Yum! Brands Reports First-quarter Gaap Operating Profit Growth Of 14%

Flat First-quarter Core Operating Profit Growth; Maintains All Aspects Of Full-year Guidance

LOUISVILLE, Ky. - (BUSINESS WIRE) - May 2, 2018 - Yum! Brands, Inc. (NYSE: YUM) today reported results for the first quarter ended March 31, 2018. First-quarter GAAP EPS was $1.27, an increase of 66%. First-quarter EPS excluding Special Items was $0.90, an increase of 38%.

Greg Creed Comments

Greg Creed, CEO, said “As we begin the second full year of our transformation journey, I’m pleased with our progress towards becoming a more focused, more franchised and more efficient company. As a result of the timing mismatch between refranchising and associated G&A savings and the new revenue recognition accounting standard, core operating profit growth was flat, which is consistent with our expectations. We’re maintaining all aspects of our full-year 2018 guidance and remain confident that this transformation is building a strong foundation for long-term growth and will deliver increased returns for our stakeholders.”

First-Quarter Highlights

  • Worldwide system sales excluding foreign currency translation grew 4%, with KFC at 6%, Taco Bell at 4% and Pizza Hut at 2%.
  • We opened 239 net new units for 3% net new unit growth.
  • We refranchised 144 restaurants, including 52 KFC, 43 Pizza Hut and 49 Taco Bell units, for pre-tax proceeds of $205 million. We recorded net refranchising gains of $156 million in Special Items. As of quarter end, our global franchise ownership mix was 97%.
  • We repurchased 6.5 million shares totaling $528 million at an average price of $81.
  • We reflected the change in fair value of our investment in Grubhub by recording $66 million of pre-tax investment income, resulting in $0.16 in EPS.
  • Foreign currency translation favorably impacted divisional operating profit by $16 million.
        % Change
        System Sales

Ex F/X

   

Same-Store

Sales

    Net New Units    

GAAP

Operating Profit

   

Core

Operating Profit

KFC Division       +6     +2     +4     +7     Even
Pizza Hut Division       +2     +1     +2     +6     +2
Taco Bell Division       +4     +1     +4     (6)     (6)
Worldwide       +4     +1     +3     +14     Even
 
 
        First Quarter
        2018   2017   % Change
GAAP EPS       $1.27   $0.77   +66

Special Items EPS1

      $0.37   $0.12   NM
EPS Excluding Special Items       $0.90   $0.65   +38

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

 
 

All comparisons are versus the same period a year ago. As required, we adopted a new accounting standard on revenue recognition effective January 1, 2018. Prior year results have not been restated for this change. See the Other Items section of this release for further details.

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 Non-GAAP Measurements to GAAP Results within this release for further details.

KFC DIVISION

 
            First Quarter
                        %/ppts Change
            2018     2017     Reported     Ex F/X
Restaurants           21,644     20,716     +4     N/A
System Sales ($MM)           6,329     5,635     +12     +6
Same-Store Sales Growth (%)           +2     +2     NM     NM
Franchise and Property Revenues ($MM)           307     257     +19     +12
Operating Profit ($MM)           221     207     +7     Even
Operating Margin (%)           33.6     28.3     5.3     4.9
 
 
                      First Quarter (% Change)
                      International       U.S.
System Sales Growth (Ex F/X)                     +7       (1)
Same-Store Sales Growth                     +2       Even
                               
  • KFC Division opened 262 new international restaurants in 42 countries.
  • Operating margin increased 5.3 percentage points driven by refranchising and same-store sales growth, partially offset by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard.
  • Foreign currency translation favorably impacted operating profit by $13 million.
 
KFC Markets1          

Percent of KFC

System Sales2

     

System Sales

Growth (Ex F/X)

               

First Quarter

(% Change)

China           27%      

+9

United States           18%       (1)
Asia           12%       +3
Australia           7%       +5
Russia & Eastern Europe           7%       +20
United Kingdom           6%       (9)
Latin America           5%       +15
Western Europe           5%       +14
Africa           4%       +4
Middle East / Turkey / North Africa           4%       +8
Canada           2%       +5
Thailand           2%       +5
India           1%       +19
 

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

2Reflects Full Year 2017.

 
 
 
 
 

PIZZA HUT DIVISION

 
            First Quarter
                        %/ppts Change
            2018     2017     Reported     Ex F/X
Restaurants           16,796     16,454     +2     N/A
System Sales ($MM)           3,032     2,872     +6     +2
Same-Store Sales Growth (%)           +1     (3)     NM     NM
Franchise and Property Revenues ($MM)           149     144     +4     +1
Operating Profit ($MM)           88     83     +6     +2
Operating Margin (%)           35.0     35.6     (0.6)     (1.0)
 
 
                      First Quarter (% Change)
                      International       U.S.
System Sales Growth (Ex F/X)                     +2       +2
Same-Store Sales Growth                     (2)       +4
 
  • Pizza Hut Division opened 148 new international restaurants in 39 countries.
  • Operating margin decreased 0.6 percentage points driven by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard, partially offset by refranchising.
  • Foreign currency translation favorably impacted operating profit by $3 million.
 
Pizza Hut Markets1          

Percent of Pizza

Hut System Sales2

     

System Sales

Growth (Ex F/X)

               

First Quarter

(% Change)

United States           46%       +2
China           18%       (1)
Asia           13%       +6
Europe           10%       +3
Latin America           6%       +1
Middle East / Turkey / North Africa           4%       Even
Canada           2%       +1
India           1%       +21
Africa           <1%       +27
 

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

2Reflects Full Year 2017.

 
 
 
 
 

TACO BELL DIVISION

 
            First Quarter
                        %/ppts Change
           

2018

    2017     Reported     Ex F/X
Restaurants           6,883     6,648     +4     N/A
System Sales ($MM)           2,347     2,262     +4     +4
Same-Store Sales Growth (%)           +1     +8     NM     NM
Franchise and Property Revenues ($MM)           128     114     +12     +12
Operating Profit ($MM)           132     141     (6)     (6)
Operating Margin (%)           28.5     31.2     (2.7)     (2.7)
                               
  • Taco Bell Division opened 56 new restaurants, including 11 new international restaurants.
  • Operating margin decreased 2.7 percentage points driven by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard and higher restaurant-level costs, partially offset by refranchising and same-store sales growth.

Other Items

  • Effective January 1, 2018, we adopted a new accounting standard on revenue recognition. As a result, we are now recognizing upfront fees, such as initial and renewal fees we receive from franchisees, as revenue over the term of the related franchise agreement. We are also now recording incentive payments we may make to franchisees (e.g., equipment funding provided under the KFC U.S. Acceleration Agreement) as a reduction of revenue over the period of expected cash flows from the franchise agreements to which the payment relates. Under our historical accounting, we recognized upfront fees from franchisees in full upon the commencement of the related franchise agreements and incentive payments made to franchisees when we were obligated to make the payment.

Additionally, the new accounting standard requires us to begin recording other revenues we receive from franchisees and the related expenses on a gross basis within our Income Statement. Previously, these revenues and expenses, the largest of which relate to franchisee contributions to and subsequent expenditures from advertising cooperatives we consolidate, have been reported on a net basis within our Income Statement. We have reported these revenues and expenses in our Income Statement on the two new line items of Franchise contributions for advertising and other services and Franchise advertising and other services expense.

Prior results have not been restated for the impact of this accounting change and therefore remain reported as they have been historically. However, the adoption was done on a modified retrospective basis resulting in the current year impact being reported as if the now-required accounting had been in place since the inception of currently active franchise agreements or when franchise incentive payments were originally made. On a full-year basis we anticipate that the non-cash impacts of adopting the new revenue recognition standard will negatively impact Core Operating Profit growth by 2 to 3 percentage points. Core Operating Profit growth was negatively impacted by less than one percentage point for the quarter ended March 31, 2018 as a result of the new standard. The lower first quarter impact was expected as the majority of our new unit development for which we receive upfront fees, which will now be spread versus recognized upfront, is expected to occur later in the year.

  • Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the first-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 Wednesday, May 2, 2018. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 6087438.

The call will be available for playback beginning at 11:00 a.m. Eastern Time Wednesday, May 2, 2018 through Wednesday, June 13, 2018. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 6087438.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website, investors.yum.com/events-and-presentations and selecting “Q1 2018 Yum! Brands, Inc. Earnings Call.”

Additional Information Online

Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at investors.yum.com. 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; the success of our franchisees and licensees, and the success of our transformation initiatives, including our refranchising strategy; our significant exposure to the Chinese market; 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; our increasing dependence on digital commerce platforms and information technology systems; 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; 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; recent Tax Legislation (defined below) and other 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.

Information regarding the impact of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) consists of preliminary estimates which are forward-looking statements and are subject to change. Information regarding the impact of Tax Legislation is based on our current calculations, as well our current interpretations, assumptions and expectations relating to Tax Legislation, which are subject to further ongoing change.

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 45,000 restaurants in more than 135 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. In 2018, Yum! Brands was recognized as part of the inaugural Bloomberg Gender-Equality Index. In 2017, Yum! Brands was named to the Dow Jones Sustainability North America Index and ranked among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. The company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over seven 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
          3/31/18     3/31/17     B/(W)
Revenues                      
Company sales         $ 512       $ 902       (43)
Franchise and property revenues         584       515       13
Franchise contributions for advertising and other services         275             N/A
Total revenues         1,371       1,417       (3)
                       
Costs and Expenses, Net                      
Company restaurant expenses         438       758       42
General and administrative expenses         219       237       8
Franchise and property expenses         47       46      
Franchise advertising and other services expense         272             N/A
Refranchising (gain) loss         (156 )     (111 )     40
Other (income) expense         (2 )     3       NM
Total costs and expenses, net         818       933       12
                       
Operating Profit         553       484       14
Investment (income) expense, net         (66 )     (1 )     NM
Other pension (income) expense         3       28       88
Interest expense, net         107       110       3
Income before income taxes         509       347       47
Income tax provision         76       67       (14)
Net Income         $ 433       $ 280       55
                       
Effective tax rate         15.0 %     19.4 %     4.4 ppts.
                       

Basic EPS

                     
EPS         $ 1.30       $ 0.78       66
Average shares outstanding         332       357       7
                       

Diluted EPS

                     
EPS         $ 1.27       $ 0.77       66
Average shares outstanding         340       364       7
                       
Dividends declared per common share         $ 0.36       $ 0.30        
 

See accompanying notes.

Percentages may not recompute due to rounding.

 
 
 
 
 
 

YUM! Brands, Inc.
KFC DIVISION Operating Results
(amounts in millions)
(unaudited)

 
          Quarter ended     % Change
          3/31/18     3/31/17     B/(W)
                       
Company sales         $ 245       $ 475       (48)
Franchise and property revenues         307       257       19
Franchise contributions for advertising and other services         106             N/A
Total revenues         658       732       (10)
                       
Company restaurant expenses         220       410       46
General and administrative expenses         85       89       5
Franchise and property expenses         29       25       (14)
Franchise advertising and other services expense         104             N/A
Other (income) expense         (1 )     1       NM
Total costs and expenses, net         437       525       17
Operating Profit         $ 221       $ 207       7
                       
Restaurant margin         10.5 %     13.7 %     (3.2) ppts.
                       
Operating margin         33.6 %     28.3 %     5.3 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
          3/31/18     3/31/17     B/(W)
                       
Company sales         $ 24       $ 90       (73)
Franchise and property revenues         149       144       4
Franchise contributions for advertising and other services         78             N/A
Total revenues         251       234       8
                       
Company restaurant expenses         24       85       71
General and administrative expenses         50       53       6
Franchise and property expenses         11       13       19
Franchise advertising and other services expense         78             N/A
Other (income) expense                     NM
Total costs and expenses, net         163       151       (8)
Operating Profit         $ 88       $ 83       6
                       
Restaurant margin         (0.1 )%     6.3 %     (6.4) ppts.
                       
Operating margin         35.0 %     35.6 %     (0.6) 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
          3/31/18     3/31/17     B/(W)
                       
Company sales         $ 243       $ 337       (28)
Franchise and property revenues         128       114       12
Franchise contributions for advertising and other services         91             N/A
Total revenues         462       451       2
                       
Company restaurant expenses         194       263       26
General and administrative expenses         40       42       6
Franchise and property expenses         6       5       (18)
Franchise advertising and other services expense         90             N/A
Other (income) expense                     NM
Total costs and expenses, net         330       310       (6)
Operating Profit         $ 132       $ 141       (6)
                       
Restaurant margin         19.6 %     21.8 %     (2.2) ppts.
                       
Operating margin         28.5 %     31.2 %     (2.7) ppts.
 

See accompanying notes.

Percentages may not recompute due to rounding.

 
 
 
 
 
 

YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)

 
         

(unaudited)

3/31/18

    12/31/17
ASSETS                
Current Assets                
Cash and cash equivalents         $ 982       $ 1,522  

Accounts and notes receivable, less allowance: $26 in 2018 and $19 in 2017

        501       400  
Prepaid expenses and other current assets        

406

      384  
Advertising cooperative assets, restricted               201  
Total Current Assets        

1,889

      2,507  
                 

Property, plant and equipment, net of accumulated depreciation and amortization of $1,467 in 2018 and $1,480 in 2017

        1,651       1,697  
Goodwill         514       512  
Intangible assets, net         105       110  
Other assets        

490

      346  
Deferred income taxes         187       139  
Total Assets         $

4,836

      $ 5,311  
                 
LIABILITIES AND SHAREHOLDERS' DEFICIT                
Current Liabilities                
Accounts payable and other current liabilities         $

924

      $ 813  
Income taxes payable         124       123  
Short-term borrowings         61       375  
Advertising cooperative liabilities               201  
Total Current Liabilities        

1,109

      1,512  
                 
Long-term debt         9,419       9,429  
Other liabilities and deferred credits         1,062       704  
Total Liabilities        

11,590

      11,645  
                 
Shareholders' Deficit                
Common stock, no par value, 750 shares authorized; 327 shares and 332 shares issued in 2018 and 2017, respectively                
Accumulated deficit        

(6,539

)     (6,063 )
Accumulated other comprehensive loss        

(215

)     (271 )
Total Shareholders' Deficit        

(6,754

)     (6,334 )
Total Liabilities and Shareholders' Deficit         $

4,836

      $ 5,311  
 

See accompanying notes.

 
 
 
 
 
 

YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)

 
          Quarter ended
          3/31/18     3/31/17
Cash Flows - Operating Activities                
Net income         $ 433       $ 280  
Depreciation and amortization         37       70  
Refranchising (gain) loss         (156 )     (111 )
Investment (income) expense         (66 )     (1 )
Contributions to defined benefit pension plans         (3 )     (7 )
Deferred income taxes         (1 )     20  
Share-based compensation expense         17       17  
Changes in accounts and notes receivable         4       18  
Changes in prepaid expenses and other current assets         (22 )     (1 )
Changes in accounts payable and other current liabilities         (99 )     (48 )
Changes in income taxes payable         13       12  
Other, net         32       39  
Net Cash Provided by Operating Activities         189       288  
                 
Cash Flows - Investing Activities                
Capital spending         (42 )     (76 )
Proceeds from refranchising of restaurants         205       185  
Other, net         1       (5 )
Net Cash Provided by Investing Activities         164       104  
                 
Cash Flows - Financing Activities                
Proceeds from long-term debt               192  
Repayments of long-term debt         (332 )     (200 )
Revolving credit facilities, three months or less, net                
Short-term borrowings by original maturity                
More than three months - proceeds         12        
More than three months - payments         (7 )      
Three months or less, net                
Repurchase shares of Common Stock         (498 )     (461 )
Dividends paid on Common Stock         (120 )     (106 )
Debt issuance costs               (18 )
Other, net         (31 )     (36 )
Net Cash Used in Financing Activities         (976 )     (629 )
Effect of Exchange Rate on Cash and Cash Equivalents         38       17  
Net Decrease in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents         (585 )     (220 )
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period         1,599       831  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Topic 606 Adoption         69        
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period         $ 1,083       $ 611  
 

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 excluding Special Items, our Effective Tax Rate excluding Special Items, System Sales and Core Operating Profit. Core Operating Profit excludes Special Items and foreign currency translation ("FX") 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 FX 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 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 ended March 31, 2018 and March 31, 2017 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature. System sales and System sales growth include the results of all restaurants regardless of ownership, including company-owned and franchise restaurants that operate our Concepts. Sales of franchise restaurants typically generate ongoing franchise fees for the Company at a rate of 3% to 6% of sales. Franchise restaurant sales are not included in Company sales on the Condensed Consolidated Statements of Income; however, the franchise fees are included in the Company’s revenues. We believe system sales and system sales growth are useful to investors as significant indicators of the overall strength of our business as they incorporate our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.

 
 
            Quarter ended
            3/31/18     3/31/17
Detail of Special Items                  
Refranchising gain (loss)(b)           $ 156       $ 111  
YUM's Strategic Transformation Initiatives(c)           (1 )     (7 )
Costs associated with Pizza Hut U.S. Transformation Agreement(d)           (1 )      
Costs associated with KFC U.S. Acceleration Agreement(e)                 (3 )
Other Special Items Income (Expense)           (1 )     (2 )
Special Items Income - Operating Profit           153       99  
Special Items - Other Pension Income (Expense)(f)                 (22 )
Special Items Income before Income Taxes           153       77  
Tax Expense on Special Items           (19 )     (34 )
Tax Expense - U.S. Tax Act(g)           (6 )      
Special Items Income, net of tax           128       43  
Average diluted shares outstanding           340       364  
Special Items diluted EPS           $ 0.37       $ 0.12  
                   
Reconciliation of GAAP Operating Profit to Core Operating Profit                  
                   

Consolidated

                 
GAAP Operating Profit           $ 553       $ 484  
Special Items Income           153       99  
Foreign Currency Impact on Divisional Operating Profit           16       N/A  
Core Operating Profit           $ 384       $ 385  
                   

KFC Division

                 
GAAP Operating Profit           $ 221       $ 207  
Foreign Currency Impact on Divisional Operating Profit           13       N/A  
Core Operating Profit           $ 208       $ 207  
                   

Pizza Hut Division

                 
GAAP Operating Profit           $ 88       $ 83  
Foreign Currency Impact on Divisional Operating Profit           3       N/A  
Core Operating Profit           $ 85       $ 83  
                   

Taco Bell Division

                 
GAAP Operating Profit           $ 132       $ 141  
Foreign Currency Impact on Divisional Operating Profit                 N/A  
Core Operating Profit           $ 132       $ 141  
 
 
 
 
 
 

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(amounts in millions, except per share amounts)
(unaudited)

 
          Quarter ended
          3/31/18     3/31/17
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items                
Diluted EPS         $ 1.27       $ 0.77  
Special Items Diluted EPS         0.37       0.12  
Diluted EPS excluding Special Items         $ 0.90       $ 0.65  
                 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items                
GAAP Effective Tax Rate         15.0 %     19.4 %
Impact on Tax Rate as a result of Special Items         0.6 %     6.9 %
Effective Tax Rate excluding Special Items         14.4 %     12.5 %
                 
Reconciliation of Company sales to System sales                
                 

Consolidated

               
GAAP Company sales         $ 512       $ 902  
Franchise sales         11,196       9,867  
System sales         11,708       10,769  
Foreign Currency Impact on System sales         466       N/A  
System sales, excluding FX         $ 11,242       $ 10,769  
                 

KFC Division

               
GAAP Company sales         $ 245       $ 475  
Franchise sales         6,084       5,160  
System sales         6,329       5,635  
Foreign Currency Impact on System sales         363       N/A  
System sales, excluding FX         $ 5,966       $ 5,635  
                 

Pizza Hut Division

               
GAAP Company sales         $ 24       $ 90  
Franchise sales         3,008       2,782  
System sales         3,032       2,872  
Foreign Currency Impact on System sales         100       N/A  
System sales, excluding FX         $ 2,932       $ 2,872  
                 

Taco Bell Division

               
GAAP Company sales         $ 243       $ 337  
Franchise sales         2,104       1,925  
System sales         2,347       2,262  
Foreign Currency Impact on System sales         3       N/A  
System sales, excluding FX         $ 2,344       $ 2,262  
 
 
 
 
 
 

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

 
Quarter Ended 3/31/18       KFC   Pizza Hut   Taco Bell  

Corporate

and

Unallocated

  Consolidated
Total revenues       $ 658     $ 251   $ 462   $     $ 1,371  
                         
Company restaurant expenses       220     24   194       438  
General and administrative expenses       85     50   40   44     219  
Franchise and property expenses       29     11   6   1     47  
Franchise advertising and other services expense       104     78   90       272  
Refranchising (gain) loss               (156 )   (156 )
Other (income) expense       (1 )       (1 )   (2 )
Total costs and expenses, net       437     163   330   (112 )   818  
Operating Profit       $ 221     $ 88   $ 132   $ 112     $ 553  
 
 
 
Quarter Ended 3/31/17       KFC   Pizza Hut   Taco Bell  

Corporate

and

Unallocated

  Consolidated
Total revenues       $ 732     $ 234   $ 451   $     $ 1,417  
                         
Company restaurant expenses       410     85   263       758  
General and administrative expenses       89     53   42   53     237  
Franchise and property expenses       25     13   5   3     46  
Refranchising (gain) loss               (111 )   (111 )
Other (income) expense       1         2     3  
Total costs and expenses, net       525     151   310   (53 )   933  
Operating Profit       $ 207     $ 83   $ 141   $ 53     $ 484  
 
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 ended March 31, 2018 and 2017 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 March 31, 2018 and 2017 of $156 million and $111 million, respectively, that have been reflected as Special Items.
     
    The first quarter 2018 net refranchising gains relate primarily to refranchising KFC restaurants in the UK and Taco Bell restaurants in the U.S. The first quarter of 2017 net refranchising gains relate primarily to refranchising Taco Bell 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 the quarters ended March 31, 2018 and 2017, we recognized Special Item charges of $1 million and $7 million, respectively, related to these initiatives. In the first quarter of 2017, 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 March 31, 2018, we recorded Special Item charges of $1 million for these investments. These amounts were recorded as Franchise and property 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 $3 million for the quarter ended March 31, 2017 within Franchise and property expenses.
     
(f)  

We recorded 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.

     
(g)   During the first quarter of 2018, we recorded a $6 million increase to our provisional deemed repatriation tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 ("Tax Act") as enacted by the U.S. government.
     

(h)

 

On February 7, 2018, certain of our subsidiaries entered into a master services agreement with a subsidiary of Grubhub Inc. (“Grubhub”). Concurrent with the master services agreement, one of our subsidiaries entered into an investment agreement to invest $200 million in exchange for approximately 2.8 million shares of Grubhub common stock, subject to customary closing conditions. The investment agreement represents a forward contract to purchase shares of Grubhub stock and is required to be accounted for under GAAP as a derivative as of March 31, 2018. As a result, we recorded a non-cash gain of $66 million in Investment (income) expense, net in our Condensed Consolidated Statements of Income related to the mark-to-market of the forward contract during the quarter ended March 31, 2018, which includes the appreciation of the underlying common shares since entering into the agreement less certain valuation adjustments. Subsequent to March 31, 2018, all conditions for closing were met and we purchased the Grubhub shares.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20180502005710/en/

Contacts:

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

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

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

SOURCE YUM! Brands, Inc.

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