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Yum! Brands: Reports Second-Quarter 2017 Results

Louisville / KY. (yb) Yum! Brands Inc. reported results for the second quarter ended June 30, 2017. Second-quarter GAAP EPS was USD 0.58, a decrease of 10 percent. Second-quarter EPS excluding Special Items was USD 0.68, an increase of 21 percent. Chief Executive Greg Creed: «I’m pleased Yum! Brands’ intensified focus on our four distinct growth drivers helped deliver another successful quarter. Core operating profit grew 19 percent and EPS excluding special items grew 21 percent during the second quarter. We are maintaining our full-year 2017 guidance and are on pace with our multi-year transformation strategy designed to further unlock shareholder value».

Second-Quarter Highlights

  • Worldwide system sales grew 6 percent, with KFC and Taco Bell at 7 percent and Pizza Hut at 2 percent.
  • We opened 174 net new units for 3 percent net new unit growth.
  • We refranchised 244 restaurants, including 40 KFC, 163 Pizza Hut and 41 Taco Bell units, for proceeds of USD 136 million. We recorded refranchising gains of USD 19 million in Special Items. As of quarter end, our global franchise ownership mix was 94 percent.
  • We repurchased 5.6 million shares totaling USD 384 million at an average price of USD 68. As of quarter end, there was approximately USD 1.1 billion remaining in share repurchase authorization through year end 2017.
  • Foreign currency translation negatively impacted GAAP operating profit by USD 6 million.
 % Change       System Sales     Same-Store Sales     Net New Units     GAAP Operating Profit     Core Operating Profit
KFC Division +7 +3 +4 +19 +21
Pizza Hut Division +2 (1) +2 +4 +7
Taco Bell Division +7 +4 +3 +10 +10
Worldwide +6 +2 +3 +1 +19

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Second Quarter Year-to-Date
2017 2016 % Change 2017 2016 % Change
GAAP EPS USD0.58 USD0.64 (10) USD1.34 USD1.18 +14
Special Items EPS1 USD(0.10) USD0.08 NM USD0.01 USD0.06 NM
EPS Excluding Special Items USD0.68 USD0.56 +21 USD1.33 USD1.12 +19
1 See Reconciliation of GAAP results to non-GAAP measurements within this release for further detail of Special Items.

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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 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

Second Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
Restaurants 20’854 20’125 +4 N/A 20’854 20’125 +4 N/A
System Sales Growth +5 +7 +4 +6
Same-Store Sales Growth (%) +3 +3 NM NM +3 +3 NM NM
Franchise + License Fees (USDMM) 278 251 +11 +13 535 494 +8 +10
Restaurant Margin (%) 15.7 14.6 1.1 1.0 14.7 14.0 0.7 0.7
Operating Profit (USDMM) 243 203 +19 +21 450 388 +16 +18
Operating Margin (%) 31.5 26.1 5.4 5.5 29.9 25.6 4.3 4.5

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  • KFC Division system sales increased 7 percent, excluding foreign currency translation.
Second Quarter (% Change)
Int’l Emerging Markets Int’l Developed Markets U.S.
System Sales Growth (Ex F/X) +9 +7 +1
Same-Store Sales Growth +4 +4 +2

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  • KFC Division opened 241 new international restaurants in 56 countries, including 202 units in emerging markets.
  • Operating margin increased 5.4 percentage points driven by same-store sales growth, refranchising, reduced G+A and higher initial and renewal fee income partially offset by higher restaurant operating costs.
  • Foreign currency translation negatively impacted GAAP operating profit by USD 4 million.
KFC Markets1 Percent of KFC System Sales2 System Sales Growth Ex F/X
Second Quarter (%) Year-to-Date (%)
Emerging Markets
China3 26% +8 +6
Asia (e.g. Malaysia, Indonesia, Philippines) 6% +11 +9
Middle East / Turkey / North Africa 5% +3 +1
Latin America (e.g. Mexico, Peru) 4% +14 +13
Africa 4% +4 +5
Russia 3% +22 +25
Thailand 2% (2) +2
Continental Europe (e.g. Poland) 2% +17 +18
India 1% +9 +6
Developed Markets
U.S. 19% +1 +2
Asia (e.g. Japan, Korea, Taiwan) 7% +4 +1
Australia 7% +9 +8
U.K. 6% +6 +6
Continental Europe (e.g. France, Germany) 5% +11 +10
Canada 2% +5 +5
Latin America (e.g. Puerto Rico) 1% (2) Even
1 Refer to www.yum.com/investors for a list of the countries within each of the markets.
2 Reflects Full Year 2016.
3 Includes April, May and June; YUMC Q2 reported results include March, April and May.

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Pizza Hut Division

Second Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
Restaurants 16’452 16’178 +2 N/A 16’452 16’178 +2 N/A
System Sales Growth Even +2 (1) +1
Same-Store Sales Growth (%) (1) (1) NM NM (2) (1) NM NM
Franchise + License Fees (USDMM) 141 142 Even +1 285 288 (1) Even
Restaurant Margin (%) 8.5 9.4 (0.9) (1.0) 7.4 9.7 (2.3) (2.3)
Operating Profit (USDMM) 85 81 +4 +7 168 172 (3) Even
Operating Margin (%) 38.1 30.3 7.8 8.1 36.8 31.4 5.4 5.8

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  • Pizza Hut Division system sales increased 2 percent, excluding foreign currency translation.
Second Quarter (% Change)
Int’l Emerging Markets Int’l Developed Markets U.S.
System Sales Growth (Ex F/X) +8 +5 (4)
Same-Store Sales Growth +2 Even (3)

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  • Pizza Hut Division opened 142 new international restaurants in 42 countries, including 103 units in emerging markets.
  • Operating margin increased 7.8 percentage points driven by refranchising partially offset by increased G+A related to litigation costs.
  • Foreign currency translation negatively impacted GAAP operating profit by USD 2 million.
Pizza Hut Markets1 Percent of Pizza Hut System Sales2 System Sales Growth Ex F/X
Second Quarter (%) Year-to-Date (%)
Emerging Markets
China3 17% +6 +7
Latin America (e.g. Mexico, Peru) 5% +6 +5
Middle East / Turkey / Africa 4% +7 +5
Asia (e.g. Malaysia, Indonesia, Philippines) 4% +17 +12
India 1% +8 +7
Continental Europe (e.g. Poland) 1% +13 +10
Developed Markets
U.S. 48% (4) (5)
Asia (e.g. Japan, Korea, Taiwan) 7% +4 +2
U.K. 5% +4 +4
Continental Europe (e.g. France, Germany) 4% +4 +3
Canada 2% +5 +5
Australia 1% +19 +20
Latin America (e.g. Puerto Rico) 1% (5) +1
1 Refer to www.yum.com/investors for a list of the countries within each of the markets.
2 Reflects Full Year 2016.
3 Includes April, May and June; YUMC Q2 reported results include March, April and May.

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Taco Bell Division

Second Quarter Year-to-Date
%/ppts Change %/ppts Change
2017 2016 Reported Ex F/X 2017 2016 Reported Ex F/X
Restaurants 6’686 6’466 +3 N/A 6’686 6’466 +3 N/A
System Sales Growth +7 +7 +10 +10
Same-Store Sales Growth (%) +4 (1) NM NM +6 Even NM NM
Franchise + License Fees (USDMM) 120 111 +8 +8 234 212 +11 +11
Restaurant Margin (%) 22.8 22.3 0.5 0.5 22.3 21.6 0.7 0.7
Operating Profit (USDMM) 152 139 +10 +10 293 257 +14 +14
Operating Margin (%) 33.4 29.8 3.6 3.6 32.3 28.9 3.4 3.4

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  • Taco Bell Division system sales increased 7 percent.
  • Taco Bell Division opened 56 new restaurants.
  • Restaurant margin was 22.8 percent, an increase of 0.5 percentage points, driven by same-store sales growth partially offset by food and labor inflation.
  • Operating margin increased 3.6 percentage points driven by same-store sales growth, reduced G+A including lower litigation costs and refranchising partially offset by food and labor inflation.

Other Items

  • During the quarter, we recorded a non-cash charge of USD 16 million in Special Items related to the ongoing impact of share-based compensation award modifications made at the time of the separation of Yum China Holdings Inc.
  • On May 1, 2017, we entered into a Transformation Agreement with Pizza Hut U.S. franchisees that will improve brand marketing alignment, accelerate enhancements to operations and technology and permanently increase advertising, digital and technology contributions from franchisees. In connection with this agreement, we recognized a Special Items charge of USD 12 million during the quarter primarily related to investments for digital initiatives.
  • On June 15, 2017, our Restricted Group subsidiaries that operate the company’s KFC, Pizza Hut and Taco Bell businesses issued USD 750 million aggregate principal amount of 4.75 percent Senior Notes due 2027.
  • Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the second quarter Form 10-Q.