Yum! Brands Reports Fourth-Quarter GAAP Operating Profit Growth of 14%

Delivers Fourth-Quarter Core Operating Profit Growth of 27%; On Track with Strategic Transformation to Accelerate Growth

LOUISVILLE, Ky. - February 09, 2017 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 31, 2016. Fourth-quarter GAAP EPS from Continuing Operations was $0.76, an increase of 15%. Full-year GAAP EPS from Continuing Operations was $2.48, an increase of 18%. Fourth-quarter EPS from Continuing Operations excluding Special Items was $0.79, an increase of 19%. Full-year EPS from Continuing Operations excluding Special Items was $2.45, an increase of 5%.

GREG CREED & DAVID GIBBS COMMENTS

“2016 was a landmark year for Yum! Brands,” said Greg Creed, CEO. “Not only did we complete the spin-off of Yum China as an independent and powerful growth company, but we also launched a new multi-year strategic transformation of Yum! Brands. By being more focused, more franchised and more efficient, we will strengthen and grow our KFC, Pizza Hut and Taco Bell brands around the world, creating significant long-term value for all our stakeholders. I’m encouraged by strong fourth-quarter results and early progress on unlocking growth through our four key drivers: Distinctive, Relevant Brands; Unmatched Franchise Operating Capability; Bold Restaurant Development; and Unrivaled Culture and Talent.”

David Gibbs, President and CFO, continued “I am pleased with our fourth quarter core operating profit growth of 27%, which was a solid end to an extraordinary year. As a testament to the power of our brands, KFC and Taco Bell had relatively strong performance in December, despite difficult U.S. industry conditions. This momentum has continued into the new year. As we look forward, we are confident in our three-year plans and there is no change to our long-term guidance.”

SUMMARY FINANCIAL TABLE

             
      Fourth Quarter     Full Year
      2016     2015    

%
Change

    2016     2015    

%
Change

GAAP EPS from Continuing Operations     $0.76     $0.66     15%     $2.48     $2.11     18%
Special Items EPS1     $(0.03)     $(0.01)     NM     $0.03     $(0.22)     NM
EPS from Continuing Operations Excluding Special Items     $0.79     $0.67     19%     $2.45     $2.33     5%
                                     

 

1   See Reconciliation of GAAP Results to Non-GAAP Measurements for further detail of Special Items.

All comparisons are versus the same period a year ago. Effective January 2016, the three restaurant brands of our India business were integrated into our global KFC, Pizza Hut and Taco Bell Divisions. Prior year figures have been restated to present comparable results.

Historical GAAP information attributable to our China operations prior to the separation is included in Discontinued Operations. Historical KFC and Pizza Hut segment results have been adjusted to reflect a 3% license fee between Yum! Brands, Inc. and Yum China Holdings, Inc. that was previously eliminated within our consolidated financial statements. A corresponding 3% license expense is included in Discontinued Operations such that there is no impact on previously reported net income.

Unless otherwise noted, all results include a 53rd week in 2016.

System Sales growth figures exclude foreign currency translation ("F/X") and Core Operating Profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of GAAP results to non-GAAP measurements within this release for further details.

FOURTH-QUARTER HIGHLIGHTS

  • Completed the separation of Yum China Holdings, Inc. on October 31, 2016.
  • GAAP EPS from Continuing Operations of $0.76, reflecting 15% growth.  EPS from Continuing Operations excluding Special Items of $0.79, reflecting 19% growth.
  • Total restaurant openings of 1,188.
  • Foreign currency translation negatively impacted operating profit by $11 million.
 
      % Change
      System Sales    

Same-Store
Sales

    Net New Units    

GAAP
Operating Profit

   

Core
Operating Profit

KFC Division     +8     +3     +3     +12     +15
Pizza Hut Division     +3     (2)     +2     +19     +21
Taco Bell Division     +12     +3     +3     +27     +27
Worldwide     +8     +1     +3     +14     +27
                               

 

 
      Results Excluding 53rd Week (% Change)
      System Sales    

Core
Operating Profit

KFC Division     +6     +11
Pizza Hut Division     Even     +16
Taco Bell Division     +6     +19
Worldwide     +4     +21
             

FULL-YEAR HIGHLIGHTS

  • Worldwide system sales growth of 5%, excluding foreign currency translation.
  • During the year, we returned over $6 billion in capital through quarterly dividends and through repurchasing approximately 68 million shares.
  • Total restaurant openings of 2,316; Net-unit growth of 3%.
  • Foreign currency translation negatively impacted operating profit by $55 million.
 
      % Change
      System Sales    

Same-Store
Sales

    Net New Units    

GAAP
Operating Profit

   

Core
Operating Profit

KFC Division     +7     +3     +3     +5     +11
Pizza Hut Division     +2     (1)     +2     +7     +9
Taco Bell Division     +6     +2     +3     +11     +10
Worldwide     +5     +1     +3     +16     +13
                               

 

 
      Results Excluding 53rd Week (% Change)
      System Sales    

Core
Operating Profit

KFC Division     +6     +10
Pizza Hut Division     +1     +7
Taco Bell Division     +4     +8
Worldwide     +4     +11
             

KFC DIVISION

 
      Fourth Quarter     Full Year
                  %/ppts Change                 %/ppts Change
      2016     2015     Reported     Ex F/X     2016     2015     Reported     Ex F/X
Restaurants     20,604     19,952     +3     NA     20,604     19,952     +3     NA
System Sales Growth                 +6     +8                 +2     +7
Same-Store Sales Growth (%)     +3     +3     NM     NM     +3     +1     NM     NM
Franchise & License Fees ($MM)     345     321     +8     +10     1,066     1,032     +3     +8
Restaurant Margin (%)     15.0     14.0     1.0     1.1     14.7     14.0     0.7     0.7
Operating Profit ($MM)     284     253     +12     +15     874     832     +5     +11
Operating Margin (%)     27.2     25.3     1.9     1.9     27.1     25.7     1.4     1.3
                                                 
  • KFC Division system sales increased 8% for the quarter and 7% for the year, excluding foreign currency translation.
 
      % Change
      Int'l Emerging Markets     Int'l Developed Markets     U.S.
   

Fourth
Quarter

    Full Year    

Fourth
Quarter

    Full Year    

Fourth
Quarter

    Full Year
System Sales Growth (Ex F/X)     +8     +8     +8     +6     +8     +4
Same-Store Sales Growth     +3     +3     +1     +1     +4     +3
                                     
  • KFC Division opened 593 new international restaurants during the quarter.
    • For the year, KFC Division opened 1,086 new international restaurants in 81 countries, including 885 units in emerging markets.
  • Operating margin increased 1.9 percentage points for the quarter and 1.4 percentage points for the year driven by franchise net-unit development and same-store sales growth.
  • The 53rd week provided a benefit of 2 percentage points to system sales growth and 4 percentage points to core operating profit growth for the quarter.  For the year, the 53rd week provided a benefit of 1 percentage point to both system sales growth and core operating profit growth.
  • Foreign currency translation negatively impacted operating profit by $8 million for the quarter and $48 million for the year.
 
KFC MARKETS1    

Percent of KFC
System Sales2

    SYSTEM Sales Growth Ex F/X
        Fourth Quarter (%)     Full Year (%)
Emerging Markets                  
China     27%     +4     +6
Asia (e.g. Malaysia, Indonesia, Philippines)     6%     +12     +10
Africa     5%     +18     +11
Middle East / Turkey / North Africa     4%     +1     +3
Latin America (e.g. Mexico, Peru)     4%     +11     +8
Russia     3%     +34     +33
Thailand     2%     +1     +6
Continental Europe (e.g. Poland)     2%     +18     +17
India     1%     +16     +7
Developed Markets                  
U.S.     18%     +8     +4
U.K.     7%     +12     +5
Australia     7%     +14     +7
Asia (e.g. Japan, Korea, Taiwan)     6%     +2     +3
Continental Europe (e.g. France, Germany)     5%     +4     +8
Canada     2%     +11     +7
Latin America (e.g. Puerto Rico)     1%     +3     Even

1Refer to www.yum.com/investors for a list of the countries within each of the markets.

2Reflects Full Year 2016.

 

PIZZA HUT DIVISION

 
      Fourth Quarter     Full Year
                  %/ppts Change                 %/ppts Change
      2016     2015     Reported     Ex F/X     2016     2015     Reported     Ex F/X
Restaurants     16,409     16,063     +2     NA     16,409     16,063     +2     NA
System Sales Growth                 +2     +3                 Even     +2
Same-Store Sales Growth (%)     (2)    

Even

    NM     NM     (1)    

Even

   

NM

   

NM

Franchise & License Fees ($MM)     196     189     +4     +5     617     605     +2     +4
Restaurant Margin (%)     8.5     9.6     (1.1)     (1.0)     8.3     9.7     (1.4)     (1.6)
Operating Profit ($MM)     118     100     +19     +21     370     347     +7     +9
Operating Margin (%)     36.0     27.0     9.0     9.3     33.3     28.5     4.8     4.7
                                                 
  • Pizza Hut Division system sales increased 3% for the quarter and 2% for the year, excluding foreign currency translation.
      % Change
      Int'l Emerging Markets     Int'l Developed Markets     U.S.
   

Fourth
Quarter

    Full Year    

Fourth
Quarter

    Full Year    

Fourth
Quarter

    Full Year
System Sales Growth (Ex F/X)     +5     +4     +5     +2     +1     +1
Same-Store Sales Growth     (2)     (4)     Even     Even     (4)     Even
                                     
  • Pizza Hut Division opened 379 new international restaurants during the quarter.
    • For the year, Pizza Hut Division opened 745 new international restaurants in 74 countries, including 551 units in emerging markets.
  • Operating margin increased 9.0 percentage points for the quarter and 4.8 percentage points for the year driven by decreased G&A as a result of lower litigation costs and refranchising.
  • The 53rd week provided a benefit of 3 percentage points to system sales growth and 5 percentage points to core operating profit growth for the quarter.  For the year, the 53rd week provided a benefit of 1 percentage point to system sales growth and 2 percentage points to core operating profit growth.
  • Foreign currency translation negatively impacted operating profit by $2 million for the quarter and $7 million for the year.
 
PIZZA HUT MARKETS1    

Percent of Pizza
Hut System Sales2

    SYSTEM Sales Growth Ex F/X
        Fourth Quarter (%)     Full Year (%)
Emerging Markets                  
China     17%     +7     +4
Latin America (e.g. Mexico, Peru)     5%     +4     +6
Middle East / Turkey / Africa     4%     Even     Even
Asia (e.g. Malaysia, Indonesia, Philippines)     4%     +5     +4
India     1%     +9     +1
Continental Europe (e.g. Poland)     1%     +5     +9
Developed Markets                  
U.S.     47%     +1     +1
Asia (e.g. Japan, Korea, Taiwan)     6%     Even     (4)
U.K.     6%     +7     +5
Continental Europe (e.g. France, Germany)     4%     +4     +6
Canada     2%     +11     +9
Australia     2%     +11     Even
Latin America (e.g. Puerto Rico)     1%     +4     +2

1Refer to www.yum.com/investors for a list of the countries within each of the markets.

2Reflects Full Year 2016.

 

TACO BELL DIVISION

 
      Fourth Quarter     Full Year
                  %/ppts Change                 %/ppts Change
      2016     2015     Reported     Ex F/X     2016     2015     Reported     Ex F/X
Restaurants     6,604     6,407     +3     NA     6,604     6,407     +3     NA
System Sales Growth                 +12     +12                 +6     +6
Same-Store Sales Growth (%)     +3     +4     NM     NM     +2     +5     NM     NM
Franchise & License Fees ($MM)     159     138     +14     +14     485     447     +8     +9
Restaurant Margin (%)     23.4     23.6     (0.2)     (0.2)     22.2     22.2     Even     Even
Operating Profit ($MM)     192     150     +27     +27     593     536     +11     +10
Operating Margin (%)     29.3     24.8     4.5     4.5     29.3     26.9     2.4     2.4
                                                 
  • Taco Bell Division system sales increased 12% for the quarter and 6% for the year.
  • Taco Bell Division opened 134 new restaurants in the fourth quarter.  For the year, Taco Bell Division opened 294 new restaurants.
  • Operating margin increased 4.5 percentage points for the quarter and 2.4 percentage points for the year driven by same-store sales growth, decreased G&A and franchise net-unit development.
  • The 53rd week provided a benefit of 6 percentage points to system sales growth and 8 percentage points to core operating profit growth for the quarter.  For the year, the 53rd week provided a benefit of 2 percentage points to both system sales growth and core operating profit growth.

SPECIAL ITEMS / REFRANCHISING / OTHER

  • Beginning in 2017, we removed the reporting lags from our international subsidiary fiscal calendars.  To accommodate these changes, Yum! Brands will now report on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, will continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 periods in each quarter, respectively.  Refer to the 8-K filed January 31, 2017 for details.  2017 quarter-end dates can be found on our website at www.yum.com/investors.  We will provide restated comparable 2016 quarterly results by the beginning of April.
  • During the quarter, we refranchised 232 restaurants, including 120 KFC, 83 Pizza Hut and 29 Taco Bell units, for proceeds of $200 million.  We recorded refranchising gains of $64 million in Special Items.  As of year end, our franchise ownership mix was 93%.
  • During the quarter, we incurred $39 million in Special Items related to the strategic transformation of Yum! Brands, the biggest component of which were severance costs.  In addition, we recorded a non-cash charge of $30 million in Special Items related to share-based compensation award modifications related to the separation of Yum China Holdings, Inc.  Additionally, a Special Items charge of $24 million was incurred during the quarter related to settlement charges associated with payouts from a deferred vested pension payout program.

SHARE REPURCHASES

As of December 31, 2016, there was $1.9 billion remaining in share repurchase authorization through year end 2017.

 
      Fourth Quarter     Full Year
     

Pre-
Separation

   

Post-
Separation

   

Pre-
Separation

   

Post-

Separation

Spend ($BN)     $1.1     $0.6     $4.9     $0.6
Number of Shares (MM)     12.5     9.1     58.8     9.1
Average Price per Share     $89     $63     $83     $63
                         

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time Thursday, February 9, 2017. 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 11:30 a.m. Eastern Time Thursday, February 9, 2017 through midnight Wednesday, March 8, 2017. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback passcode is 24322927.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website at www.yum.com/investors and selecting “Q4 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 at www.yum.com/investors. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.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,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections as well as our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; the success of our franchisees and licensees; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including disagreements with taxing authorities; consumer preferences and perceptions of our brands; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; and risks relating to our significant amount of indebtedness. 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.

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. 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 most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 43,500 restaurants in more than 135 countries and territories 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 international retail development.

YUM! Brands, Inc.

Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)

                         
      Quarter ended     % Change     Year ended     % Change
      12/31/16     12/26/15     B/(W)     12/31/16     12/26/15     B/(W)
                                     
Company sales     $ 1,324       $ 1,328           $ 4,200       $ 4,356       (4)
Franchise and license fees and income     700       648       8     2,166       2,084       4
Total revenues     2,024       1,976       2     6,366       6,440       (1)
                                     
Company restaurant expenses                                    
Food and paper     400       404       1     1,269       1,348       6
Payroll and employee benefits     345       344       (1)     1,109       1,131       2
Occupancy and other operating expenses     348       357       3     1,120       1,168       4
Company restaurant expenses     1,093       1,105       1     3,498       3,647       4
                                     
General and administrative expenses     430       381       (13)     1,161       1,099       (6)
Franchise and license expenses     60       96       36     202       237       15
Closures and impairment (income) expenses     3       7       60     14       15       11
Refranchising (gain) loss     (64 )     (44 )     44     (141 )     23       NM
Other (income) expense     13       2       NM     7       17       58
Total costs and expenses, net     1,535       1,547       1     4,741       5,038       6
                                     
Operating Profit     489       429       14     1,625       1,402       16
Interest expense, net     136       38       NM     307       141       NM
Income before income taxes     353       391       (10)     1,318       1,261       4
Income tax provision     68       101       33     324       325      
Income from continuing operations     285       290       (2)     994       936       6
Income (loss) from discontinued operations     (18 )     (15 )     (25)     625       357       75
Net income     $ 267       $ 275       (3)     $ 1,619       $ 1,293       25
                                     

Effective tax rate from Continuing Operations

    19.4 %     26.0 %     6.6 ppts.     24.6 %     25.8 %     1.2 ppts.
                                     

Basic EPS from Continuing Operations

                                   
EPS     $ 0.77       $ 0.67       16     $ 2.52       $ 2.15       17
Average shares outstanding     368       433       15     394       436       10
                                     

Diluted EPS from Continuing Operations

                                   
EPS     $ 0.76       $ 0.66       15     $ 2.48       $ 2.11       18
Average shares outstanding     374       439       15     400       443       10
                                     

Basic EPS from Discontinued Operations

                                   
EPS     $ (0.05 )     $ (0.03 )     (47)     $ 1.59       $ 0.82       93
Average shares outstanding     368       433       15     394       436       10
                                     

Diluted EPS from Discontinued Operations

                                   
EPS     $ (0.05 )     $ (0.03 )     (47)     $ 1.56       $ 0.81       94
Average shares outstanding     368       433       15     400       443       10
                                     
Dividends declared per common share     $ 0.81       $ 0.92             $ 1.73       $ 1.74        
 

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 ended     % Change
      12/31/16     12/26/15     B/(W)     12/31/16     12/26/15     B/(W)
                                     
Company sales     $ 697       $ 678       3     $ 2,166       $ 2,203       (2)
Franchise and license fees and income     345       321       8     1,066       1,032       3
Total revenues     1,042       999       4     3,232       3,235      
                                     
Company restaurant expenses                                    
Food and paper     237       231       (3)     736       757       3
Payroll and employee benefits     163       159       (2)     509       513       1
Occupancy and other operating expenses     193       193           602       625       4
Company restaurant expenses     593       583       (2)     1,847       1,895       3
General and administrative expenses     132       126       (4)     391       401       2
Franchise and license expenses     28       32       3     108       100       (9)
Closures and impairment (income) expenses     4       6       31     11       9       (18)
Other (income) expense     1       (1 )     NM     1       (2 )     NM
Total costs and expenses, net     758       746       (2)     2,358       2,403       2
Operating Profit     $ 284       $ 253       12     $ 874       $ 832       5
                                     
Company sales     100.0 %     100.0 %           100.0 %     100.0 %      
Food and paper     34.0       34.1       0.1 ppts.     34.0       34.3       0.3 ppts.
Payroll and employee benefits     23.3       23.5       0.2 ppts.     23.5       23.3       (0.2 ppts.)
Occupancy and other operating expenses     27.7       28.4       0.7 ppts.     27.8       28.4       0.6 ppts.
Restaurant margin     15.0 %     14.0 %     1.0 ppts.     14.7 %     14.0 %     0.7 ppts.
                                     
Operating margin     27.2 %     25.3 %     1.9 ppts.     27.1 %     25.7 %     1.4 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 ended     % Change
      12/31/16     12/26/15     B/(W)     12/31/16     12/26/15     B/(W)
                                     
Company sales     $ 131       $ 179       (27)     $ 494       $ 609       (19)
Franchise and license fees and income     196       189       4     617       605       2
Total revenues     327       368       (11)     1,111       1,214       (8)
                                     
Company restaurant expenses                                    
Food and paper     37       49       26     137       169       19
Payroll and employee benefits     40       57       27     156       190       17
Occupancy and other operating expenses     43       56       25     160       191       16
Company restaurant expenses     120       162       26     453       550       18
General and administrative expenses     78       92       15     241       272       12
Franchise and license expenses     14       13       (14)     49       44       (13)
Closures and impairment (income) expenses     (3 )     1       NM           3       93
Other (income) expense                 NM     (2 )     (2 )     37
Total costs and expenses, net     209       268       22     741       867       15
Operating Profit     $ 118       $ 100       19     $ 370       $ 347       7
                                     
Company sales     100.0 %     100.0 %           100.0 %     100.0 %      
Food and paper     28.1       27.9       (0.2 ppts.)     27.7       27.8       0.1 ppts.
Payroll and employee benefits     31.2       31.3       0.1 ppts.     31.7       31.1       (0.6 ppts.)
Occupancy and other operating expenses     32.2       31.2       (1.0 ppts.)     32.3       31.4       (0.9 ppts.)
      8.5 %     9.6 %     (1.1 ppts.)     8.3 %     9.7 %     (1.4 ppts.)
                                     
Operating margin     36.0 %     27.0 %     9.0 ppts.     33.3 %     28.5 %     4.8 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 ended     % Change
      12/31/16     12/26/15     B/(W)     12/31/16     12/26/15     B/(W)
                                     
Company sales     $ 496       $ 471       5     $ 1,540       $ 1,544      
Franchise and license fees and income     159       138       14     485       447       8
Total revenues     655       609       7     2,025       1,991       2
                                     
Company restaurant expenses                                    
Food and paper     126       124       (2)     396       422       6
Payroll and employee benefits     142       128       (11)     444       428       (4)
Occupancy and other operating expenses     112       108       (4)     358       352       (2)
Company restaurant expenses     380       360       (6)     1,198       1,202      
General and administrative expenses     73       89       17     213       230       7
Franchise and license expenses     9       11       21     21       22       7
Closures and impairment (income) expenses     2             NM     3       3       (3)
Other (income) expense     (1 )     (1 )     NM     (3 )     (2 )     80
Total costs and expenses, net     463       459       (1)     1,432       1,455       2
Operating Profit     $ 192       $ 150       27     $ 593       $ 536       11
                                     
Company sales     100.0 %     100.0 %           100.0 %     100.0 %      
Food and paper     25.5       26.4       0.9 ppts.     25.7       27.3       1.6 ppts.
Payroll and employee benefits     28.5       27.2       (1.3 ppts.)     28.8       27.7       (1.1 ppts.)
Occupancy and other operating expenses     22.6       22.8       0.2 ppts.     23.3       22.8       (0.5 ppts.)
      23.4 %     23.6 %     (0.2 ppts.)     22.2 %     22.2 %    
                                     
Operating margin     29.3 %     24.8 %     4.5 ppts.     29.3 %     26.9 %     2.4 ppts.
                                             

See accompanying notes.

                                             

Percentages may not recompute due to rounding.

                                             

 

 

YUM! Brands, Inc.

Consolidated Balance Sheets

(amounts in millions)

(unaudited)

 
 
     

 

     
      12/31/2016     12/26/2015
ASSETS            
Current Assets            
Cash and cash equivalents     $ 704       $ 313  
Accounts and notes receivable, less allowance: $13 in 2016 and $14 in 2015     370       324  
Inventories     36       40  
Prepaid expenses and other current assets     238       133  
Advertising cooperative assets, restricted     134       103  
Current assets of discontinued operations           774  
Total Current Assets     1,482       1,687  
             

Property, plant and equipment, net of accumulated depreciation and amortization of $2,029 in 2016 and $2,048 in 2015

    2,160       2,347  
Goodwill     541       571  
Intangible assets, net     151       164  
Other assets     370       330  
Deferred income taxes     774       591  
Noncurrent assets of discontinued operations           2,371  
Total Assets     $ 5,478       $ 8,061  
             
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)            
Current Liabilities            
Accounts payable and other current liabilities     $ 1,132       $ 1,074  
Income taxes payable     37       55  
Short-term borrowings     66       921  
Advertising cooperative liabilities     134       103  
Current liabilities of discontinued operations           934  
Total Current Liabilities     1,369       3,087  
             
Long-term debt     9,061       3,007  
Other liabilities and deferred credits     704       745  
Noncurrent liabilities of discontinued operations           247  
Total Liabilities     11,134       7,086  
             
Redeemable noncontrolling interest           6  
             
Shareholders' Equity            
Common stock, no par value, 750 shares authorized; 355 shares and 420 shares issued in 2016 and 2015, respectively            
Retained earnings (Accumulated Deficit)     (5,223 )     1,150  
Accumulated other comprehensive income (loss)     (433 )     (239 )
Total Shareholders' Equity (Deficit) - YUM! Brands, Inc.     (5,656 )     911  
Noncontrolling interests           58  
Total Shareholders' Equity (Deficit)     (5,656 )     969  
Total Liabilities, Redeemable Noncontrolling Interest and Shareholders' Equity (Deficit)     $ 5,478       $ 8,061  
                     

See accompanying notes.

                     

 

     

YUM! Brands, Inc.

Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

     
    Year ended
    12/31/16   12/26/15
Cash Flows - Operating Activities from Continuing Operations        
Income from continuing operations   $ 994     $ 936  
Depreciation and amortization   314     322  
Closures and impairment (income) expenses   14     15  
Refranchising (gain) loss   (141 )   23  
Contributions to defined benefit pension plans   (41 )   (98 )
Deferred income taxes   (11 )   (111 )
Excess tax benefit from share-based compensation   (83 )   (47 )
Share-based compensation expense   80     46  
Changes in accounts and notes receivable   (46 )   (35 )
Changes in inventories       (3 )
Changes in prepaid expenses and other current assets   6     (13 )
Changes in accounts payable and other current liabilities   17     93  
Changes in income taxes payable   54     24  
Other, net   47     59  
Net Cash Provided by Operating Activities from Continuing Operations   1,204     1,211  
         
Cash Flows - Investing Activities from Continuing Operations        
Capital spending   (422 )   (461 )
Proceeds from refranchising of restaurants   346     219  
Other, net   52     53  
Net Cash Used in Investing Activities from Continuing Operations   (24 )   (189 )
         
Cash Flows - Financing Activities from Continuing Operations        
Proceeds from long-term debt   6,900      
Repayments of long-term debt   (324 )   (261 )
Revolving credit facilities, three months or less, net   (701 )   285  
Short-term borrowings, by original maturity        
More than three months - proceeds   1,400     609  
More than three months - payments   (2,000 )    
Three months or less, net        
Repurchase shares of Common Stock   (5,402 )   (1,200 )
Excess tax benefit from share-based compensation   83     47  
Dividends paid on Common Stock   (744 )   (730 )
Debt issuance costs   (86 )    
Net transfers from discontinued operations   289     237  
Other, net   (92 )   (43 )
Net Cash Used in Financing Activities from Continuing Operations   (677 )   (1,056 )
Effect of Exchange Rate on Cash and Cash Equivalents   (25 )   11  
Net Increase (Decrease) in Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Continuing Operations   478     (23 )
         
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period   334     357  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period   $ 812     $ 334  

See accompanying notes.

               
                 

 

Reconciliation of GAAP Results to Non-GAAP Measurements
(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 from Continuing Operations in 2016 and 2015 on a basis before Special Items. These Special Items are described in (b), (c), (d), (e), and (f) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of the 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 from Continuing Operations before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years ended December 31, 2016 and December 26, 2015 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

                 
      Quarter ended       Year ended  
      12/31/16     12/26/15       12/31/16     12/26/15  
Detail of Special Items                            
Refranchising initiatives(b)     $ 64       $ 49       $ 141       $ (20 )
YUM's Strategic Transformation initiatives(c)     (39 )           (71 )      
Non-cash charges associated with share-based compensation(d)     (30 )           (30 )      
Costs associated with KFC U.S. Acceleration Agreement(e)     (9 )     (41 )     (26 )     (72 )
Settlement charges associated with pension deferred vested project(f)     (24 )           (25 )      
Other Special Items Income (Expense)     (1 )     (1 )     (3 )      
Special Items Income (Expense) - Operating Profit     (39 )     7       (14 )     (92 )
Tax Benefit (Expense) on Special Items     28       (9 )     27       (4 )
Special Items Income (Expense) - Income from Continuing Operations     $ (11 )     $ (2 )     $ 13       $ (96 )
Average diluted shares outstanding     374       439       400       443  
Special Items diluted EPS from Continuing Operations     $ (0.03 )     $ (0.01 )     $ 0.03       $ (0.22 )
                             
Reconciliation of GAAP Operating Profit to Core Operating Profit and Core Operating Profit, excluding 53rd Week                            
GAAP Operating Profit     $ 489       $ 429       $ 1,625       $ 1,402  
Special Items Income (Expense) - Operating Profit     (39 )     7       (14 )     (92 )
Foreign Currency Impact on Reported Operating Profit     (11 )     N/A       (55 )     N/A  
Core Operating Profit     $ 539       $ 422       $ 1,694       $ 1,494  
Impact of 53rd Week    

 

27      

 

     

 

27

     

 

 
Core Operating Profit, excluding 53rd Week     $ 512       $ 422       $ 1,667       $ 1,494  
                             
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations Before Special Items                            
Diluted EPS from Continuing Operations     $ 0.76       $ 0.66       $ 2.48       $ 2.11  
Special Items EPS     (0.03 )     (0.01 )     0.03       (0.22 )
Diluted EPS from Continuing Operations before Special Items     $ 0.79       $ 0.67       $ 2.45       $ 2.33  
                             
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate Before Special Items                            
GAAP Effective Tax Rate     19.4 %     26.0 %     24.6 %     25.8 %
Impact on Tax Rate as a result of Special Items     (5.1 )%     2.0 %     (1.7 )%     2.1 %
Effective Tax Rate Before Special Items     24.5 %     24.0 %     26.3 %     23.7 %
                                 

 

                               

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                               
Quarter Ended 12/31/16     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 1,042       $ 327       $ 655       $       $ 2,024  
                               
Company restaurant expenses     593       120       380             1,093  
General and administrative expenses     132       78       73       147       430  
Franchise and license expenses     28       14       9       9       60  
Closures and impairment (income) expenses     4       (3 )     2             3  
Refranchising (gain) loss                       (64 )     (64 )
Other (income) expense     1             (1 )     13       13  
      758       209       463       105       1,535  
Operating Profit (loss)     $ 284       $ 118       $ 192       $ (105 )     $ 489  
                                                   
Quarter Ended 12/26/15     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 999       $ 368       $ 609       $       $ 1,976  
                               
Company restaurant expenses     583       162       360             1,105  
General and administrative expenses     126       92       89       74       381  
Franchise and license expenses     32       13       11       40       96  
Closures and impairment (income) expenses     6       1                   7  
Refranchising (gain) loss                       (44 )     (44 )
Other (income) expense     (1 )           (1 )     4       2  
      746       268       459       74       1,547  
Operating Profit (loss)     $ 253       $ 100       $ 150       $ (74 )     $ 429  
                                                   

The above tables reconcile segment information, which is based on management responsibility, with our 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 GAAP Results to Non-GAAP Measurements.

                               

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                               
Year Ended 12/31/16     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 3,232       $ 1,111       $ 2,025       $ (2 )     $ 6,366  
                               
Company restaurant expenses     1,847       453       1,198             3,498  
General and administrative expenses     391       241       213       316       1,161  
Franchise and license expenses     108       49       21       24       202  
Closures and impairment (income) expenses     11             3             14  
Refranchising (gain) loss                       (141 )     (141 )
Other (income) expense     1       (2 )     (3 )     11       7  
      2,358       741       1,432       210       4,741  
Operating Profit (loss)     $ 874       $ 370       $ 593       $ (212 )     $ 1,625  
                                                   
Year Ended 12/26/15     KFC     Pizza Hut     Taco Bell    

Corporate and
Unallocated

    Consolidated
Total revenues     $ 3,235       $ 1,214       $ 1,991       $       $ 6,440  
                               
Company restaurant expenses     1,895       550       1,202             3,647  
General and administrative expenses     401       272       230       196       1,099  
Franchise and license expenses     100       44       22       71       237  
Closures and impairment (income) expenses     9       3       3             15  
Refranchising (gain) loss                       23       23  
Other (income) expense     (2 )     (2 )     (2 )     23       17  
      2,403       867       1,455       313       5,038  
Operating Profit (loss)     $ 832       $ 347       $ 536       $ (313 )     $ 1,402  
                                                   

The above tables reconcile segment information, which is based on management responsibility, with our 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 GAAP Results to Non-GAAP Measurements.

Notes to the Consolidated Summary of Results, Consolidated Balance Sheets
and Consolidated Statements of Cash Flows
(amounts in millions, except per share amounts)
(unaudited)

(a) Amounts presented as of and for the quarter and year ended December 31, 2016 are preliminary.
 
(b) We have historically recorded refranchising gains and losses in the U.S. as Special Items due to the scope of our U.S. refranchising program and the volatility in associated gains and losses. Beginning in 2016, we are also including all international refranchising gains and losses in Special Items. The inclusion in Special Items of these additional international refranchising gains and losses is the result of the anticipated size and volatility of refranchising initiatives outside the U.S. that will take place in connection with our previously announced plans to have at least 98% franchise ownership by the end of 2018. During the quarters ended December 31, 2016 and December 26, 2015 we recorded net refranchising gains of $64 million and $49 million, respectively, that have been reflected as Special Items. During the years ended December 31, 2016 and December 26, 2015 we recorded net refranchising gains of $141 million and net refranchising losses of $20 million, respectively, that have been reflected as Special Items.
 
  The fourth quarter 2016 net refranchising gains relate primarily to refranchising Taco Bell restaurants in the U.S. and KFC restaurants in Thailand. The net refranchising gains for the year 2016 relate primarily to refranchising Pizza Hut and Taco Bell restaurants in the U.S. The fourth quarter 2015 net refranchising gains relate primarily to refranchising Taco Bell restaurants in the U.S.
 
  The net refranchising losses for the year 2015 relate to our Mexico and Korea businesses, partially offset by refranchising gains related to Taco Bell restaurants in the U.S. 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. On September 28, 2015, subsequent to our quarter ended September 5, 2015, we sold the real estate for approximately $58 million. While these proceeds exceeded the book value of the real estate, the sale represented a substantial liquidation of our Mexican operations under U.S. GAAP. Accordingly, we were required to include accumulated translation losses associated with our Mexican business within our carrying value when performing impairment evaluations in the quarters subsequent to determining that the real estate was held for sale. We recorded charges of $80 million in the year ended December 26, 2015, representing the excess of the sum of the book value of the real estate and other related assets and our accumulated translation losses over the then expected sales price. Consistent with the classification of the original market refranchising transaction, these charges were classified as Refranchising Loss within Special Items. We did not record any additional charges as a result of the consummation of the sale.
 
  Additionally, during the quarter and year ended December 26, 2015 we recognized Special Items charges of $3 million and $16 million, respectively, within Refranchising (gain) loss associated with the decision to offer to refranchise our Pizza Hut Korea restaurants.
 
(c) As part of our plan to transform our global business we took several measures to increase focus on development of brands, increase our franchise ownership and creating a leaner, more efficient cost structure (“YUM’s Strategic Transformation initiatives”). During the quarter and year ended December 31, 2016 we recognized Special Item charges of $39 million and $71 million, respectively, related to these initiatives. The majority of these costs related to severance costs and charges associated with a voluntary retirement program offered to certain U.S. employees that were recorded within G&A expense.
 
(d) In connection with the separation of Yum China we modified certain share-based compensation awards held as part of our Executive Income Deferral Plan in YUM stock to provide one Yum China share-based award for each outstanding YUM share-based award. These Yum China awards may now be settled in cash, as opposed to stock, which requires recognition of the fair value of these awards each quarter in our income statement. Cumulative fair value in excess of previously recorded expense as of December 31, 2016 and related costs resulted in non-cash Special Item charges of $30 million being recorded to G&A expense for the quarter and year ended December 31, 2016.
 
(e) 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 improved assets and customer experience. In connection with this agreement we recognized Special Item charges of $9 million and $41 million for the quarters ended December 31, 2016 and December 26, 2015. During the years ended December 31, 2016 and December 26, 2015, we recognized Special Item charges of $26 million and $72 million, respectively. The majority of these costs were recorded in Franchise and license expense. These charges primarily related to the funding of investments for new back-of-house equipment for franchisees.
 
(f) During the fourth quarter of 2016, the Company allowed certain former employees with deferred vested balances in the YUM Retirement Plan an opportunity to voluntarily elect an early payout of their pension benefits. As a result of payments made of $225 million related to this program exceeding the sum of service and interest costs within the Plan, we recorded a Special Items settlement charge of $24 million in G&A expense during the quarter and year ended December 31, 2016. Additionally, we incurred program costs of $1 million in the year ended December 31, 2016.

Contacts:

Keith Siegner
Vice President, Investor Relations
Corporate Strategy and Treasurer
888-298-6986

Elizabeth Grenfell
Director, Investor Relations
888-298-6986

Virginia Ferguson
Director, Public Relations
502-874-8200

###

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