%   +44   +45
Thailand   3%   +6   +8
Continental Europe (e.g. Poland)   2%   +12   +13
             
             
Developed Markets            
U.S.   24%   +1   +3
Asia (e.g. Japan, Korea, Taiwan)   10%   (1)   Even
Australia   10%   +11   +10
U.K.   9%   +6   +6
Continental Europe (e.g. France, Germany)   7%   +8   +8
Canada   3%   Even   +1
Latin America (e.g. Puerto Rico)   1%   +6   +6

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

2 Reflects Full Year 2014.

             

PIZZA HUT DIVISION

             
     

Second Quarter

   

Year-to-Date

              % Change             % Change
     

2015

 

2014

 

Reported

 

Ex F/X

   

2015

 

2014

 

Reported

 

Ex F/X

Restaurants     13,579   13,338   +2   NA     13,579   13,338   +2   NA
System Sales Growth             (3)   +1             (2)   +2
Same-Store Sales Growth (%)     Even   (3)   NM   NM     Even   (2)   NM   NM
Franchise & License Fees ($MM)     119   123   (3)   +2     246   250   (1)   +2
Restaurant Margin (%)     9.9   7.2   2.7   2.4     10.8   9.0   1.8   1.4
Operating Profit ($MM)     60   63   (4)   (1)     141   147   (4)   (2)
Operating Margin (%)     22.6   23.5   (0.9)   (1.0)     26.4   27.6   (1.2)   (1.4)
                                     
  • Pizza Hut Division system sales increased 1%, prior to foreign currency translation.
     
    Second Quarter (% Change)
    Int'l Emerging Markets   Int'l Developed Markets   U.S.
System Sales Growth (Ex F/X)   +6%   Even   +1%
Same-Store Sales Growth   +2%   (2)%   +1%
             
  • Pizza Hut Division opened 66 new international restaurants in 33 countries, including 33 units in emerging markets. 92% of these new units were opened by franchisees.
  • Operating margin declined 0.9 percentage points, driven by strategic investments in international G&A.
  • Foreign currency translation negatively impacted operating profit by $2 million.
         
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)   7%   +6   +7
Asia (e.g. Malaysia, Indonesia, Philippines)   5%   +3   +3
Middle East / North Africa   5%   +8   +6
Continental Europe (e.g. Poland)   1%   +8   +7
             
Developed Markets            
U.S.   55%   +1   Even
Asia (e.g. Japan, Korea, Taiwan)   9%   (1)   (1)
U.K.   6%   +4   +4
Continental Europe (e.g. France, Germany)   5%   +2   +3
Australia   3%   (6)   (5)
Canada   3%   +2   +4
Latin America (e.g. Puerto Rico)   1%   (1)   +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 2014.

             

TACO BELL DIVISION

             
     

Second Quarter

   

Year-to-Date

              % Change             % Change
     

2015

 

2014

 

Reported

 

Ex F/X

   

2015

 

2014

 

Reported

 

Ex F/X

Restaurants     6,257   6,074   +3   NA     6,257   6,074   +3   NA
System Sales Growth             +9   +9             +9   +9
Same-Store Sales Growth (%)     +6   +2   NM   NM     +6   +1   NM   NM
Franchise & License Fees ($MM)     106   97   +9   +9     202   182   +11   +11
Restaurant Margin (%)     23.0   17.7   5.3   5.3     21.4   16.7   4.7   4.7
Operating Profit ($MM)     140   109   +29   +29     255   193   +32   +32
Operating Margin (%)     29.5   24.8   4.7   4.7     28.1   23.2   4.9   4.9
                                     
  • Taco Bell Division system sales increased 9%, driven by 6% same-store sales growth and 3% unit growth.
  • Taco Bell Division opened 58 new restaurants; 88% of these new units were opened by franchisees.
  • Restaurant margin was 23.0%, an increase of 5.3 percentage points, driven by same-store sales growth.
  • Operating margin increased 4.7 percentage points, driven by same-store sales growth.

INDIA DIVISION

  • India Division system sales were even prior to foreign currency translation, as 16% unit growth was offset by an 11% same-store sales decline.
  • Operating loss was $3 million, as compared to an operating loss of $1 million in prior year.
             
India Units     Q2 2015     % Change2
Restaurants1     825     +16%
KFC     385     +13%
Pizza Hut            
Casual Dining     179     (2)%
Home Service     255     +37%

1 Total includes 6 Taco Bell units.

2 Represents year-over-year change.

Special Items / Share Repurchase Update

  • In 2010, we refranchised our Mexico equity market but did not sell the underlying real estate. During the quarter, we initiated plans to sell this real estate, and as a result, we wrote down the carrying value of our Mexico business to its fair value, triggering a $68 million non-cash Special Items charge to Refranchising Loss. This charge negatively impacted reported EPS by $0.13 for the quarter, while benefiting our ex-Special tax rate by 2 percentage points.
  • Year-to-date through July 13, 2015, we repurchased 4.4 million shares totaling $363 million at an average price of $82.

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, July 15, 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 1:00 p.m. Eastern Time Wednesday, July 15, through midnight Saturday, August 15, 2015. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 50758903.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q2 2015 Earnings Conference Call” under “Events & Presentations.” 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 #228 on the Fortune 500 List with revenues of over $13 billion in 2014 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. Outside the United States, the Yum! Brands system opens over five new restaurants per day on average, 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
    6/13/15   6/14/14   B/(W)   6/13/15   6/14/14   B/(W)
                         
Company sales   $ 2,659     $ 2,758     (4)   $ 4,838     $ 5,050     (4)
Franchise and license fees and income   446     446       889     878     1
Total revenues   3,105     3,204     (3)   5,727     5,928     (3)
                         
Company restaurant expenses                        
Food and paper   841     886     5   1,529     1,611     5
Payroll and employee benefits   602     620     3   1,095     1,113     2
Occupancy and other operating expenses   805     824     2   1,421     1,457     3
Company restaurant expenses   2,248     2,330     4   4,045     4,181     3
                         
General and administrative expenses   353     352     (1)   648     623     (4)
Franchise and license expenses   47     34     (36)   81     67     (22)
Closures and impairment (income) expenses   24     21     (8)   27     24     (10)
Refranchising (gain) loss   68     (4 )   NM   58     (7 )   NM
Other (income) expense   (6 )   (8 )   (30)   (9 )   (10 )   (12)
Total costs and expenses, net   2,734     2,725       4,850     4,878     1
                         
Operating Profit   371     479     (22)   877     1,050     (16)
Interest expense, net   33     29     (15)   67     62     (9)
Income before income taxes   338     450     (25)   810     988     (18)
Income tax provision   102     112     8   213     251     15
Net income - including noncontrolling interests   236     338     (30)   597     737     (19)
Net income (loss) - noncontrolling interests   1     4     86       4     96
Net income - YUM! Brands, Inc.   $ 235     $ 334     (30)   $ 597     $ 733     (19)
                         

Effective tax rate

  30.4 %   24.9 %   (5.5 ppts.)   26.3 %   25.4 %   (0.9 ppts.)
                         

Basic EPS Data

                       
EPS   $ 0.54     $ 0.75     (28)   $ 1.36     $ 1.64     (17)
Average shares outstanding   437     446     2   437     446     2
                         

Diluted EPS Data

                       
EPS   $ 0.53     $ 0.73     (28)   $ 1.34     $ 1.61     (17)
Average shares outstanding   445     455     2   446     456     2
                         
Dividends declared per common share   $ 0.82     $ 0.37         $ 0.82     $ 0.74      

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
    6/13/15   6/14/14   B/(W)   6/13/15   6/14/14   B/(W)
                         
Company sales   $ 1,608     $ 1,683     (4)   $ 2,843     $ 3,039     (6)
Franchise and license fees and income   28     26     2   49     49     (1)
Total revenues   1,636     1,709     (4)   2,892     3,088     (6)
                         
Company restaurant expenses                        
Food and paper   515     531     3   907     949     4
Payroll and employee benefits   333     337     1   577     578    
Occupancy and other operating expenses   526     532     1   892     912     2
Company restaurant expenses   1,374     1,400     2   2,376     2,439     3
General and administrative expenses   100     102     2   168     164     (2)
Franchise and license expenses   5     3     (38)   9     6     (44)
Closures and impairment (income) expenses   17     17     3   19     19     2
Other (income) expense   (4 )   (7 )   (34)   (14 )   (19 )   (25)
    1,492     1,515     2   2,558     2,609     2
Operating Profit   $ 144     $ 194     (26)   $ 334     $ 479     (30)
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   32.0     31.5     (0.5 ppts.)   31.9     31.2     (0.7 ppts.)
Payroll and employee benefits   20.7     20.0     (0.7 ppts.)   20.3     19.0     (1.3 ppts.)
Occupancy and other operating expenses   32.7     31.7     (1.0 ppts.)   31.4     30.0     (1.4 ppts.)
Restaurant margin   14.6 %   16.8 %   (2.2 ppts.)   16.4 %   19.8 %   (3.4 ppts.)
                         
Operating margin   8.8 %   11.4 %   (2.6 ppts.)   11.6 %   15.5 %   (3.9 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
    6/13/15   6/14/14   B/(W)   6/13/15   6/14/14   B/(W)
                         
Company sales   $ 505     $ 558     (9)   $ 950     $ 1,027     (7)
Franchise and license fees and income   189     196     (3)   386     391     (1)
Total revenues   694     754     (8)   1,336     1,418     (6)
                         
Company restaurant expenses                        
Food and paper   171     194     12   324     358     10
Payroll and employee benefits   118     135     13   222     249     11
Occupancy and other operating expenses   138     157     11   258     287     10
Company restaurant expenses   427     486     12   804     894     10
General and administrative expenses   93     94       172     170     (1)
Franchise and license expenses   21     17     (23)   38     34     (11)
Closures and impairment (income) expenses   2     1     (6)   2     1     (128)
Other (income) expense   (1 )   1     NM   (1 )   1     NM
    542     599     9   1,015     1,100     8
Operating Profit   $ 152     $ 155     (2)   $ 321     $ 318     1
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   34.0     34.9     0.9 ppts.   34.1     34.9     0.8 ppts.
Payroll and employee benefits   23.3     24.2     0.9 ppts.   23.4     24.3     0.9 ppts.
Occupancy and other operating expenses   27.4     28.0     0.6 ppts.   27.2     27.9     0.7 ppts.
Restaurant margin   15.3 %   12.9 %   2.4 ppts.   15.3 %   12.9 %   2.4 ppts.
                         
Operating margin   21.9 %   20.6 %   1.3 ppts.   24.0 %   22.4 %   1.6 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
    6/13/15   6/14/14   B/(W)   6/13/15   6/14/14   B/(W)
                         
Company sales   $ 145     $ 142     2   $ 289     $ 282     2
Franchise and license fees and income   119     123     (3)   246     250     (1)
Total revenues   264     265       535     532     1
                         
Company restaurant expenses                        
Food and paper   40     43     8   80     85     6
Payroll and employee benefits   45     44     (2)   89     87     (3)
Occupancy and other operating expenses   46     45     (3)   89     85     (5)
Company restaurant expenses   131     132     1   258     257    
General and administrative expenses   61     58     (6)   118     107     (10)
Franchise and license expenses   9     10     11   17     18     5
Closures and impairment (income) expenses   3     1     NM   3     2     (77)
Other (income) expense       1     NM   (2 )   1     NM
    204     202     (1)   394     385     (2)
Operating Profit   $ 60     $ 63     (4)   $ 141     $ 147     (4)
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   27.5     30.5     3.0 ppts.   27.7     30.1     2.4 ppts.
Payroll and employee benefits   30.9     31.0     0.1 ppts.   30.8     30.8    
Occupancy and other operating expenses   31.7     31.3     (0.4 ppts.)   30.7     30.1     (0.6 ppts.)
Restaurant margin   9.9 %   7.2 %   2.7 ppts.   10.8 %   9.0 %   1.8 ppts.
                         
Operating margin   22.6 %   23.5 %   (0.9 ppts.)   26.4 %   27.6 %   (1.2 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
    6/13/15   6/14/14   B/(W)   6/13/15   6/14/14   B/(W)
                         
Company sales   $ 370     $ 342     8   $ 705     $ 648     9
Franchise and license fees and income   106     97     9   202     182     11
Total revenues   476     439     9   907     830     9
                         
Company restaurant expenses                        
Food and paper   103     104     1   197     196    
Payroll and employee benefits   101     100     (2)   199     192     (4)
Occupancy and other operating expenses   81     77     (4)   159     151     (5)
Company restaurant expenses   285     281     (2)   555     539     (3)
General and administrative expenses   47     43     (7)   90     88     (3)
Franchise and license expenses   4     5     32   6     9     27
Closures and impairment (income) expenses   1     1     (18)   2     1     (36)
Other (income) expense   (1 )       NM   (1 )       NM
    336     330     (2)   652     637     (2)
Operating Profit   $ 140     $ 109     29   $ 255     $ 193     32
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   27.8     30.5     2.7 ppts.   27.9     30.3     2.4 ppts.
Payroll and employee benefits   27.4     29.0     1.6 ppts.   28.2     29.6     1.4 ppts.
Occupancy and other operating expenses   21.8     22.8     1.0 ppts.   22.5     23.4     0.9 ppts.
Restaurant margin   23.0 %   17.7 %   5.3 ppts.   21.4 %   16.7 %   4.7 ppts.
                         
Operating margin   29.5 %   24.8 %   4.7 ppts.   28.1 %   23.2 %   4.9 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

         

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

         
    (unaudited)    
    6/13/15   12/27/14
ASSETS        
Current Assets        
Cash and cash equivalents   $ 636     $ 578  
Accounts and notes receivable, less allowance: $16 in 2015 and $12 in 2014   350     325  
Inventories   279     301  
Prepaid expenses and other current assets  

276

    254  
Deferred income taxes   104     93  
Advertising cooperative assets, restricted   84     95  
Total Current Assets  

1,729

    1,646  
         

Property, plant and equipment, net of accumulated depreciation and amortization of $3,704 in 2015 and $3,584 in 2014

  4,372     4,498  
Goodwill   684     700  
Intangible assets, net   294     318  
Investments in unconsolidated affiliates   39     52  
Other assets   554     560  
Deferred income taxes  

622

    571  
Total Assets   $

8,294

    $ 8,345  
         
LIABILITIES AND SHAREHOLDERS' EQUITY        
Current Liabilities        
Accounts payable and other current liabilities   $ 1,881     $ 1,972  
Income taxes payable   156     77  
Short-term borrowings   568     267  
Advertising cooperative liabilities   84     95  
Total Current Liabilities   2,689     2,411  
         
Long-term debt   2,831     3,077  
Other liabilities and deferred credits   1,141     1,244  
Total Liabilities   6,661     6,732  
         
Redeemable noncontrolling interest   8     9  
         
Shareholders' Equity        
Common stock, no par value, 750 shares authorized; 432 shares and 434 shares issued in 2015 and 2014, respectively        
Retained earnings  

1,726

    1,737  
Accumulated other comprehensive income (loss)  

(157

)   (190 )
Total Shareholders' Equity - YUM! Brands, Inc.  

1,569

    1,547  
Noncontrolling interests   56     57  
Total Shareholders' Equity  

1,625

    1,604  
Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity   $

8,294

    $ 8,345  

See accompanying notes.

     

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

     
    Year to date ended
    6/13/15      6/14/14
Cash Flows - Operating Activities        
Net income - including noncontrolling interests   $ 597     $ 737  
Depreciation and amortization   326     320  
Closures and impairment (income) expenses   27     24  
Refranchising (gain) loss   58     (7 )
Contributions to defined benefit pension plans   (78 )   (14 )
Deferred income taxes   (77 )   (10 )
Equity income from investments in unconsolidated affiliates   (16 )   (22 )
Distributions of income received from unconsolidated affiliates   4     7  
Excess tax benefit from share-based compensation   (40 )   (25 )
Share-based compensation expense   28     25  
Changes in accounts and notes receivable   16     12  
Changes in inventories   21     5  
Changes in prepaid expenses and other current assets   (27 )   (11 )
Changes in accounts payable and other current liabilities   11     (27 )
Changes in income taxes payable   91     96  
Other, net   6     (26 )
Net Cash Provided by Operating Activities   947     1,084  
         
Cash Flows - Investing Activities        
Capital spending   (404 )   (408 )
Changes in short-term investments, net   (16 )   (227 )
Proceeds from refranchising of restaurants   29     17  
Other, net   39     4  
Net Cash Used in Investing Activities   (352 )   (614 )
         
Cash Flows - Financing Activities        
Repayments of long-term debt   (7 )   (5 )
Short-term borrowings by original maturity        
More than three months - proceeds        
More than three months - payments        
Three months or less, net        
Revolving credit facilities, three months or less, net   65     178  
Repurchase shares of Common Stock   (287 )   (300 )
Excess tax benefit from share-based compensation   40     25  
Employee stock option proceeds   11     16  
Dividends paid on Common Stock   (355 )   (327 )
Other, net   (43 )   (20 )
Net Cash Used in Financing Activities   (576 )   (433 )
Effect of Exchange Rate on Cash and Cash Equivalents   39     (13 )
Net Increase in Cash and Cash Equivalents   58     24  
Cash and Cash Equivalents - Beginning of Period   578     573  
Cash and Cash Equivalents - End of Period   $ 636     $ 597  

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 2015 and 2014 on a basis before Special Items. Included in Special Items are losses associated with the refranchising of equity markets outside the U.S., costs associated with the KFC U.S. Acceleration Agreement and U.S. refranchising gain. These amounts are described in (c), (d) and (e) 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 ended June 13, 2015 and June 14, 2014 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.
 

 

    Quarter ended   Year to date
    6/13/15   6/14/14   6/13/15   6/14/14
Detail of Special Items                         
Losses associated with the refranchising of equity markets outside the U.S.(c)   $ (73 )   $     $ (73 )   $  
Costs associated with KFC U.S. Acceleration Agreement(d)   (8 )       (10 )    
U.S. Refranchising gain(e)   1     1     8     3  
Other Special Items Income (Expense)   2         2      
Total Special Items Income (Expense)   (78 )   1     (73 )   3  
Tax Benefit (Expense) on Special Items   3         1     (1 )
Special Items Income (Expense), net of tax   $ (75 )   $ 1     $ (72 )   $ 2  
Average diluted shares outstanding   445     455     446     456  
Special Items diluted EPS   $ (0.16 )   $     $ (0.16 )   $ 0.01  
                 
Reconciliation of Operating Profit Before Special Items to Reported Operating Profit                
Operating Profit Before Special Items   $ 449     $ 478     $ 950     $ 1,047  
Special Items Income (Expense)   (78 )   1     (73 )   3  
Reported Operating Profit   $ 371     $ 479     $ 877     $ 1,050  
                 
Reconciliation of EPS Before Special Items to Reported EPS                
Diluted EPS Before Special Items   $ 0.69     $ 0.73     $ 1.50     $ 1.60  
Special Items EPS   (0.16 )       (0.16 )   0.01  
Reported EPS   $ 0.53     $ 0.73     $ 1.34     $ 1.61  
                 
Reconciliation of Effective Tax Rate Before Special Items to Reported Effective Tax Rate                
Effective Tax Rate Before Special Items   25.6 %   24.9 %   24.4 %   25.4 %
Impact on Tax Rate as a result of Special Items   4.8 %   %   1.9 %   %
Reported Effective Tax Rate   30.4 %   24.9 %   26.3 %   25.4 %

 

                             

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                             
Quarter Ended 6/13/15   China   KFC  

Pizza Hut

  Taco Bell   India  

Corporate
and
Unallocated

  Consolidated
Total revenues   $ 1,636     $ 694     $ 264     $ 476     $ 35     $     $ 3,105  
                             
Company restaurant expenses   1,374     427     131     285     31         2,248  
General and administrative expenses   100     93     61     47     6     46     353  
Franchise and license expenses   5     21     9     4         8     47  
Closures and impairment (income) expenses   17     2     3     1     1         24  
Refranchising (gain) loss                       68     68  
Other (income) expense   (4 )   (1 )       (1 )           (6 )
    1,492     542     204     336     38     122     2,734  
Operating Profit (loss)   $ 144     $ 152     $ 60     $ 140     $ (3 )   $ (122 )   $ 371  

 

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  

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 6/13/15   China   KFC   Pizza Hut   Taco Bell   India  

Corporate
and
Unallocated

  Consolidated
Total revenues   $ 2,892     $ 1,336     $ 535     $ 907     $ 57     $     $ 5,727  
                             
Company restaurant expenses   2,376     804     258     555     52         4,045  
General and administrative expenses   168     172     118     90     10     90     648  
Franchise and license expenses   9     38     17     6     1     10     81  
Closures and impairment (income) expenses   19     2     3     2     1         27  
Refranchising (gain) loss                       58     58  
Other (income) expense   (14 )   (1 )   (2 )   (1 )       9     (9 )
    2,558     1,015     394     652     64     167     4,850  
Operating Profit (loss)   $ 334     $ 321     $ 141     $ 255     $ (7 )   $ (167 )   $ 877  

 

Year to Date 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  

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 13, 2015 are preliminary.

(b) Other (income) expense for the China Division primarily consists of equity (income) loss from investments in unconsolidated affiliates.

(c) In 2010 we refranchised our then remaining Company-operated restaurants in Mexico. To the extent we owned it, we did not sell the real estate related to certain of these restaurants, instead leasing it to the franchisee. During the quarter ended June 13, 2015 we initiated plans to sell this real estate and determined it was held for sale in accordance with GAAP. The sales price we expect to receive for this real estate exceeds its book value. However, the sale of the real estate will represent a substantial liquidation of our Mexican operations under U.S. GAAP. Accordingly, we are required to include accumulated translation losses associated with our Mexican business within our held for sale impairment evaluations. As such, we recorded a $68 million non-cash Special Items charge to Refranchising Loss, consistent with the classification of the original market refranchising transaction, representing the excess of the sum of the book value of the real estate and our accumulated translation losses over the expected sales price for the real estate. Our current expectation is that the real estate sale will close late in 2015 with limited, if any, additional pre-tax gain or loss. The refranchising is ultimately expected to result in a taxable gain as the anticipated proceeds will exceed the tax basis in the real estate, though the related tax expense will not be recognized until the sale closes.

Additionally, during the quarter ended June 13, 2015 we recognized a Special Items charge of $5 million associated with the decision to offer to refranchise our Pizza Hut Korea restaurants. None of these restaurants have yet to meet the criteria to be classified as held for sale and additional charges may occur as the refranchising plans move forward. Such charges are not expected to be material at this time.

(d) During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that will give us brand marketing control as well as an accelerated path to improved assets and customer experience. In connection with this agreement we recognized a Special Items charge of $8 million for the quarter ended June 13, 2015, primarily related to the funding of investments for new back-of-house equipment for franchisees. We continue to expect a total charge of approximately $90 million in 2015 for these and other investments we agreed to fund.

(e) During both the quarters ended June 13, 2015 and June 14, 2014, we recorded Special Items gains of $1 million related to refranchising in the U.S. During the years to date ended June 13, 2015 and June 14, 2014, we recorded Special Items gains of $8 million and $3 million, respectively, related to refranchising in the U.S.

SOURCE Yum! Brands, Inc

Contacts:

Steve Schmitt
Yum! Brands, Inc.
Analysts Relations
Vice President Investor Relations & Corporate Strategy
888-298-6986

Elizabeth Grenfell
Yum! Brands, Inc.
Director Investor Relations
888-298-6986

Virginia Ferguson
Yum! Brands, Inc.
Media Relations
Director Public Relations
502-874-8200

###

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