Yum! Brands Inc. Announces Second Quarter 2011 EPS Growth of 13%, Excluding Special Items; Driven by Outstanding China & Emerging Market Performance; Raises Full Year 2011 EPS Growth Forecast to at Le

Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter ended June 11, 2011 including EPS of $0.66, excluding Special Items. After a Special Items loss of $0.01, reported EPS was $0.65.

SECOND-QUARTER HIGHLIGHTS

• Operating profit grew 25% in China and 11% at Yum! Restaurants International (“YRI”), prior to foreign currency translation. Operating profit declined 28% in the U.S., resulting in a Worldwide operating profit decline of 2%, prior to foreign currency translation. Worldwide operating profit increased 3% after foreign currency translation.
• Worldwide system sales grew 3%, prior to foreign currency translation, including 28% in China and 6% at YRI. System sales in the U.S. declined 5%.
• Strong international development continued with 241 new restaurants opened, including 99 new units in China.
• Same-store sales grew 18% in China and 2% at YRI, and declined 4% in the U.S.
• Worldwide restaurant margin declined 0.6 percentage points to 15.9%.
• Worldwide effective tax rate, prior to Special Items, declined to 16.7% from 23.6%.
• Share repurchases totaled $166 million for 3.2 million shares at an average price of $52 per share. Share repurchases totaled $308 million year-to-date.

Full year EPS growth forecast raised to at least 12%, or at least $2.83 a share, excluding Special Items.

David C. Novak, Chairman and CEO said, “I’m pleased to report we are raising our full year EPS growth forecast to at least 12% based on the continued strength of our international businesses. We delivered EPS growth of 13% in the second quarter as strong performance in China and other emerging markets, combined with the benefit of a lower tax rate, offset a very disappointing quarter in the U.S.

Our China business continues to be the leading growth story in the restaurant industry, as our category-leading brands are performing stronger than ever. Operating profit grew 25% in China, prior to foreign currency translation, as same-store sales grew an impressive 18%. We surpassed 4,000 restaurants in China this quarter and our new unit returns remain excellent. Yum! Restaurants International (YRI) operating profit increased 11%, led by outstanding performance in high-growth emerging markets, where system sales grew 11%, both prior to foreign currency translation. Our development pipeline is robust, and we remain on track to open 1,400 new units outside the U.S. this year. We are confident new unit development will continue to be a key factor in our ability to drive future sales and profit growth.

Our outstanding international results were offset by a 28% decline in U.S. profits, driven by higher commodity costs and a 4% decline in same-store sales. As previously communicated, we anticipated weak second quarter sales and profits, driven largely by the negative impact of a meritless lawsuit and resulting negative publicity at Taco Bell. We expect to improve on these very disappointing results by the fourth quarter.

For the full year, we expect strong performance from both China and YRI as well as the benefit from foreign currency translation to overcome a challenging year in the U.S. We’re obviously confident 2011 will be the tenth consecutive year we exceed our annual target of at least 10% EPS growth.”

CHINA DIVISION

• China Division system sales increased 28%, excluding foreign currency translation, driven by same-store sales growth of 18% and new unit development. The same-store sales growth was driven by a 21% increase in same-store transactions.
  • KFC same-store sales grew 17%.
  • Pizza Hut Casual Dining same-store sales grew 22%, marking its sixth consecutive quarter of double-digit same-store sales growth.
  • 99 new restaurants opened in the second quarter.

• Restaurant margin decreased 0.5 percentage points, driven primarily by higher wage rates and commodity inflation. We now estimate commodity inflation of approximately 9% for the full year.
• Operating profit growth of 25% overlapped growth of 33% last year, excluding foreign currency translation.
• Foreign currency translation positively impacted operating profit by $9 million.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

• YRI Division system sales growth of 6%, excluding foreign currency translation, was driven by new unit development and same-store sales growth of 2%.
  • Emerging markets led the way with 11% system sales growth, driven by 5% unit growth.
  • Developed market system sales grew 4%, including 2% unit growth.
• YRI opened 142 new units in 37 countries, including 72 new units in emerging markets. Our franchise partners opened 89% of the total new units.
• Operating profit grew 11%, prior to foreign currency translation, as emerging market strength, led by Thailand, and significant gains in France offset weak performance from Pizza Hut in the U.K.
• Restaurant margin increased 2 percentage points to 12.7%.
• Foreign currency translation positively impacted operating profit by $10 million.

U.S. DIVISION

• U.S. Division same-store sales declined 4% including declines of 5% at Taco Bell, 2% at Pizza Hut, and 5% at KFC.
• Restaurant margin declined 4.4 percentage points and operating profit declined 28% due to $15 million of commodity inflation and a decline in same-store sales. Food inflation remains a headwind and we now estimate commodity inflation of approximately 7% for the full year.
• Profit performance is expected to improve by the fourth quarter.

REFRANCHISING UPDATE

In the U.S., we have essentially completed Pizza Hut refranchising, and KFC is now our main refranchising focus. Year-to-date we have refranchised 94 restaurants, including 82 KFCs. Our target for Pizza Hut and KFC is about 5% company ownership. Since the inception of our refranchising program in late 2007, we have sold over 1,400 units across all brands, excluding Long John Silver’s and A&W Restaurants.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world’s largest restaurant company in terms of system restaurants with nearly 38,000 restaurants in more than 110 countries and territories. The Company is ranked #214 on the Fortune 500 List and generated revenues of more than $11 billion in 2010. Four of the company’s restaurant brands – KFC, Pizza Hut, Taco Bell and Long John Silver’s – are the global leaders of the chicken, pizza, Mexican–style food and quick–service seafood categories, respectively. A&W Restaurants is the longest running quick-service franchise chain in America. Outside the United States in 2010, the Yum! Brands system opened approximately four new restaurants each day of the year, making it a leader in international retail development.

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