Yum! Brands, Inc. (NYSE: YUM) today reported results for the third quarter ended September 30, 2017. Third-quarter GAAP EPS was $1.18, an increase of 115%. Third-quarter EPS excluding Special Items was $0.68, an increase of 22%.
GREG CREED COMMENTS
Greg Creed, CEO, said “I’m pleased to report another strong quarter with 11% core operating profit growth and 22% 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 1 st anniversary from the spin-off of Yum China and our 20 th 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%, with KFC at 7%, Taco Bell at 6% and Pizza Hut at 3%. |
| ● | We opened 362 net new units for 3% net unit growth. |
| ● | We refranchised 209 restaurants, including 72 KFC, 46 Pizza Hut and 91 Taco Bell units, for gross proceeds of $395 million. We recorded net refranchising gains of $201 million in Special Items. As of quarter end, our global franchise ownership mix increased to 95%. |
| ● | We repurchased 6.6 million shares totaling $501 million at an average price of $75. |
| ● | Foreign currency translation favorably impacted divisional operating profit by $2 million. |
| % Change | ||||||||||
| System Sales | Same-Store | Net New Units | GAAP | Core | ||||||
| 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 | $1.18 | $0.55 | +115 | $2.52 | $1.73 | +46 | ||||||
| Special Items EPS 1 | $0.50 | $(0.01) | NM | $0.51 | $0.05 | NM | ||||||
| EPS Excluding Special Items | $0.68 | $0.56 | +22 | $2.01 | $1.68 | +20 | ||||||
1 See Reconciliation of GAAP results to non-GAAP measurements within this release for further detail of Special Items.
System sales growth figures exclude foreign currency translation ("F/X") and core operating profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of GAAP results to non-GAAP measurements within this release for further details.
All comparisons are versus the same period a year ago. Effective January 2017, we removed the reporting lags from our international subsidiary fiscal calendars. To accommodate these changes, Yum! Brands now reports on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 four-week periods in each quarter, respectively. Prior year figures in this earnings release have been restated to present comparable results. An 8-K was filed on April 13, 2017 with restated quarterly 2016 results.
KFC DIVISION
| Third Quarter | Year-to-Date | |||||||||||||||
| %/ppts Change | %/ppts Change | |||||||||||||||
| 2017 | 2016 | Reported | Ex F/X | 2017 | 2016 | Reported | Ex F/X | |||||||||
| Restaurants | 21,063 | 20,284 | +4 | N/A | 21,063 | 20,284 | +4 | N/A | ||||||||
| System Sales ($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 ($MM) | 296 | 267 | +11 | +11 | 831 | 761 | +9 | +10 | ||||||||
| Restaurant Margin (%) | 15.9 | 15.0 | 0.9 | 0.8 | 15.1 | 14.4 | 0.7 | 0.7 | ||||||||
| Operating Profit ($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 $2 million. |
| KFC Markets1 | Percent of KFC System Sales2 | System Sales Growth Ex F/X | ||||
| Third Quarter (%) | Year-to-Date (%) | |||||
| Emerging Markets | ||||||
| China 3 | 26% | +14 | +8 | |||
| Asia (e.g. Malaysia, Indonesia, Philippines) | 6% | +7 | +8 | |||
| Middle East / Turkey / North Africa | 5% | (4) | (1) | |||
| Latin America (e.g. Mexico, Peru) | 4% | +12 | +13 | |||
| Africa | 4% | +3 | +4 | |||
| Russia | 3% | +22 | +24 | |||
| Thailand | 2% | +9 | +4 | |||
| Continental Europe (e.g. Poland) | 2% | +15 | +17 | |||
| India | 1% | +8 | +6 | |||
| Developed Markets | ||||||
| U.S. | 19% | Even | +1 | |||
| Asia (e.g. Japan, Korea, Taiwan) | 7% | (2) | Even | |||
| Australia | 7% | +6 | +8 | |||
| U.K. | 6% | +9 | +7 | |||
| Continental Europe (e.g. France, Germany) | 5% | +14 | +11 | |||
| Canada | 2% | +4 | +4 | |||
| Latin America (e.g. Puerto Rico) | 1% | (2) | (1) | |||
1 Refer to www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets.
2 Reflects Full Year 2016.
3 Includes July, August and September; YUMC Q3 reported results include June, July and August.
PIZZA HUT DIVISION
| Third Quarter | Year-to-Date | |||||||||||||||
| %/ppts Change | %/ppts Change | |||||||||||||||
| 2017 | 2016 | Reported | Ex F/X | 2017 | 2016 | Reported | Ex F/X | |||||||||
| Restaurants | 16,551 | 16,215 | +2 | N/A | 16,551 | 16,215 | +2 | N/A | ||||||||
| System Sales ($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 ($MM) | 148 | 145 | +2 | +2 | 433 | 433 | Even | +1 | ||||||||
| Restaurant Margin (%) | 1.9 | 3.5 | (1.6) | (1.6) | 6.0 | 7.9 | (1.9) | (1.9) | ||||||||
| Operating Profit ($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 Markets1 | Percent of Pizza | 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 / Turkey / 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/investors/financial-information/financial-reports 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 ($MM) | 2,423 | 2,293 | +6 | +6 | 7,058 | 6,523 | +8 | +8 | ||||||||
| Same-Store Sales Growth (%) | +3 | +3 | NM | NM | +5 | +1 | NM | NM | ||||||||
| Franchise & License Fees ($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 ($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 | ||||||||