Yum! Brands Results

Yum! Brands Reports Solid Third-Quarter; System Sales Growth of 8%; Same-Store Sales Growth of 3%; GAAP Operating Profit Decline of (13)%; Core Operating Profit Growth of 6%

Yum! Brands

Yum! Brands, Inc. (NYSE: YUM) reported results for the third-quarter ended September 30, 2019. Worldwide system sales excluding foreign currency translation grew 8%, with 7% net-new units and 3% same-store sales growth. Third-quarter GAAP EPS was $0.81, a decrease of (42)%. Third-quarter EPS excluding Special Items was $0.80, a decrease of (23)%.

GREG CREED COMMENTS

Greg Creed, CEO, said “Following a very strong first half of 2019 and in line with our expectations, third-quarter results were consistent with our long-term growth model. We delivered system sales growth of 8%, with same-store sales of 3% and net-new unit growth of 7%, led by continued strong performances at KFC International and Taco Bell. We’re rapidly approaching the end of a truly historic year. 2019 will not only mark the completion of our 3-year transformation of Yum!, but it will also mark the end of my tenure as Yum! CEO. I couldn’t be prouder of the progress that our teams around the world have made to become more focused, more franchised and more efficient; all while accelerating global growth. Today Yum! has a unique and powerful business model backed by a culture that is stronger than ever and by talent that is truly world class. I’m confident that as I retire, David Gibbs is the right leader to leverage our scale and key growth drivers to enhance franchisee economics, champion the customer experience and drive global growth to maximize value for our stakeholders.”

THIRD-QUARTER HIGHLIGHTS

  • Worldwide system sales excluding foreign currency translation grew 8%, with KFC at 8%, Pizza Hut at 7% and Taco Bell at 7%. Adjusting the prior year base to include Telepizza, system sales growth excluding foreign currency translation would have been 6% worldwide and 2% for the Pizza Hut Division.
  • We opened 389 net units in the quarter. On a year-over-year basis, which takes into account the strategic alliance with Telepizza in the fourth-quarter 2018, net-new unit growth was 7%.
  • We repurchased 1.5 million shares totaling $174 million at an average price per share of $115.
  • We recorded $60 million of pre-tax investment expense related to the change in fair value of our investment in Grubhub, which resulted in a negative ($0.15) impact in EPS. When coupled with $94 million of pre-tax investment income recorded in the third quarter of 2018, which resulted in a $0.22 benefit to EPS, our Grubhub investment unfavorably impacted year-over-year EPS growth by ($0.37).
  • Foreign currency translation unfavorably impacted divisional operating profit by $7 million.

 

% Change

 

System Sales

Ex F/X

 

Same-Store Sales

 

Net-New Units

 

GAAP Operating

Profit

 

Core

Operating Profit2

KFC Division

+8

 

+3

 

+6

 

+9

 

+12

Pizza Hut Division1

+7

 

Even

 

+9

 

(2)

 

(1)

Taco Bell Division

+7

 

+4

 

+4

 

Even

 

Even

Worldwide1

+8

 

+3

 

+7

 

(13)

 

+6

 

 

Third-Quarter

Year-to-Date

 

 

2019

2018

% Change

2019

2018

% Change

GAAP EPS

 

$0.81

$1.40

(42)

$2.57

$3.64

(30)

Special Items EPS2

 

$0.01

$0.36

NM

$0.02

$0.89

NM

EPS Excluding Special Items

 

$0.80

$1.04

(23)

$2.55

$2.75

(7)

1 Pizza Hut Division and Worldwide system sales ex F/X and net-new units include the benefit of our strategic alliance with Telepizza in the fourth-quarter 2018. Same-store sales reflects the inclusion of Telepizza in the prior year base.

2 See reconciliation of Non-GAAP Measurements to GAAP Results within this release for further detail of Core Operating Profit and Special Items.

All comparisons are versus the same period a year ago.

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

 

Third-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2019

2018

Reported

Ex F/X

2019

2018

Reported

Ex F/X

Restaurants

23,435

 

22,104

 

+6

 

N/A

 

23,435

 

22,104

 

+6

 

N/A

System Sales ($MM)

6,968

 

6,555

 

+6

 

+8

 

20,163

 

19,190

 

+5

 

+9

Same-Store Sales Growth (%)

+3

 

+3

 

NM

 

NM

 

+5

 

+2

 

NM

 

NM

Franchise and Property Revenues ($MM)

344

 

320

 

+8

 

+10

 

999

 

937

 

+7

 

+11

Operating Profit ($MM)

270

 

248

 

+9

 

+12

 

767

 

704

 

+9

 

+14

Operating Margin (%)

44.3

 

38.2

 

6.1

 

6.1

 

43.6

 

36.0

 

7.6

 

7.5

 

 

Third-Quarter (% Change)

Year-to-Date (% Change)

 

 

International

U.S.

International

U.S.

System Sales Growth Ex F/X

 

+10

(1)

+11

+1

Same-Store Sales Growth

 

+4

(1)

+5

+1

Third-Quarter Highlights

  • KFC Division opened 411 gross new restaurants in 52 countries.
  • Operating margin increased 6.1 percentage points driven by refranchising, net-new unit growth and same-store sales growth.
  • Foreign currency translation unfavorably impacted operating profit by $6 million.

KFC Markets1

Percent of KFC

System Sales2

System Sales Growth Ex F/X

Third-Quarter

(% Change)

Year-to-Date

(% Change)

China

27%

 

+10

 

+11

United States

17%

 

(1)

 

+1

Asia

12%

 

+7

 

+8

Russia, Central & Eastern Europe

8%

 

+20

 

+19

Australia

7%

 

+10

 

+8

United Kingdom

6%

 

+6

 

+14

Latin America

5%

 

+16

 

+13

Western Europe

5%

 

+14

 

+13

Africa

4%

 

+8

 

+12

Middle East / Turkey / North Africa

4%

 

+8

 

+8

Canada

2%

 

(2)

 

(1)

Thailand

2%

 

(2)

 

+5

India

1%

 

+19

 

+22

1Refer to investors.yum.com under Financial Reports for a list of the countries within each of the markets.

2Reflects Full Year 2018.

PIZZA HUT DIVISION

 

Third-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2019

2018

Reported

Ex F/X

2019

2018

Reported

Ex F/X

Restaurants

18,532

 

16,930

 

+9

 

N/A

 

18,532

 

16,930

 

+9

 

N/A

System Sales ($MM)1

3,092

 

2,929

 

+6

 

+7

 

9,321

 

8,855

 

+5

 

+8

Same-Store Sales Growth (%)1

Even

 

(1)

 

NM

 

NM

 

+1

 

(1)

 

NM

 

NM

Franchise and Property Revenues ($MM)

143

 

143

 

(1)

 

+1

 

431

 

432

 

Even

 

+2

Operating Profit ($MM)

86

 

88

 

(2)

 

(1)

 

279

 

257

 

+8

 

+11

Operating Margin (%)

36.0

 

38.7

 

(2.7)

 

(2.6)

 

38.2

 

36.1

 

2.1

 

2.4

 

 

Third-Quarter (% Change)

Year-to-Date (% Change)

 

 

International

U.S.

International

U.S.

System Sales Growth Ex F/X1

 

+14

(2)

+14

Even

Same-Store Sales Growth1

 

+1

(3)

+1

Even

Third-Quarter Highlights

  • Pizza Hut Division opened 205 gross new restaurants in 43 countries.
  • Operating margin decreased 2.7 percentage points driven by higher provisions for past due receivables and related higher G&A, partially offset by lower advertising spend associated with the U.S. Transformation Agreement.
  • Foreign currency translation unfavorably impacted operating profit by $1 million.

Pizza Hut Markets2

Percent of Pizza Hut

System Sales3

System Sales Growth Ex F/X 1

 

Third-Quarter

(% Change)

Year-to-Date

(% Change)

United States

46%

 

(2)

 

Even

China

17%

 

+3

 

+3

Asia

13%

 

+4

 

+4

Europe (excluding Spain & Portugal)

9%

 

+3

 

+4

Latin America / Spain / Portugal

7%

 

+86

 

+86

Middle East / Turkey / North Africa

4%

 

+5

 

+6

Canada

2%

 

+8

 

+4

India

1%

 

+2

 

+7

Africa

<1%

 

+33

 

+31

1System sales ex F/X includes the benefit of our strategic alliance with Telepizza in the fourth-quarter 2018. Same-store sales reflects the inclusion of Telepizza in the prior year base.

2Refer to investors.yum.com under Financial Reports for a list of the countries within each of the markets.

3Reflects Full Year 2018. Europe and Latin America adjusted for transfer of reporting responsibility of Spain and Portugal Pizza Hut units from Europe to Latin America as a result of the Telepizza alliance.

TACO BELL DIVISION

 

Third-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2019

2018

Reported

Ex F/X

2019

2018

Reported

Ex F/X

Restaurants

7,191

 

6,942

 

+4

 

N/A

 

7,191

 

6,942

 

+4

 

N/A

System Sales ($MM)

2,772

 

2,604

 

+6

 

+7

 

8,005

 

7,440

 

+8

 

+8

Same-Store Sales Growth (%)

+4

 

+5

 

NM

 

NM

 

+5

 

+3

 

NM

 

NM

Franchise and Property Revenues ($MM)

158

 

142

 

+11

 

+11

 

460

 

404

 

+14

 

+14

Operating Profit ($MM)

161

 

161

 

Even

 

Even

 

458

 

442

 

+4

 

+4

Operating Margin (%)

32.9

 

31.5

 

1.4

 

1.4

 

32.4

 

30.3

 

2.1

 

2.1

Third-Quarter Highlights

  • Taco Bell Division opened 67 gross new restaurants in 13 countries.
  • Operating margin increased 1.4 percentage points driven by same-store sales growth and refranchising, partially offset by higher restaurant level costs.

OTHER ITEMS

  • Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the third-quarter Form 10-Q.
  • Our GAAP Effective Tax Rate and Effective Tax Rate excluding Special Items were positively impacted due to the reversal of a reserve of approximately $20 million we previously recorded in the fourth-quarter of 2018. The reversal related to the favorable resolution in the third-quarter of 2019 of a dispute concerning the income tax rate to be applied to our 2018 income in a foreign market.
  • During the third-quarter of 2019 Yum! Brands, Inc. issued $800 million of Senior Unsecured Notes. Proceeds were used to repay $250 million of existing Senior Unsecured Notes, repay amounts outstanding on the Revolving Facility and for general corporate purposes.



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