Yum! Brands Inc. Announces Full-Year EPS Growth of 14%, or $2.87 Per Share, Excluding Special Items; Marks 10th Consecutive Year of at Least 13% EPS Growth; China Opens a Record 656 New Units

Yum! Brands Inc. (NYSE: YUM) reported results for the fourth quarter ended December 31, 2011 including EPS of $0.75. Reported EPS for the full year was $2.74. Full year and fourth quarter results for Yum! Restaurants International (YRI) and the U.S. reflect the benefit of an additional week. This 53^rd week did not impact China Division results.

“I’m pleased to report full-year EPS growth of 14%, making 2011 the tenth consecutive year we exceeded our annual target of at least 10%.”

FULL YEAR HIGHLIGHTS

• Worldwide system sales grew 7%, prior to foreign currency translation, including 29% in China and 8% at YRI. System sales in the U.S. were even.
• Same-store sales grew 19% in China, 3% at YRI and declined 1% in the U.S.
• Record international development with 1,561 new restaurants, including 656 in China and 905 at YRI.
• Worldwide operating profit grew 8%, including a positive impact from foreign currency translation of $77 million. Prior to foreign currency translation, operating profit grew 4%, including 15% in China and 9% at YRI, offsetting a 12% decline in the U.S.
• Worldwide restaurant margin declined 0.9 points to 16.0%.
• Increased annual dividend rate to $1.14 per share. This marked the seventh consecutive year we increased our dividend at a double-digit rate since initiating a dividend in 2004.
• Repurchased 14.3 million shares totaling $733 million at an average price of $51.
• Remained an industry leader with return on invested capital of over 22%.

FOURTH QUARTER HIGHLIGHTS

• Worldwide system sales grew 11%, prior to foreign currency translation, including 33% in China, 10% at YRI and 6% in the U.S.
• Same-store sales grew 21% in China, 3% at YRI and 1% in the U.S.
• Operating profit grew 15% in China and 12% at YRI, prior to foreign currency translation. Operating profit grew 10% in the U.S.
• Worldwide restaurant margin declined 1.1 percentage points to 14.3%.

		Fourth Quarter									Full Year
		2011			2010			% Change			2011			2010			% Change
EPS Excluding Special Items		$0.75			$0.63			20	%		$2.87			$2.53			14	%
Special Items Gain/(Loss)1		($0.00	)		($0.07	)		NM			($0.13	)		($0.15	)		NM
EPS		$0.75			$0.56			33	%		$2.74			$2.38			15	%
1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for 2011 are primarily related to Pizza Hut UK impairment and the divestitures of Long John Silver’s and A&W All-American Restaurants brands.
Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

David C. Novak, Chairman and CEO said, “I’m pleased to report full-year EPS growth of 14%, making 2011 the tenth consecutive year we exceeded our annual target of at least 10%.

The highlight of 2011 was again the exceptional performance of our China business, which grew system sales by 29% and operating profit by 15%, prior to foreign currency translation. We opened a record 656 new restaurants and delivered extraordinary same-store sales growth of 19%. Clearly, our KFC and Pizza Hut brands in China continued to strengthen their category-leading positions. At the same time, Yum! Restaurants International opened 905 new units, including 622 in high-growth emerging markets. We are on the ground floor of growth in India, Russia and Africa, where system sales grew at strong double-digit rates. For the year, our emerging market businesses at Yum! Restaurants International grew system sales 13%, prior to foreign currency translation, including new-unit growth of 7%. Emerging markets contributed nearly 50% of operating profit at Yum! Restaurants International. The Yum! growth story is clearly about China and a whole lot more.

We continue to focus on three key elements that drive the value of our company: new-unit development, same-store sales growth, and high returns. Our new-unit potential in emerging markets is arguably the best in the restaurant industry. To put this in perspective, today we have fewer than two restaurants per million people in the top 10 emerging markets compared to nearly 60 restaurants per million people in the U.S. Clearly, we have a very long runway for growth. To fully maximize the value of our existing asset base of 37,000 restaurants, we are introducing sales layers like breakfast, expanded beverages and new product platforms. Finally, we continue to be disciplined with capital as we invest in high-return growth opportunities around the world, along with paying a meaningful dividend and making significant share repurchases. Our return on invested capital of over 22% is among industry leaders and has improved for eight consecutive years.

We are proud of our consistent track record of growth and are well-positioned to meet or exceed our annual target of at least 10% EPS growth in 2012.”

CHINA DIVISION

		Fourth Quarter										Full Year
						% Change										% Change
		2011		2010		Reported			Ex F/X			2011		2010		Reported			Ex F/X
System Sales Growth						+40			+33							+35			+29
Same-Store Sales Growth (%)		+21		+8		NM			NM			+19		+6		NM			NM
Restaurant Margin (%)		15.8		18.2		(2.4	)		(2.4	)		19.7		22.1		(2.4	)		(2.4	)
Operating Profit ($MM)		210		173		+21			+15			908		755		+20			+15

• China Division system sales increased 29% for the year and 33% in the fourth quarter, prior to foreign currency translation, driven by same-store sales growth and new-unit development.
  • KFC same-store sales grew 19% for the year and 22% in the fourth quarter.
  • Pizza Hut Casual Dining same-store sales grew 17% for the year and 15% in the fourth quarter.
  • Pizza Hut Home Service same-store sales grew 19% for the year and 25% in the fourth quarter.
  • China division same-store sales growth was driven by a 21% increase in same-store transactions for the year, including 20% in the fourth quarter.
• China opened a record 656 new units during the year, including 327 in the fourth quarter.

China Units		Q4 2011		% Change1
Traditional Restaurants		4,493		+15
KFC		3,701		+14
Pizza Hut Casual Dining		626		+20
Pizza Hut Home Service		135		+13
1 Annual Rate of Change

• Total revenues for the year surpassed the $5 billion mark, at $5.6 billion.
• Restaurant margin decreased 2.4 percentage points to 19.7% for the year, driven by commodity inflation of 8% and wage rate inflation of 20%. Consistent with expectations, restaurant margin decreased 2.4 percentage points to 15.8% in the fourth quarter. This decline was driven by 11% commodity inflation and 18% wage rate inflation.
• Foreign currency translation positively impacted operating profit by $43 million for the year and $11 million in the fourth quarter.

Our China Division reports on a calendar year basis and was not impacted by the 53^rd week.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

		Fourth Quarter								Full Year
						% Change								% Change
		2011		2010		Reported		Ex F/X		2011		2010		Reported		Ex F/X
Traditional Restaurants¹		14,453		13,934		+4		NA		14,453		13,934		+4		NA
System Sales Growth						+11		+10						+13		+8
Franchise & License Fees ($MM)		275		242		+13		+13		868		741		+17		+12
Operating Profit ($MM)		207		184		+13		+12		673		589		+14		+9
Operating Margin (%)		19.7		18.6		1.1		1.3		20.6		19.1		1.5		1.4
¹ During the fourth quarter of 2011, we sold the Long John Silver’s and A&W All-American Restaurants brands. The LJS and A&W international restaurants as of 2010 year-end have been removed from the 2010 balance to enhance comparability.

• YRI Division system sales increased 8% for the year and 10% in the fourth quarter, prior to foreign currency translation. The system sales increases were driven by new-unit development and by same-store sales growth of 3% for both the quarter and the year.
  • Emerging markets system sales grew 13% for the year, prior to foreign currency translation.
  • Developed markets system sales grew 4% for the year, prior to foreign currency translation.
• YRI opened 905 new units in 81 countries for the year. This included 452 new units in the fourth quarter.
  • For the year, 622 new units were opened in emerging markets.
  • Our franchise partners opened 91% of all new units for the year.
• Restaurant margin increased 0.6 percentage points to 12.3% for the full year. In the fourth quarter, restaurant margin declined 0.6 percentage points to 11.6%.
• Foreign currency translation positively impacted operating profit by $34 million for the year and $2 million in the fourth quarter.
• Beginning in the first quarter of 2012, India will be reported as a separate business segment not included in YRI results. Yum! Restaurants India will also include franchise businesses in the neighboring countries of Bangladesh, Mauritius, Nepal and Sri Lanka.

The 53^rd week had a positive impact on YRI’s fourth quarter which included benefits of 3 percentage points to system sales growth, $35 million to total revenue, 0.3 percentage points to restaurant margin, $8 million to operating profit, and 0.1 percentage point to operating margin.

For the full year, the positive impact of the 53^rd week included benefits of 1 percentage point to system sales growth and 0.1 percentage point to restaurant margin.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

	YRI MARKETS		System Sales Ex F/X and Ex 53rd week
			Percent of YRI1		Fourth Quarter Growth (%)		Full Year Growth (%)
	Franchise*
	Asia2		27%		+6		+5
	Latin America		11%		+6		+7
	Middle East		8%		+14		+12
	Continental Europe³		7%		+5		+5
	Canada		6%		(5)		(4)
	Combined Company/Franchise**
	UK4		12%		+3		+3
	Australia/New Zealand		11%		+1		+1
	Thailand		2%		+17		+20
	Korea		1%		(7)		+2
	Key Growth***
	Africa		6%		+21		+15
	France		4%		+13		+20
	Germany/Netherlands		2%		+9		+13
	Russia		2%		+33		+27
	India		1%		+39		+41
*	These markets are 100% franchise owned and operated.
**	YRI owns 38% of these restaurants.
***	YRI owns 19% of these restaurants.
1	Percentage of Total YRI System Sales for Full Year 2011.
2	Excludes China, India, Thailand, and Korea.
3	Excludes “Key Growth Markets” of France, Germany, Netherlands, and Russia.
4	KFC UK system sales grew 6% for the year and in the quarter; Pizza Hut UK system sales declined 3% for the year and 2% in the quarter.

U.S. DIVISION

		Fourth Quarter						Full Year
		2011		2010		% Change		2011		2010		% Change
Same-Store Sales Growth (%)		+1		+5		NM		(1)		+1		NM
Restaurant Margin (%)		13.4		14.1		(0.7)		12.1		14.2		(2.1)
Franchise and License Fees ($MM)		252		233		+9		786		765		+3
Operating Profit ($MM)		191		173		+10		589		668		(12)
Operating Margin (%)		16.1		14.1		2.0		15.5		16.2		(0.7)

• U.S. Division same-store sales declined 1% for the year, including declines of 2% at Taco Bell and 2% at KFC. Pizza Hut was even for the year. In the fourth quarter, same-store sales increased 1%, driven by growth of 6% at Pizza Hut and offset by declines of 2% at Taco Bell and 1% at KFC.
• Restaurant margin declined 2.1 percentage points for the year, driven by commodity inflation of 6% and sales deleverage. In the fourth quarter, restaurant margin decreased 0.7 percentage points, driven by 7% commodity inflation.

The 53 ^rd week had a positive impact on U.S. fourth quarter results which included benefits of 6 percentage points to system sales growth, $56 million to total revenue, 0.5 percentage points to restaurant margin, $18 million to operating profit, and 0.8 percentage points to operating margin.

For the full year, the positive impact of the 53^rd week included benefits of 2 percentage points to system sales growth and 0.2 percentage points to restaurant margin.

OWNERSHIP UPDATE

• On February 1, 2012, we acquired a controlling interest in Little Sheep Group, Ltd., the leading hot-pot concept based in China. This included approximately 450 system units.

• During the fourth quarter, we divested our Long John Silver’s and A&W All-American Restaurants brands. LJS was sold on December 16^th and A&W was sold on December 19^th. These divestitures included 349 franchise units at YRI and 1,232 franchise units in the U.S. The U.S. franchise restaurants provided 5 percent of franchise revenue in the U.S. in 2011. We do not expect these divestitures to have a material impact to ongoing earnings.
• Our company ownership in the U.S. dropped to 13% from 15% last year. We refranchised 404 restaurants, including 264 KFCs, 74 Taco Bells and 66 Pizza Huts in 2011. Our target for Pizza Hut and KFC is about 5% company ownership. We also announced in December our decision to reduce company ownership in Taco Bell from 23% to about 16% over the next two years.

OTHER ITEMS UPDATE

• Our fiscal year ends on the last Saturday in December and, as a result, a 53rd week is added every five or six years. In 2011, this 53rd week benefited the U.S. and a portion of YRI markets by providing an additional week in their reporting calendars. This yielded a $26 million benefit to YRI and U.S. operating profit in the fourth quarter. As a result, the operating profit growth rate in the fourth quarter of 2012 will be negatively impacted by this overlap. This benefit was offset throughout 2011 by investments, including franchise development incentives, as well as higher-than-normal spending, such as restaurant closures in the U.S. and YRI.
• Worldwide effective tax rate, prior to Special Items, declined to 24.2% from 25.3% for the year, but increased to 26.7% from 23.8% in the fourth quarter of last year.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants with over 37,000 restaurants in more than 110 countries and territories. Yum! is ranked #214 on the Fortune 500 List and generated revenues of more than $12 billion in 2011. The Company's restaurant brands – KFC, Pizza Hut and Taco Bell – are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opened approximately four new restaurants each day of the year, making it a leader in international retail development.

YUM! Brands, Inc.
Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	3,557			$	3,071			16			$	10,893			$	9,783			11
Franchise and license fees and income		554				491				13			1,733				1,560				11
Total revenues		4,111				3,562				15			12,626				11,343				11
Company restaurant expenses, net
Food and paper		1,209				979				(23	)		3,633				3,091				(18	)
Payroll and employee benefits		809				692				(17	)		2,418				2,172				(11	)
Occupancy and other operating expenses		1,026				922				(11	)		3,089				2,857				(8	)
Company restaurant expenses		3,044				2,593				(17	)		9,140				8,120				(13	)
General and administrative expenses		499				464				(8	)		1,372				1,277				(7	)
Franchise and license expenses		41				39				(4	)		145				110				(32	)
Closures and impairment (income) expenses		22				26				14			135				47				NM
Refranchising (gain) loss		3				12				73			72				63				(15	)
Other (income) expense		(5		)		(12		)		(54	)		(53		)		(43		)		25
Total costs and expenses, net		3,604				3,122				(15	)		10,811				9,574				(13	)
Operating Profit		507				440				15			1,815				1,769				3
Interest expense, net		46				54				16			156				175				11
Income before income taxes		461				386				20			1,659				1,594				4
Income tax provision		104				109				4			324				416				22
Net income - including noncontrolling interests		357				277				29			1,335				1,178				13
Net income - noncontrolling interests		1				3				45			16				20				18
Net income - YUM! Brands, Inc.		$	356			$	274			30			$	1,319			$	1,158			14
Effective tax rate		22.6		%		28.1		%		5.5 ppts.			19.5		%		26.1		%		6.6 ppts.
Basic EPS Data
EPS		$	0.77			$	0.58			33			$	2.81			$	2.44			15
Average shares outstanding		465				474				2			469				474				1
Diluted EPS Data
EPS		$	0.75			$	0.56			33			$	2.74			$	2.38			15
Average shares outstanding		477				488				2			481				486				1
Dividends declared per common share		$	0.57			$	0.50						$	1.07			$	0.92
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	1,853			$	1,336			39			$	5,487			$	4,081			34
Franchise and license fees and income		27				16				66			79				54				45
Total revenues		1,880				1,352				39			5,566				4,135				35
Company restaurant expenses, net
Food and paper		673				453				(48	)		1,947				1,362				(43	)
Payroll and employee benefits		334				215				(56	)		890				587				(52	)
Occupancy and other operating expenses		553				425				(30	)		1,568				1,231				(27	)
		1,560				1,093				(43	)		4,405				3,180				(38	)
General and administrative expenses		104				80				(31	)		275				216				(27	)
Franchise and license expenses		1				—				NM			4				1				NM
Closures and impairment (income) expenses		9				11				15			12				16				24
Other (income) expense		(4		)		(5		)		—			(38		)		(33		)		16
		1,670				1,179				(42	)		4,658				3,380				(38	)
Operating Profit		$	210			$	173			21			$	908			$	755			20
Company sales		100.0		%		100.0		%					100.0		%		100.0		%
Food and paper		36.3				33.9				(2.4) ppts.			35.5				33.4				(2.1) ppts.
Payroll and employee benefits		18.1				16.1				(2.0) ppts.			16.2				14.4				(1.8) ppts.
Occupancy and other operating expenses		29.8				31.8				2.0 ppts.			28.6				30.1				1.5 ppts.
Restaurant margin		15.8		%		18.2		%		(2.4) ppts.			19.7		%		22.1		%		(2.4) ppts.
Operating margin		11.2		%		12.8		%		(1.6) ppts.			16.3		%		18.3		%		(2.0) ppts.
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
YUM! RESTAURANTS INTERNATIONAL DIVISION Operating Results
(amounts in millions)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	779			$	745			4			$	2,406			$	2,347			2
Franchise and license fees and income		275				242				13			868				741				17
Total revenues		1,054				987				7			3,274				3,088				6
Company restaurant expenses, net
Food and paper		253				237				(6	)		769				753				(2	)
Payroll and employee benefits		198				187				(6	)		616				591				(4	)
Occupancy and other operating expenses		237				229				(3	)		726				727				—
		688				653				(5	)		2,111				2,071				(2	)
General and administrative expenses		145				130				(12	)		422				378				(12	)
Franchise and license expenses		15				12				(7	)		51				36				(41	)
Closures and impairment (income) expenses		4				8				40			22				14				(62	)
Other (income) expense		(5		)		—				NM			(5		)		—				NM
		847				803				(5	)		2,601				2,499				(4	)
Operating Profit		$	207			$	184			13			$	673			$	589			14
Company sales		100.0		%		100.0		%					100.0		%		100.0		%
Food and paper		32.5				31.9				(0.6) ppts.			31.9				32.1				0.2 ppts.
Payroll and employee benefits		25.5				25.1				(0.4) ppts.			25.6				25.2				(0.4) ppts.
Occupancy and other operating expenses		30.4				30.8				0.4 ppts.			30.2				31.0				0.8 ppts.
Restaurant margin		11.6		%		12.2		%		(0.6) ppts.			12.3		%		11.7		%		0.6 ppts.
Operating margin		19.7		%		18.6		%		1.1 ppts.			20.6		%		19.1		%		1.5 ppts.
See accompanying notes.
Percentages may not recompute due to rounding.

YUM! Brands, Inc.
UNITED STATES Operating Results
(amounts in millions)
(unaudited)
		Quarter								% Change			Year								% Change
		12/31/11				12/25/10				B/(W)			12/31/11				12/25/10				B/(W)
Company sales		$	925			$	990			(7	)		$	3,000			$	3,355			(11	)
Franchise and license fees and income		252				233				9			786				765				3
Total revenues		1,177				1,223				(4	)		3,786				4,120				(8	)
Company restaurant expenses, net
Food and paper		283				289				2			917				976				6
Payroll and employee benefits		277				290				5			912				994				8
Occupancy and other operating expenses		242				272				11			809				908				11
		802				851				6			2,638				2,878				8
General and administrative expenses		148				169				12			450				492				8
Franchise and license expenses		26				24				(12	)		92				70				(32	)
Closures and impairment (income) expenses		11				7				(42	)		21				17				(19	)
Other (income) expense		(1		)		(1		)		(48	)		(4		)		(5		)		(29	)
		986				1,050				6			3,197				3,452				7
Operating Profit		$	191			$	173			10			$	589			$	668			(12	)
Company sales		100.0		%		100.0		%					100.0		%		100.0		%
Food and paper		30.5				29.1				(1.4) ppts.			30.5				29.1				(1.4) ppts.
Payroll and employee benefits		29.9				29.4

Logos, product and company names mentioned are the property of their respective owners.

Reader Comments:

Be the first to leave a comment for this article

Tweet