Yum! Brands: Reports Third-Quarter 2017 Results

Louisville / KY. (yb) Yum! Brands Inc. reported results for the third quarter ended September 30, 2017. Third-quarter GAAP EPS was USD 1.18, an increase of 115 percent. Third-quarter EPS excluding Special Items was USD 0.68, an increase of 22 percent.

Greg Creed, CEO, said «I’m pleased to report another strong quarter with 11 percent core operating profit growth and 22 percent EPS growth excluding special items, as a result of the continued focus on our four key growth drivers. We are maintaining our full-year 2017 guidance and remain on-track with our multi-year transformation strategy. As we celebrate both our 1st anniversary from the spin-off of Yum China and our 20th anniversary as an independent company, I am proud of our accomplishments. I’m especially proud of our ability to leverage our culture to rapidly transform to a more focused, more franchised and more efficient company which delivers more growth to our shareholders».

Third-quarter highlights

Worldwide system sales grew 6 percent, with KFC at 7 percent, Taco Bell at 6 percent and Pizza Hut at 3 percent.
We opened 362 net new units for 3 percent net unit growth.
We re-franchised 209 restaurants, including 72 KFC, 46 Pizza Hut and 91 Taco Bell units, for gross proceeds of USD 395 million. We recorded net re-franchising gains of USD 201 million in Special Items. As of quarter end, our global franchise ownership mix increased to 95 percent.
We repurchased 6.6 million shares totalling USD 501 million at an average price of USD 75.
Foreign currency translation favourably impacted divisional operating profit by USD 2 million.

.

% Change
System Sales Same-Store Sales Net New Units GAAP Operating Profit Core Operating Profit
KFC Division +7 +4 +4 +14 +13
Pizza Hut Division +3 +1 +2 (1) Even
Taco Bell Division +6 +3 +3 +3 +3
Worldwide +6 +3 +3 +61 +11

.

Third Quarter Year-to-Date
2017 2016 % Change 2017 2016 % Change
GAAP EPS USD 1.18 USD 0.55 +115 USD 2.52 USD 1.73 +46
Special Items EPS1 USD 0.50 USD (0.01) NM USD 0.51 USD 0.05 NM
EPS Excluding Special Items USD 0.68 USD 0.56 +22 USD 2.01 USD 1.68 +20

(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 four-week 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

Third Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
Restaurants 21’063 20’284 +4 N/A 21’063 20’284 +4 N/A
System Sales (USD MM) 6’282 5’833 +8 +7 17’688 16’818 +5 +6
Same-Store Sales Growth (%) +4 +2 NM NM +3 +2 NM NM
Franchise + License Fees (USD MM) 296 267 +11 +11 831 761 +9 +10
Restaurant Margin (%) 15.9 15.0 0.9 0.8 15.1 14.4 0.7 0.7
Operating Profit (USD MM) 260 230 +14 +13 710 618 +15 +16
Operating Margin (%) 32.8 29.2 3.6 3.9 30.9 26.8 4.1 4.3

.

Third Quarter (% Change)
Int’l Emerging Markets Int’l Developed Markets U.S.
System Sales Growth (Ex F/X) +11 +6 Even
Same-Store Sales Growth +5 +2 +1

.

KFC Division opened 291 new international restaurants in 51 countries, including 249 units in emerging markets.
Operating margin increased 3.6 percentage points driven by refranchising and same-store sales growth.
Foreign currency translation favorably impacted GAAP operating profit by USD 2 million.

.

KFC Markets(1) Percent of KFC System Sales(2) System Sales Growth Ex F/X
Third Quarter (%) Year-to-Date (%)
Emerging Markets
China(3) 26% +14 +8
Asia (e.g. Malaysia, Indonesia, Philippines) 6% +7 +8
Middle East / Türkiye / North Africa 5% (4) (1)
Latin America (e.g. Mexico, Peru) 4% +12 +13
Africa 4% +3 +4
Russia 3% +22 +24
Thailand 2% +9 +4
Continental Europe (e.g. Poland) 2% +15 +17
India 1% +8 +6
Developed Markets
U.S. 19% Even +1
Asia (e.g. Japan, Korea, Taiwan) 7% (2) Even
Australia 7% +6 +8
U.K. 6% +9 +7
Continental Europe (e.g. France, Germany) 5% +14 +11
Canada 2% +4 +4
Latin America (e.g. Puerto Rico) 1% (2) (1)

(1)Refer to www.yum.com for a list of the countries within each of the markets.
(2)Reflects Full Year 2016.
(3)Includes July, August and September; YUMC Q3 reported results include June, July and August.

Pizza Hut Division

Third Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
Restaurants 16’551 16’215 +2 N/A 16’551 16’215 +2 N/A
System Sales (USD MM) 2’966 2’884 +3 +3 8’665 8’629 Even +2
Same-Store Sales Growth (%) +1 (1) NM NM (1) (1) NM NM
Franchise + License Fees (USD MM) 148 145 +2 +2 433 433 Even +1
Restaurant Margin (%) 1.9 3.5 (1.6) (1.6) 6.0 7.9 (1.9) (1.9)
Operating Profit (USD MM) 82 84 (1) Even 250 256 (2) Even
Operating Margin (%) 40.5 33.3 7.2 7.3 38.0 32.0 6.0 6.3

.

Third Quarter (% Change)
Int’l Emerging Markets Int’l Developed Markets U.S.
System Sales Growth (Ex F/X) +7 +7 (1)
Same-Store Sales Growth Even +4 Even

.

Pizza Hut Division opened 192 new international restaurants in 47 countries, including 144 units in emerging markets.
Operating margin increased 7.2 percentage points driven by refranchising partially offset by higher franchise and license expense due to incremental advertising spend associated with the Transformation Agreement.

.

Pizza Hut Markets(1) Percent of Pizza Hut System Sales(2) System Sales Growth Ex F/X
Third Quarter (%) Year-to-Date (%)
Emerging Markets
China(3) 17% +7 +7
Latin America (e.g. Mexico, Peru) 5% +5 +5
Middle East / Türkiye / Africa 4% (2) +2
Asia (e.g. Malaysia, Indonesia, Philippines) 4% +16 +13
India 1% +7 +7
Continental Europe (e.g. Poland) 1% +13 +11
Developed Markets
U.S. 48% (1) (4)
Asia (e.g. Japan, Korea, Taiwan) 7% +1 +2
U.K. 5% +14 +7
Continental Europe (e.g. France, Germany) 4% +6 +4
Canada 2% Even +3
Australia 1% +35 +25
Latin America (e.g. Puerto Rico) 1% (2) Even

(1)Refer to www.yum.com for a list of the countries within each of the markets.
(2)Reflects Full Year 2016.
(3)Includes July, August and September; YUMC Q3 reported results include June, July and August.

Taco Bell Division

Third Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
Restaurants 6’738 6’515 +3 N/A 6’738 6’515 +3 N/A
System Sales (USD MM) 2’423 2’293 +6 +6 7’058 6’523 +8 +8
Same-Store Sales Growth (%) +3 +3 NM NM +5 +1 NM NM
Franchise + License Fees (USD MM) 124 115 +7 +7 358 327 +9 +9
Restaurant Margin (%) 21.9 21.7 0.2 0.2 22.1 21.7 0.4 0.4
Operating Profit (USD MM) 147 143 +3 +3 440 400 +10 +10
Operating Margin (%) 33.3 29.8 3.5 3.5 32.6 29.2 3.4 3.4

.

Taco Bell Division opened 70 new restaurants, including 15 international new restaurants.
Operating margin increased 3.5 percentage points driven by refranchising and same-store sales growth partially offset by food and labor inflation.

.

Other Items

Year-to-date through the end of the third quarter, we refranchised 574 restaurants, including 143 KFC, 245 Pizza Hut and 186 Taco Bell units, for gross proceeds of USD 716 million, recording net refranchising gains of USD 331 million in Special Items.
Year-to-date through the end of the third quarter, we repurchased 19.1 million shares totalling USD 1.3 billion at an average price of USD 69. As of quarter end, there was USD 588 million remaining under our current share repurchase authorization.
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.
bakenet:eu