Yum! Brands Reports Second-Quarter GAAP Operating Profit Growth of 1%

Delivered Second-Quarter Core Operating Profit Growth of 19%; Maintains Full-Year Core Operating Profit Growth Guidance

LOUISVILLE, Ky. - August 03, 2017 - (BUSINESS WIRE) - Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 30, 2017. Second-quarter GAAP EPS was $0.58, a decrease of 10%. Second-quarter EPS excluding Special Items was $0.68, an increase of 21%.

GREG CREED COMMENTS

Greg Creed, CEO, said “I’m pleased Yum! Brands’ intensified focus on our four distinct growth drivers helped deliver another successful quarter. Core operating profit grew 19% and EPS excluding special items grew 21% during the second quarter. We are maintaining our full-year 2017 guidance and are on pace with our multi-year transformation strategy designed to further unlock shareholder value.”

SECOND-QUARTER HIGHLIGHTS

  • Worldwide system sales grew 6%, with KFC and Taco Bell at 7% and Pizza Hut at 2%.
  • We opened 174 net new units for 3% net new unit growth.
  • We refranchised 244 restaurants, including 40 KFC, 163 Pizza Hut and 41 Taco Bell units, for proceeds of $136 million. We recorded refranchising gains of $19 million in Special Items. As of quarter end, our global franchise ownership mix was 94%.
  • We repurchased 5.6 million shares totaling $384 million at an average price of $68. As of quarter end, there was approximately $1.1 billion remaining in share repurchase authorization through year end 2017.
  • Foreign currency translation negatively impacted GAAP operating profit by $6 million.
 
        % Change
        System Sales     Same-Store Sales     Net New Units    

GAAP

Operating Profit

   

Core

Operating Profit

 

KFC Division       +7     +3     +4     +19     +21
Pizza Hut Division       +2     (1)     +2     +4     +7
Taco Bell Division       +7     +4     +3     +10     +10
Worldwide       +6     +2     +3     +1     +19
 
 
        Second Quarter     Year-to-Date
        2017     2016     % Change     2017     2016     % Change
GAAP EPS       $0.58     $0.64     (10)     $1.34     $1.18     +14
Special Items EPS1       $(0.10)     $0.08     NM     $0.01     $0.06     NM
EPS Excluding Special Items       $0.68     $0.56     +21     $1.33     $1.12     +19

1 See Reconciliation of GAAP results to non-GAAP measurements within this release for further detail of Special Items.

 
 

 

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.

All comparisons are versus the same period a year ago. Effective January 2017, we removed the reporting lags from our international subsidiary fiscal calendars. To accommodate these changes, Yum! Brands now reports on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 periods in each quarter, respectively. Prior year figures in this earnings release have been restated to present comparable results. An 8-K was filed on April 13, 2017 with restated quarterly 2016 results.

KFC DIVISION

 
        Second Quarter     Year-to-Date
                    %/ppts Change                 %/ppts Change
        2017     2016     Reported     Ex F/X     2017     2016     Reported     Ex F/X
Restaurants       20,854     20,125     +4     N/A     20,854     20,125     +4     N/A
System Sales Growth                   +5     +7                 +4     +6
Same-Store Sales Growth (%)       +3     +3     NM     NM     +3     +3     NM     NM
Franchise & License Fees ($MM)       278     251     +11     +13     535     494     +8     +10
Restaurant Margin (%)       15.7     14.6     1.1     1.0     14.7     14.0     0.7     0.7
Operating Profit ($MM)       243     203     +19     +21     450     388     +16     +18
Operating Margin (%)       31.5     26.1     5.4     5.5     29.9     25.6     4.3     4.5
                                                   
  • KFC Division system sales increased 7%, excluding foreign currency translation.
 
        Second Quarter (% Change)
        Int'l Emerging Markets     Int'l Developed Markets     U.S.
System Sales Growth (Ex F/X)       +9     +7     +1
Same-Store Sales Growth       +4     +4     +2
 
  • KFC Division opened 241 new international restaurants in 56 countries, including 202 units in emerging markets.
  • Operating margin increased 5.4 percentage points driven by same-store sales growth, refranchising, reduced G&A and higher initial and renewal fee income partially offset by higher restaurant operating costs.
  • Foreign currency translation negatively impacted GAAP operating profit by $4 million.
 
KFC Markets1      

Percent of KFC

System Sales2

    System Sales Growth Ex F/X
          Second Quarter (%)     Year-to-Date (%)
Emerging Markets                    
China3       26%     +8     +6
Asia (e.g. Malaysia, Indonesia, Philippines)       6%     +11     +9
Middle East / Turkey / North Africa       5%     +3     +1
Latin America (e.g. Mexico, Peru)       4%     +14     +13
Africa       4%     +4     +5
Russia       3%     +22     +25
Thailand       2%     (2)     +2
Continental Europe (e.g. Poland)       2%     +17     +18
India       1%     +9     +6
Developed Markets                    
U.S.       19%     +1     +2
Asia (e.g. Japan, Korea, Taiwan)       7%     +4     +1
Australia       7%     +9     +8
U.K.       6%     +6     +6
Continental Europe (e.g. France, Germany)       5%     +11     +10
Canada       2%     +5     +5
Latin America (e.g. Puerto Rico)       1%     (2)     Even

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

2 Reflects Full Year 2016.

3 Includes April, May and June; YUMC Q2 reported results include March, April and May.

 
 
 
 

PIZZA HUT DIVISION

 
        Second Quarter     Year-to-Date
                    %/ppts Change                 %/ppts Change
        2017     2016     Reported     Ex F/X     2017     2016     Reported     Ex F/X
Restaurants       16,452     16,178     +2     N/A     16,452     16,178     +2     N/A
System Sales Growth                   Even     +2                 (1)     +1
Same-Store Sales Growth (%)       (1)     (1)     NM     NM     (2)     (1)     NM     NM
Franchise & License Fees ($MM)       141     142     Even     +1     285     288     (1)     Even
Restaurant Margin (%)       8.5     9.4     (0.9)     (1.0)     7.4     9.7     (2.3)     (2.3)
Operating Profit ($MM)       85     81     +4     +7     168     172     (3)     Even
Operating Margin (%)       38.1     30.3     7.8     8.1     36.8     31.4     5.4     5.8
 
  • Pizza Hut Division system sales increased 2%, excluding foreign currency translation.
 
        Second Quarter (% Change)
        Int'l Emerging Markets     Int'l Developed Markets     U.S.
System Sales Growth (Ex F/X)       +8     +5     (4)
Same-Store Sales Growth       +2     Even     (3)
 
  • Pizza Hut Division opened 142 new international restaurants in 42 countries, including 103 units in emerging markets.
  • Operating margin increased 7.8 percentage points driven by refranchising partially offset by increased G&A related to litigation costs.
  • Foreign currency translation negatively impacted GAAP 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                    
China3       17%     +6     +7
Latin America (e.g. Mexico, Peru)       5%     +6     +5
Middle East / Turkey / Africa       4%     +7     +5
Asia (e.g. Malaysia, Indonesia, Philippines)       4%     +17     +12
India       1%     +8     +7
Continental Europe (e.g. Poland)       1%     +13     +10
Developed Markets                    
U.S.       48%     (4)     (5)
Asia (e.g. Japan, Korea, Taiwan)       7%     +4     +2
U.K.       5%     +4     +4
Continental Europe (e.g. France, Germany)       4%     +4     +3
Canada       2%     +5     +5
Australia       1%     +19     +20
Latin America (e.g. Puerto Rico)       1%     (5)     +1

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

2 Reflects Full Year 2016.

3 Includes April, May and June; YUMC Q2 reported results include March, April and May.

 
 
 
 
 
 

TACO BELL DIVISION

 
        Second Quarter     Year-to-Date
                    %/ppts Change                 %/ppts Change
        2017     2016     Reported     Ex F/X     2017     2016     Reported     Ex F/X
Restaurants       6,686     6,466     +3     N/A     6,686     6,466     +3     N/A
System Sales Growth                   +7     +7                 +10     +10
Same-Store Sales Growth (%)       +4     (1)     NM     NM     +6     Even     NM     NM
Franchise & License Fees ($MM)       120     111     +8     +8     234     212     +11     +11
Restaurant Margin (%)       22.8     22.3     0.5     0.5     22.3     21.6     0.7     0.7
Operating Profit ($MM)       152     139     +10     +10     293     257     +14     +14
Operating Margin (%)       33.4     29.8     3.6     3.6     32.3     28.9     3.4     3.4
  • Taco Bell Division system sales increased 7%.
  • Taco Bell Division opened 56 new restaurants.
  • Restaurant margin was 22.8%, an increase of 0.5 percentage points, driven by same-store sales growth partially offset by food and labor inflation.
  • Operating margin increased 3.6 percentage points driven by same-store sales growth, reduced G&A including lower litigation costs and refranchising partially offset by food and labor inflation.

OTHER ITEMS

  • During the quarter, we recorded a non-cash charge of $16 million in Special Items related to the ongoing impact of share-based compensation award modifications made at the time of the separation of Yum China Holdings, Inc.
  • On May 1, 2017, we entered into a Transformation Agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements to operations and technology and permanently increase advertising, digital and technology contributions from franchisees. In connection with this agreement, we recognized a Special Items charge of $12 million during the quarter primarily related to investments for digital initiatives.
  • On June 15, 2017, our Restricted Group subsidiaries that operate the company’s KFC, Pizza Hut and Taco Bell businesses issued $750 million aggregate principal amount of 4.75% Senior Notes due 2027.
  • Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the second quarter Form 10-Q.

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, August 3, 2017. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 51482139.

The call will be available for playback beginning at 11:15 a.m. Eastern Time Thursday, August 3, 2017 through Wednesday, September 6, 2017. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 51482139.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website, www.yum.com/investors/events-presentations and selecting “Q2 2017 Yum! Brands, Inc. Earnings Conference Call.”

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at www.yum.com/investors. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within this release.

FORWARD-LOOKING STATEMENTS

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, 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 nearly 44,000 restaurants in more than 135 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. In 2017, Yum! Brands was named among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. The company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in global 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
    6/30/17   6/30/16   B/(W)   6/30/17   6/30/16   B/(W)
                         
Company sales   $ 909     $ 1,006     (10)   $ 1,811     $ 1,959     (8)
Franchise and license fees and income   539     503     7   1,054     993     6
Total revenues   1,448     1,509     (4)   2,865     2,952     (3)
                         
Company restaurant expenses                        
Food and paper   280     307     9   556     594     6
Payroll and employee benefits   239     263     9   483     520     7
Occupancy and other operating expenses   229     269     15   467     530     12
Company restaurant expenses   748     839     11   1,506     1,644     8
                         
General and administrative expenses   247     254     3   484     497     3
Franchise and license expenses   54     54     (1)   100     105     4
Closures and impairment (income) expenses   1     7     84   2     9     78
Refranchising (gain) loss   (19 )   (54 )   (65)   (130 )   (54 )   NM
Other (income) expense   (2 )   (6 )   (58)       (13 )   (93)
Total costs and expenses, net   1,029     1,094     6   1,962     2,188     10
                         
Operating Profit   419     415     1   903     764     18
Other pension (income) expense   4         NM   32     (1 )   NM
Interest expense, net   104     51     NM   213     93     NM
Income from continuing operations before income taxes   311     364     (15)   658     672     (2)
Income tax provision   105     98     (7)   172     180     4
Income from continuing operations   206     266     (23)   486     492     (1)
Income from discontinued operations, net of tax       70     NM       208     NM
Net Income   206     336     (39)   486     700     (31)
                         

Effective tax rate from Continuing Operations

  33.8 %   27.0 %   (6.8 ppts.)   26.2 %   26.8 %   0.6 ppts.
                         

Basic EPS from Continuing Operations

                       
EPS   $ 0.59     $ 0.65     (10)   $ 1.37     $ 1.20     15
Average shares outstanding   350     408     14   354     411     14
                         

Diluted EPS from Continuing Operations

                       
EPS   $ 0.58     $ 0.64     (10)   $ 1.34     $ 1.18     14
Average shares outstanding   358     415     14   361     418     14
                         

Basic EPS from Discontinued Operations

                       
EPS   N/A   $ 0.17     NM   N/A   $ 0.51     NM
Average shares outstanding   N/A   408     NM   N/A   411     NM
                         

Diluted EPS from Discontinued Operations

                       
EPS   N/A   $ 0.17     NM   N/A   $ 0.50     NM
Average shares outstanding   N/A   415     NM   N/A   418     NM
                         
Dividends declared per common share   $ 0.30     $ 0.46         $ 0.60     $ 0.92      
                                         

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
    6/30/17   6/30/16   B/(W)   6/30/17   6/30/16   B/(W)
                         
Company sales   $ 492     $ 528     (7)   $ 967     $ 1,021     (5)
Franchise and license fees and income   278     251     11   535     494     8
Total revenues   770     779     (1)   1,502     1,515     (1)
                         
Company restaurant expenses                        
Food and paper   169     181     6   332     348     4
Payroll and employee benefits   116     124     6   231     242     5
Occupancy and other operating expenses   130     146     11   262     288     9
Company restaurant expenses   415     451     8   825     878     6
                         
General and administrative expenses   85     93     9   174     187     7
Franchise and license expenses   26     28     6   51     56     8
Closures and impairment (income) expenses   1     4     80   2     6     78
Other (income) expense           NM           NM
Total costs and expenses, net   527     576     9   1,052     1,127     7
Operating Profit   $ 243     $ 203     19   $ 450     $ 388     16
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   34.3 %   34.1 %   (0.2 ppts.)   34.3 %   34.0 %   (0.3 ppts.)
Payroll and employee benefits   23.5 %   23.4 %   (0.1 ppts.)   23.9 %   23.7 %   (0.2 ppts.)
Occupancy and other operating expenses   26.5 %   27.9 %   1.4 ppts.   27.1 %   28.3 %   1.2 ppts.
Restaurant margin   15.7 %   14.6 %   1.1 ppts.   14.7 %   14.0 %   0.7 ppts.
                         
Operating margin   31.5 %   26.1 %   5.4 ppts.   29.9 %   25.6 %   4.3 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
    6/30/17   6/30/16   B/(W)   6/30/17   6/30/16   B/(W)
                         
Company sales   $ 81     $ 125     (36)   $ 171     $ 260     (34)
Franchise and license fees and income   141     142       285     288     (1)
Total revenues   222     267     (17)   456     548     (17)
                         
Company restaurant expenses                        
Food and paper   23     35     34   49     72     32
Payroll and employee benefits   26     39     34   55     81     33
Occupancy and other operating expenses   24     40     37   54     82     33
Company restaurant expenses   73     114     35   158     235     33
                         
General and administrative expenses   54     56     5   107     115     7
Franchise and license expenses   10     14     27   23     24     3
Closures and impairment (income) expenses       2     NM       2     83
Other (income) expense           NM           NM
Total costs and expenses, net   137     186     26   288     376     23
Operating Profit   $ 85     $ 81     4   $ 168     $ 172     (3)
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   28.3 %   27.4 %   (0.9 ppts.)   28.5 %   27.5 %   (1.0 ppts.)
Payroll and employee benefits   32.2 %   31.5 %   (0.7 ppts.)   32.1 %   31.3 %   (0.8 ppts.)
Occupancy and other operating expenses   31.0 %   31.7 %   0.7 ppts.   32.0 %   31.5 %   (0.5 ppts.)
Restaurant margin   8.5 %   9.4 %   (0.9 ppts.)   7.4 %   9.7 %   (2.3 ppts.)
                         
Operating margin   38.1 %   30.3 %   7.8 ppts.   36.8 %   31.4 %   5.4 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
    6/30/17   6/30/16   B/(W)   6/30/17   6/30/16   B/(W)
                         
Company sales   $ 336     $ 353     (5)   $ 673     $ 678     (1)
Franchise and license fees and income   120     111     8   234     212     11
Total revenues   456     464     (2)   907     890     2
                         
Company restaurant expenses                        
Food and paper   88     91     4   175     174     (1)
Payroll and employee benefits   97     100     3   197     197    
Occupancy and other operating expenses   75     83     10   151     160     6
Company restaurant expenses   260     274     6   523     531     2
                         
General and administrative expenses   39     46     15   81     93     13
Franchise and license expenses   5     5     (1)   10     9     (9)
Closures and impairment (income) expenses       1     51       1     58
Other (income) expense       (1 )   (47)       (1 )   (59)
Total costs and expenses, net   304     325     7   614     633     3
Operating Profit   $ 152     $ 139     10   $ 293     $ 257     14
                         
Company sales   100.0 %   100.0 %       100.0 %   100.0 %    
Food and paper   26.2 %   25.9 %   (0.3 ppts.)   26.1 %   25.7 %   (0.4 ppts.)
Payroll and employee benefits   28.9 %   28.4 %   (0.5 ppts.)   29.2 %   29.1 %   (0.1 ppts.)
Occupancy and other operating expenses   22.1 %   23.4 %   1.3 ppts.   22.4 %   23.6 %   1.2 ppts.
Restaurant margin   22.8 %   22.3 %   0.5 ppts.   22.3 %   21.6 %   0.7 ppts.
                         
Operating margin   33.4 %   29.8 %   3.6 ppts.   32.3 %   28.9 %   3.4 ppts.
 

See accompanying notes.

 

Percentages may not recompute due to rounding.

 
         

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

(unaudited)

         
    6/30/17   12/31/16
ASSETS        
Current Assets        
Cash and cash equivalents   $ 970     $ 725  
Accounts and notes receivable, less allowance: $19 in 2017 and $14 in 2016   356     370  
Inventories   31     37  
Prepaid expenses and other current assets   267     236  
Advertising cooperative assets, restricted   161     137  
Total Current Assets   1,785     1,505  
         

Property, plant and equipment, net of accumulated depreciation and amortization of $1,990 in 2017 and $1,995 in 2016

  2,021     2,113  
Goodwill   540     536  
Intangible assets, net   147     151  
Other assets   340     376  
Deferred income taxes   763     772  
Total Assets   $ 5,596     $ 5,453  
         
LIABILITIES AND SHAREHOLDERS' DEFICIT        
Current Liabilities        
Accounts payable and other current liabilities   $ 929     $ 1,067  
Income taxes payable   13     32  
Short-term borrowings   375     66  
Advertising cooperative liabilities   161     137  
Total Current Liabilities   1,478     1,302  
         
Long-term debt   9,474     9,059  
Other liabilities and deferred credits   746     704  
Total Liabilities   11,698     11,065  
         
Shareholders' Deficit        
Common stock, no par value, 750 shares authorized; 345 shares and 355 shares issued in 2017 and 2016, respectively        
Retained earnings (accumulated deficit)   (5,710 )   (5,158 )
Accumulated other comprehensive income (loss)   (392 )   (454 )
Total Shareholders' Deficit   (6,102 )   (5,612 )
Total Liabilities and Shareholders' Deficit   $ 5,596     $ 5,453  
 

See accompanying notes.

     

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

     
    Year to Date
    6/30/17   6/30/16
Cash Flows - Operating Activities from Continuing Operations        
Net income   $ 486     $ 700  
Income from discontinued operations, net of tax       (208 )
Depreciation and amortization   135     147  
Closures and impairment (income) expenses   2     9  
Refranchising (gain) loss   (130 )   (54 )
Contributions to defined benefit pension plans   (12 )   (6 )
Deferred income taxes   10     (19 )
Share-based compensation expense   25     22  
Changes in accounts and notes receivable   30     34  
Changes in inventories   4     4  
Changes in prepaid expenses and other current assets   (1 )   15  
Changes in accounts payable and other current liabilities   (143 )  

(66

)
Changes in income taxes payable   (83 )   12  
Other, net  

116

   

(3

)
Net Cash Provided by Operating Activities from Continuing Operations  

439

   

587

 
         
Cash Flows - Investing Activities from Continuing Operations        
Capital spending   (150 )   (186 )
Proceeds from refranchising of restaurants   321     84  
Other, net   2     12  
Net Cash Provided by (Used in) Investing Activities from Continuing Operations   173     (90 )
         
Cash Flows - Financing Activities from Continuing Operations        
Proceeds from long-term debt   1,072     6,900  
Repayments of long-term debt   (344 )   (304 )
Revolving credit facilities, three months or less, net       (685 )
Short-term borrowings by original maturity        
More than three months - proceeds       1,400  
More than three months - payments       (2,000 )
Three months or less, net        
Repurchase shares of Common Stock   (856 )   (2,067 )
Dividends paid on Common Stock   (211 )   (379 )
Debt issuance costs   (32 )   (86 )

Net transfers from discontinued operations

      70  
Other, net  

(39

)   (29 )

Net Cash Provided by (Used in) Financing Activities from Continuing Operations

 

(410

)   2,820  
Effect of Exchange Rate on Cash and Cash Equivalents   23     (1 )

Net Increase in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Continuing Operations

  225    

3,316

 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period   831    

351

 
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period   $ 1,056     $ 3,667  
         
Cash Provided by Operating Activities from Discontinued Operations   $     $ 376  
Cash Used in Investing Activities from Discontinued Operations       (214 )

Cash Used in Financing Activities from Discontinued Operations

      (71 )
             

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 Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items and Core Operating Profit. Core Operating Profit excludes Special Items and foreign currency translation and we use Core Operating Profit for the purposes of evaluating performance internally. Special Items are not included in any of our division segment results, and we believe the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations. The Special Items are described in (b), (c), (d), (e), (f) and (g) in the accompanying notes.

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of Diluted Earnings Per Share from Continuing Operations excluding Special Items, our Effective Tax Rate excluding Special Items and Core Operating Profit provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years to date ended June 30, 2017 and June 30, 2016 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

    Quarter ended   Year to date
    6/30/17   6/30/16   6/30/17   6/30/16
Detail of Special Items                
Refranchising initiatives(b)   $ 19     $ 54     $ 130     $ 54  
YUM's Strategic Transformation Initiatives(c)   (4 )   (4 )   (11 )   (4 )
Costs associated with Pizza Hut U.S. Transformation Agreement(d)   (12 )       (12 )    
Costs associated with KFC U.S. Acceleration Agreement(e)   (5 )   (8 )   (8 )   (17 )
Non-cash charges associated with share-based compensation(f)   (16 )       (18 )    
Other Special Items Income (Expense)   (2 )   (2 )   (2 )   (2 )
Special Items Income (Expense) - Operating Profit   (20 )   40     79     31  
Deferred vested pension liability adjustment(g) - Other Pension Income (Expense)           (22 )    
Special Items Income (Expense) from Continuing Operations before Income Taxes   (20 )   40     57     31  
Tax Benefit (Expense) on Special Items   (17 )   (7 )   (51 )   (5 )
Special Items Income (Expense), net of tax   (37 )   33     6     26  
Average diluted shares outstanding   358     415     361     418  
Special Items diluted EPS   $ (0.10 )   $ 0.08     $ 0.01     $ 0.06  
                 
Reconciliation of GAAP Operating Profit to Core Operating Profit                
                 
Consolidated                
GAAP Operating Profit   $ 419     $ 415     $ 903     764  
Special Items Income (Expense)   (20 )   40     79     31  
Foreign Currency Impact on Reported Operating Profit   (6 )   N/A   (11 )   N/A
Core Operating Profit   $ 445     $ 375     $ 835     $ 733  
                 
KFC Division                
GAAP Operating Profit   $ 243     $ 203     $ 450     $ 388  
Foreign Currency Impact on Reported Operating Profit   (4 )   N/A   (7 )   N/A
Core Operating Profit   $ 247     $ 203     $ 457     $ 388  
                 
Pizza Hut Division                
GAAP Operating Profit   $ 85     $ 81     $ 168     $ 172  
Foreign Currency Impact on Reported Operating Profit   (2 )   N/A   (4 )   N/A
Core Operating Profit   $ 87     $ 81     $ 172     $ 172  
                 
Taco Bell Division                
GAAP Operating Profit   $ 152     $ 139     $ 293     $ 257  
Foreign Currency Impact on Reported Operating Profit       N/A       N/A
Core Operating Profit   $ 152     $ 139     $ 293     $ 257  
                 
Reconciliation of Diluted EPS from Continuing Operations to Diluted EPS from Continuing Operations excluding Special Items                
Diluted EPS from Continuing Operations   $ 0.58     $ 0.64     $ 1.34     $ 1.18  
Special Items EPS   (0.10 )   0.08     0.01     0.06  
Diluted EPS from Continuing Operations excluding Special Items   $ 0.68     $ 0.56     $ 1.33     $ 1.12  
                 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items                
GAAP Effective Tax Rate   33.8 %   27.0 %   26.2 %   26.8 %
Impact on Tax Rate as a result of Special Items   7.5 %   (0.9 )%   6.1 %   (0.5 )%
Effective Tax Rate excluding Special Items   26.3 %   27.9 %   20.1 %   27.3 %
                     

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

                     
Quarter Ended 6/30/17   KFC   Pizza Hut   Taco Bell  

Corporate
and
Unallocated

  Consolidated
Total revenues   $ 770     $ 222     $ 456     $     $ 1,448  
                     
Company restaurant expenses   415     73     260         748  
General and administrative expenses   85     54     39     69     247  
Franchise and license expenses   26     10     5     13     54  
Closures and impairment (income) expenses   1                 1  
Refranchising (gain) loss               (19 )   (19 )
Other (income) expense               (2 )   (2 )
    527     137     304     61     1,029  
Operating Profit (loss)   $ 243     $ 85     $ 152     $ (61 )   $ 419  
                     
                     
Quarter Ended 6/30/16   KFC   Pizza Hut   Taco Bell  

Corporate
and
Unallocated

  Consolidated
Total revenues   $ 779     $ 267     $ 464     $ (1 )   $ 1,509  
                     
Company restaurant expenses   451     114     274         839  
General and administrative expenses   93     56     46     59     254  
Franchise and license expenses   28     14     5     7     54  
Closures and impairment (income) expenses   4     2     1         7  
Refranchising (gain) loss               (54 )   (54 )
Other (income) expense           (1 )   (5 )   (6 )
    576     186     325     7     1,094  
Operating Profit (loss)   $ 203     $ 81     $ 139     $ (8 )   $ 415  
                                         

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 6/30/17   KFC   Pizza Hut   Taco Bell  

Corporate
and
Unallocated

  Consolidated
Total revenues   $ 1,502     $ 456     $ 907     $     $ 2,865  
                     
Company restaurant expenses   825     158     523         1,506  
General and administrative expenses   174     107     81     122     484  
Franchise and license expenses   51     23     10     16     100  
Closures and impairment (income) expenses   2                 2  
Refranchising (gain) loss               (130 )   (130 )
Other (income) expense                    
    1,052     288     614     8     1,962  
Operating Profit (loss)   $ 450     $ 168     $ 293     $ (8 )   $ 903  
                     
                     
Year to Date 6/30/16   KFC   Pizza Hut   Taco Bell  

Corporate
and
Unallocated

  Consolidated
Total revenues   $ 1,515     $ 548     $ 890     $ (1 )   $ 2,952  
                     
Company restaurant expenses   878     235     531         1,644  
General and administrative expenses   187     115     93     102     497  
Franchise and license expenses   56     24     9     16     105  
Closures and impairment (income) expenses   6     2     1         9  
Refranchising (gain) loss               (54 )   (54 )
Other (income) expense           (1 )   (12 )   (13 )
    1,127     376     633     52     2,188  
Operating Profit (loss)   $ 388     $ 172     $ 257     $ (53 )   $ 764  

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 quarters and years to date ended June 30, 2017 and 2016 are preliminary.

     

(b)

 

In connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018, we recorded net refranchising gains during the quarters ended June 30, 2017 and 2016 of $19 million and $54 million, respectively, that have been reflected as Special Items. During the years to date ended June 30, 2017 and 2016, we recorded net refranchising gains of $130 million and $54 million, respectively, that have been reflected as Special Items.

     
   

The second quarter 2017 net refranchising gains relate primarily to refranchising Taco Bell restaurants in the U.S., partially offset by charges associated with the refranchising of certain international markets. The second quarter 2016 net refranchising gains relate primarily to refranchising Pizza Hut restaurants in the U.S.

     

(c)

 

In the fourth quarter of 2016, we announced our plan to transform our business. Major features of the Company's strategic transformation plans involve being more focused on development of our three brands, increasing our franchise ownership and creating a leaner, more efficient cost structure (“YUM’s Strategic Transformation Initiatives”). During both the quarters ended June 30, 2017 and 2016, we recognized Special Item charges of $4 million related to these initiatives. During the years to date ended June 30, 2017 and 2016, we recognized Special Item charges of $11 million and $4 million, respectively. These costs primarily related to severance and relocation costs that were recorded within G&A.

     

(d)

 

On May 1, 2017, we reached an agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements in operations and technology and includes a permanent commitment to incremental advertising contributions by franchisees beginning in 2018. During the quarter ended June 30, 2017, we recorded Special Item charges of $12 million for these investments. These amounts were recorded primarily as Franchise and license expenses.

     

(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 $5 million and $8 million for the quarters ended June 30, 2017 and 2016, respectively. During the years to date ended June 30, 2017 and 2016, we recognized Special Item charges of $8 million and $17 million, respectively. The majority of these costs were recorded as Franchise and license expenses.

     

(f)

 

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 within G&A in our Condensed Consolidated Income Statement. During the quarter and year to date ended June 30, 2017, we recorded non-cash Special Item charges of $16 million and $18 million, respectively, related to these awards.

     

(g)

 

Reflects a non-cash charge of $22 million related to the adjustment of certain historical deferred vested liability balances in our qualified U.S. plan during the first quarter of 2017. This charge was recorded in Other pension (income) expense.

     

(h)

 

In March 2017, the Financial Accounting Standards Board (“FASB”) issued guidance on the presentation of net periodic pension cost and net periodic postretirement benefit cost. The standard requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. We early adopted the standard beginning with the quarter ended March 31, 2017 on a retrospective basis and have reported the other components of net benefit costs within Other pension (income) expense for the quarters and years to date ended June 30, 2017 and 2016.

     

(i)

 

In March 2016, the FASB issued guidance related to stock-based compensation which is intended to simplify several aspects of the accounting for employee share-based payment transactions, including their income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. We adopted this standard beginning with the quarter ended March 31, 2017. The primary impact of adoption of this standard was that beginning January 1, 2017 we are required to report excess tax benefits associated with share-based compensation, which we previously recognized within Common Stock, within our Income tax provision.

Contacts:

Keith Siegner
Yum! Brands, Inc.
Vice President
Analysts/Investor Relations
Corporate Strategy and Treasurer
888-298-6986

Kelly Knybel
Yum! Brands, Inc.
Director, Investor Relations
888-298-6986

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

SOURCE Yum! Brands

###

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