YUM
$89.81
Yum! Brands
($.41)
(.45%)
Earnings Details
2nd Quarter June 2016
Wednesday, July 13, 2016 4:15:01 PM
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Summary

Yum! Brands Reports In-line

Yum! Brands (YUM) reported 2nd Quarter June 2016 earnings of $0.75 per share on revenue of $3.0 billion. The consensus earnings estimate was $0.74 per share on revenue of $3.1 billion. The Earnings Whisper number was $0.75 per share. Revenue fell 3.1% compared to the same quarter a year ago.

The company said it now expects 2016 earnings of at least $3.63 per share. The company's previous guidance was earnings of approximately $3.56 per share and the current consensus earnings estimate is $3.67 per share for the year ending December 31, 2016.

Yum Brands Inc through the three concepts of KFC, Pizza Hut and Taco Bell, develops, operates, franchises and licenses a system of restaurants which prepare, package and sell a menu of competitively priced food items.

Results
Reported Earnings
$0.75
Earnings Whisper
$0.75
Consensus Estimate
$0.74
Reported Revenue
$3.01 Bil
Revenue Estimate
$3.08 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Yum! Brands Reports Second-Quarter GAAP Operating Profit Growth of 32%; Delivered Core Operating Profit Growth of 7%; Raises Full-Year Core Operating Profit Growth Guidance to At Least 14%

Yum! Brands, Inc. (YUM) today reported results for the second quarter ended June 11, 2016, including GAAP EPS of $0.81 and EPS excluding Special Items of $0.75.

This Smart News Release features multimedia. View the full release here: http://www.businesswire.com/news/home/20160713006401/en/

Core operating profit growth figures exclude foreign currency translation ("F/X") and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide reported results. See reconciliation of non-GAAP measurements to GAAP results within this release for further details.

SECOND-QUARTER HIGHLIGHTS

Opened 373 new restaurants worldwide; 72% of international development occurred in emerging markets.

On track to finalize China separation with targeted completion date around October 31, 2016.

Foreign currency translation negatively impacted operating profit by $16 million.

% Change
System Sales
Same-Store
Units
GAAP
Core
(Ex F/X)
Sales
Operating
Operating
Profit
Profit
China Division
+3
Even
+6
+1
+6
KFC Division
+6
+2
+3
Even
+6
Pizza Hut Division
+1
Even
+1
+6
+7
Taco Bell Division
+2
(1)
+3
(1)
(1)
Worldwide
+3
Even
+3
+32
+7
Second Quarter
Year-to-Date
2016
2015
% Change
2016
2015
% Change
EPS Excluding Special Items
$0.75
$0.69
9%
$1.71
$1.50
14%
Special Items Gain/(Loss)(1)
$0.06
$(0.16)
NM
$0.03
$(0.16)
NM
EPS
$0.81
$0.53
54%
$1.74
$1.34
30%
(1)See Reconciliation of Non-GAAP Measurements to GAAP
Results for further detail of Special Items. Special Items in 2016
primarily related to gains associated with Pizza Hut U.S.
refranchising, costs associated with the agreement reached in 2015
with KFC U.S. franchisees and costs associated with the planned
separation of our China business and the Yum! recapitalization.
Special Items in 2015 are primarily related to a non-cash charge
associated with refranchising our Mexico business.
Note: All comparisons are versus the same period a year
ago. Effective January 2016, the Company’s India business
integrated its three restaurant brands into our global KFC, Pizza
Hut and Taco Bell Divisions. Prior year figures have been restated
to present comparable results.
Full-year GAAP operating profit growth guidance is not provided
due to our inability to forecast when gains and losses related to
refranchising transactions classified as Special Items will occur,
as the timing of these transactions is often outside our control,
and the resulting gains and losses are dependent upon future
market conditions. 2016 core operating profit growth guidance
assumes no separation of the China business.

GREG CREED COMMENTS

Greg Creed, CEO, said "Yum! Brands delivered second-quarter core operating profit growth of 7% and EPS growth, excluding Special Items, of 9%. Given our strong first-half results and current trends in China, I’m pleased to raise our full-year core operating profit growth forecast to at least 14% from 12% previously. I’m particularly pleased with the continued sales momentum at KFC China, which delivered better-than-expected same-store sales growth of 3%. This represents our fourth-consecutive quarter of positive same-store sales growth at KFC China despite the second quarter being our most difficult of the year from a historical sales overlap standpoint. Importantly, our China Division is off to a good start in the third quarter for both KFC and Pizza Hut Casual Dining, including a return to positive same-store sales at Pizza Hut Casual Dining in recent weeks.

Outside of China, challenging industry conditions in the U.S. contributed to soft sales results. However, our three brand divisions in the aggregate delivered core operating profit growth largely in-line with our expectations and remain on track to deliver against their full-year core operating profit growth targets. We’re confident in our plans to drive second-half sales improvement led by a continued focus on innovation, value and our core products.

This is a transformational year for our company as we remain on track to finalize the separation of our China business with a targeted completion date around October 31, 2016, ultimately creating two powerful, independent, focused growth companies. Our capital structure is fully in place and we plan to return a significant amount of capital to shareholders both prior to and after the spin. I look forward to sharing additional details on the transformative initiatives we are undertaking as we become a more heavily franchised company at our New York investor conference on Tuesday, October 11th."

CHINA DIVISION

Second Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
System Sales Growth
(1)
+3
+2
+7
Same-Store Sales Growth (%)
Even
(10)
NM
NM
+2
(11)
NM
NM
Franchise & License Fees ($MM)
30
28
+7
+12
55
49
+12
+18
Restaurant Margin (%)
15.7
14.6
1.1
1.1
18.7
16.4
2.3
2.3
Operating Profit ($MM)
147
144
+1
+6
403
334
+20
+26
Operating Margin (%)
9.2
8.8
0.4
0.4
13.9
11.6
2.3
2.3

China Division system sales increased 3%, excluding foreign currency translation. -- Same-store sales were even, with an increase of 3% at KFC, offset by a decline of 11% at Pizza Hut Casual Dining.

-- China Division opened 72 new units during the quarter.

China Units
Q2 2016
% Change(2)
Restaurants(1)
7,246
+6
KFC
5,039
+3
Pizza Hut
Casual Dining
1,610
+16
Home Service
339
+23
(1) Total includes East Dawning and Little Sheep units.
(2) Represents year-over-year change.

Operating profit was negatively impacted by an additional $14 million in closures and impairment expense versus prior year, as well as a $4 million expense related to our RGM convention. These expenses were partially offset by a benefit from recent value-added tax reform in China, which went into effect on May 1, 2016.

Foreign currency translation negatively impacted operating profit by $7 million.

Consistent with prior years, China Division’s second quarter includes March, April and May results.

KFC DIVISION

Second Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
Restaurants
15,003
14,619
+3
N/A
15,003
14,619
+3
N/A
System Sales Growth
+1
+6
(1)
+5
Same-Store Sales Growth (%)
+2
+2
NM
NM
+1
+3
NM
NM
Franchise & License Fees ($MM)
194
191
+1
+5
389
389
-
+6
Restaurant Margin (%)
14.5
14.5
-
-
14.7
14.5
0.2
0.1
Operating Profit ($MM)
149
149
-
+6
309
315
(2)
+5
Operating Margin (%)
21.0
20.5
0.5
0.5
23.1
22.7
0.4
0.3

KFC Division system sales increased 6%, excluding foreign currency translation.

Second Quarter (% Change)
Int’l Emerging Markets
Int’l Developed Markets
U.S.
System Sales Growth (Ex F/X)
+10
+4
Even
Same-Store Sales Growth
+2
+1
+2

KFC Division opened 132 new international restaurants in 42 countries, including 90 units in emerging markets. 88% of new international units were opened by franchisees.

Operating margin increased 0.5 percentage points driven by new-unit development.

Foreign currency translation negatively impacted operating profit by $9 million, as approximately 90% of division profits are generated outside the U.S.

KFC MARKETS(1)
Percent of KFC
SYSTEM Sales Growth Ex F/X
System Sales (2)
Second Quarter (%)
Year-to-Date (%)
Emerging Markets
Asia (e.g. Malaysia, Indonesia, Philippines)
7%
+11
+10
Africa
6%
+8
+8
Latin America (e.g. Mexico, Peru)
6%
+5
+5
Middle East / North Africa
6%
+4
+4
Russia
5%
+33
+31
Thailand
3%
+6
+6
Continental Europe (e.g. Poland)
3%
+17
+17
India
1%
(1)
(1)
Developed Markets
U.S.
24%
Even
Even
Australia
10%
+4
+5
Asia (e.g. Japan, Korea, Taiwan)
9%
+6
+6
U.K.
9%
+2
+1
Continental Europe (e.g. France, Germany)
7%
+9
+9
Canada
3%
+5
+5
Latin America (e.g. Puerto Rico)
1%
(5)
(4)
(1) See website www.yum.com/investors
for a list of the countries within each of the markets.
(2) Reflects Full Year 2015.

PIZZA HUT DIVISION

Second Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
Restaurants
14,176
14,013
+1
N/A
14,176
14,013
+1
N/A
System Sales Growth
Even
+1
Even
+3
Same-Store Sales Growth (%)
Even
Even
NM
NM
+1
Even
NM
NM
Franchise & License Fees ($MM)
121
121
+1
+3
254
249
+2
+4
Restaurant Margin (%)
9.4
9.9
(0.5)
(0.9)
10.3
10.8
(0.5)
(0.9)
Operating Profit ($MM)
64
60
+6
+7
151
141
+7
+8
Operating Margin (%)
25.8
22.5
3.3
3.0
29.5
26.2
3.3
2.9

Pizza Hut Division system sales increased 1%, excluding foreign currency translation.

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

Pizza Hut Division opened 84 new international restaurants in 38 countries, including 45 units in emerging markets. 94% of new international units were opened by franchisees.

Operating margin increased 3.3 percentage points, driven by reduced G&A.

Foreign currency translation negatively impacted operating profit by less than $1 million.

PIZZA HUT MARKETS(1)
Percent of Pizza Hut
SYSTEM Sales Growth Ex F/X
System Sales(2)
Second Quarter (%)
Year-to-Date (%)
Emerging Markets
Latin America (e.g. Mexico, Peru)
7%
+8
+9
Asia (e.g. Malaysia, Indonesia, Philippines)
5%
+5
+3
Middle East / North Africa
5%
(2)
+1
Continental Europe (e.g. Poland)
1%
+10
+12
India
1%
(7)
(6)
Developed Markets
U.S.
55%
Even
+2
Asia (e.g. Japan, Korea, Taiwan)
8%
(7)
(7)
U.K.
7%
+5
+5
Continental Europe (e.g. France, Germany)
5%
+8
+7
Canada
3%
+9
+10
Australia
2%
(3)
(7)
Latin America (e.g. Puerto Rico)
1%
Even
(2)
(1) See website www.yum.com/investors
for a list of the countries within each of the markets.
(2) Reflects Full Year 2015.

TACO BELL DIVISION

Second Quarter
Year-to-Date
%/ppts Change
%/ppts Change
2016
2015
Reported
Ex F/X
2016
2015
Reported
Ex F/X
Restaurants
6,468
6,263
+3
N/A
6,468
6,263
+3
N/A
System Sales Growth
+2
+2
+3
+3
Same-Store Sales Growth (%)
(1)
+6
NM
NM
Even
+6
NM
NM
Franchise & License Fees ($MM)
110
106
+4
+4
211
202
+5
+5
Restaurant Margin (%)
22.3
22.9
(0.6)
(0.7)
21.6
21.3
0.3
0.3
Operating Profit ($MM)
139
140
(1)
(1)
258
254
+1
+1
Operating Margin (%)
29.9
29.3
0.6
0.6
29.0
28.0
1.0
1.0

Taco Bell Division system sales increased 2%, driven by 3% unit growth and partially offset by a 1% decline in same-store sales.

Taco Bell Division opened 48 new restaurants; 88% of these new units were opened by franchisees.

Restaurant margin was 22.3%, a decrease of 0.6 percentage points driven by higher labor costs and store level investments. This was partially offset by favorable commodities pricing.

Operating margin increased 0.6 percentage points driven by new-unit development and reduced G&A.

SPECIAL ITEMS / SHARE REPURCHASE / RECAPITALIZATION UPDATE

During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that gave us brand marketing control, as well as an accelerated path to expanded menu offerings, improved assets and an enhanced customer experience. In connection with this agreement, we recognized a Special Items charge of $8 million during the quarter, primarily related to the funding of investments for new back-of-house equipment for franchisees.

During the quarter, we incurred a Special Items charge of $10 million for costs related to the planned separation of our China business and the Yum! recapitalization.

During the quarter, we refranchised 82 units outside of China, primarily related to Pizza Hut U.S., for proceeds of $83 million. We recorded refranchising gains of $53 million in Special Items.

Year-to-date through July 12, 2016, we repurchased 31.4 million shares totaling $2.4 billion at an average price of $77. Since we announced our intention to separate the China business, we have repurchased approximately $3.3 billion of shares at an average price of $76, reducing our share count by 42.9 million shares. This is part of our previously announced plan to return $6.2 billion of capital to shareholders in connection to the separation of our China business.

We have completed our recapitalization consisting of $6.9 billion of new debt in May and June 2016; $4.6 billion of this new debt was issued subsequent to the end of our second quarter.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the Company’s financial performance and strategies at 9:15 a.m. Eastern Time Thursday, July 14, 2016. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 34811599.

The call will be available for playback beginning at 12:30 p.m. Eastern Time Thursday, July 14, 2016 through midnight Wednesday, August 10, 2016. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 34811599.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website, www.yum.com/investors and selecting "Q2 2016 Earnings Conference Call" under "Events & Presentations."

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant-count details and definitions of terms are available online at www.yum.com/investors.

This announcement may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as "expect," "expectation," "believe," "anticipate," "may," "could," "intend," "belief," "plan," "estimate," "target," "predict," "likely," "will," "should," "forecast," "outlook" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events, including, without limitation, statements regarding the intended capital return to shareholders as well as the related borrowing required to fund such capital return, the planned separation of the Yum! Brands and Yum! China businesses, the timing of any such separation, the future earnings and performance as well as capital structure of Yum! Brands, Inc. or any of its businesses, including the Yum! Brands and Yum! China businesses on a standalone basis if the separation is completed. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to return capital to shareholders at the times and in the amounts currently anticipated, if at all, as well as the corresponding costs of borrowing to fund such capital return as well as other costs; whether the separation of the Yum! Brands and Yum! China businesses is completed, as expected or at all, and the timing of any such separation; whether the operational and strategic benefits of the separation can be achieved; whether the costs and expenses of the separation can be controlled within expectations, including potential tax costs; as well as other risks. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Forward-Looking Statements" in our Annual Report or Form 10-K) for additional detail about factors that could affect our financial and other results. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.yum.com/investors.

Yum! Brands, Inc., based in Louisville, Kentucky, has nearly 43,000 restaurants in almost 140 countries and territories. Yum! is ranked #218 on the Fortune 500 List with revenues of over $13 billion in 2015 and is one of the Aon Hewitt Top Companies for Leaders in North America. The Company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in global retail development.

YUM! Brands, Inc.
Condensed Consolidated Summary of Results
(amounts in millions, except per share amounts)
(unaudited)
Quarter ended
% Change
Year to date
% Change
6/11/16
6/13/15
B/(W)
6/11/16
6/13/15
B/(W)
Company sales
$ 2,554
$ 2,659
(4)
$
4,719
$
4,838
(2)
Franchise and license fees and income
454
446
(2)
908
889
2
Total revenues
3,008
3,105
(3)
5,627
5,727
(2)
Company restaurant expenses
Food and paper
764
841
9
1,413
1,529
8
Payroll and employee benefits
603
602
--
1,089
1,095
1
Occupancy and other operating expenses
779
805
3
1,376
1,421
3
Company restaurant expenses
2,146
2,248
5
3,878
4,045
4
General and administrative expenses
365
353
(3)
651
648
(1)
Franchise and license expenses
50
47
(8)
98
81
(20)
Closures and impairment (income) expenses
37
24
(60)
40
27
(52)
Refranchising (gain) loss
(53 )
68
NM
(60 )
58
NM
Other (income) expense
(28 )
(6 )
NM
(35 )
(9 )
NM
Total costs and expenses, net
2,517
2,734
8
4,572
4,850
6
Operating Profit
491
371
32
1,055
877
20
Interest expense, net
40
33
(22)
77
67
(15)
Income before income taxes
451
338
33
978
810
21
Income tax provision
116
102
(13)
248
213
(16)
Net income - including noncontrolling interests
335
236
42
730
597
22
Net income (loss) - noncontrolling interests
(4 )
1
NM
--
--
90
Net income - YUM! Brands, Inc.
$
339
$
235
44
$
730
$
597
22
Effective tax rate
25.8
%
30.4
%
4.6 ppts.
25.4
%
26.3
%
0.9 ppts.
Basic EPS Data
EPS
$
0.82
$
0.54
53
$
1.77
$
1.36
30
Average shares outstanding
410
437
6
413
437
6
Diluted EPS Data
EPS
$
0.81
$
0.53
54
$
1.74
$
1.34
30
Average shares outstanding
417
445
6
420
446
6
Dividends declared per common share
$
0.46
$
0.82
$
0.92
$
0.82

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.
CHINA DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended
% Change
Year to date
% Change
6/11/16
6/13/15
B/(W)
6/11/16
6/13/15
B/(W)
Company sales
$ 1,558
$ 1,608
(3)
$ 2,836
$ 2,843
--
Franchise and license fees and income
30
28
7
55
49
12
Total revenues
1,588
1,636
(3)
2,891
2,892
--
Company restaurant expenses
Food and paper
462
515
10
847
907
7
Payroll and employee benefits
342
333
(3)
587
577
(2)
Occupancy and other operating expenses
511
526
3
873
892
2
Company restaurant expenses
1,315
1,374
4
2,307
2,376
3
General and administrative expenses
102
100
(2)
168
168
--
Franchise and license expenses
5
5
1
9
9
3
Closures and impairment (income) expenses
31
17
(92)
31
19
(70)
Other (income) expense
(12 )
(4 )
NM
(27 )
(14 )
84
Total costs and expenses, net
1,441
1,492
3
2,488
2,558
3
Operating Profit
$
147
$
144
1
$
403
$
334
20
Company sales
100.0
%
100.0
%
100.0
%
100.0
%
Food and paper
29.6
32.0
2.4 ppts.
29.8
31.9
2.1 ppts.
Payroll and employee benefits
21.9
20.7
(1.2 ppts.)
20.7
20.3
(0.4 ppts.)
Occupancy and other operating expenses
32.8
32.7
(0.1 ppts.)
30.8
31.4
0.6 ppts.
Restaurant margin
15.7
%
14.6
%
1.1 ppts.
18.7
%
16.4
%
2.3 ppts.
Operating margin
9.2
%
8.8
%
0.4 ppts.
13.9
%
11.6
%
2.3 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.
KFC DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended
% Change
Year to date
% Change
6/11/16
6/13/15
B/(W)
6/11/16
6/13/15
B/(W)
Company sales
$
518
$ 535
(3)
$
948
$ 999
(5)
Franchise and license fees and income
194
191
1
389
389
--
Total revenues
712
726
(2)
1,337
1,388
(4)
Company restaurant expenses
Food and paper
176
183
4
321
344
7
Payroll and employee benefits
122
123
1
225
230
3
Occupancy and other operating expenses
145
151
4
263
280
6
Company restaurant expenses
443
457
3
809
854
5
General and administrative expenses
94
97
4
170
179
5
Franchise and license expenses
23
21
(9)
44
38
(16)
Closures and impairment (income) expenses
3
3
(33)
5
3
(79)
Other (income) expense
--
(1 )
(71)
--
(1 )
(75)
Total costs and expenses, net
563
577
3
1,028
1,073
4
Operating Profit
$
149
$ 149
--
$
309
$ 315
(2)
Company sales
100.0
%
100.0
%
100.0
%
100.0
%
Food and paper
34.0
34.4
0.4 ppts.
33.9
34.5
0.6 ppts.
Payroll and employee benefits
23.4
22.9
(0.5 ppts.)
23.6
23.0
(0.6 ppts.)
Occupancy and other operating expenses
28.1
28.2
0.1 ppts.
27.8
28.0
0.2 ppts.
Restaurant margin
14.5
%
14.5
%
--
14.7
%
14.5
%
0.2 ppts.
Operating margin
21.0
%
20.5
%
0.5 ppts.
23.1
%
22.7
%
0.4 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.
PIZZA HUT DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended
% Change
Year to date
% Change
6/11/16
6/13/15
B/(W)
6/11/16
6/13/15
B/(W)
Company sales
$
125
$
145
(14)
$
257
$ 289
(11)
Franchise and license fees and income
121
121
1
254
249
2
Total revenues
246
266
(7)
511
538
(5)
Company restaurant expenses
Food and paper
35
40
14
71
80
12
Payroll and employee benefits
39
45
12
80
89
10
Occupancy and other operating expenses
40
46
14
80
89
10
Company restaurant expenses
114
131
13
231
258
10
General and administrative expenses
56
63
9
106
120
11
Franchise and license expenses
10
9
(13)
20
18
(13)
Closures and impairment (income) expenses
2
3
32
3
3
8
Other (income) expense
--
--
NM
--
(2 )
(98)
Total costs and expenses, net
182
206
11
360
397
9
Operating Profit
$
64
$
60
6
$
151
$ 141
7
Company sales
100.0
%
100.0
%
100.0
%
100.0
%
Food and paper
27.5
27.5
--
27.4
27.7
0.3 ppts.
Payroll and employee benefits
31.5
30.9
(0.6 ppts.)
31.3
30.8
(0.5 ppts.)
Occupancy and other operating expenses
31.6
31.7
0.1 ppts.
31.0
30.7
(0.3 ppts.)
Restaurant margin
9.4
%
9.9
%
(0.5 ppts.)
10.3
%
10.8
%
(0.5 ppts.)
Operating margin
25.8
%
22.5
%
3.3 ppts.
29.5
%
26.2
%
3.3 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.
TACO BELL DIVISION Operating Results
(amounts in millions)
(unaudited)
Quarter ended
% Change
Year to date
% Change
6/11/16
6/13/15
B/(W)
6/11/16
6/13/15
B/(W)
Company sales
$ 353
$ 371
(5)
$ 678
$ 707
(4)
Franchise and license fees and income
110
106
4
211
202
5
Total revenues
463
477
(3)
889
909
(2)
Company restaurant expenses
Food and paper
91
103
11
174
198
12
Payroll and employee benefits
100
101
1
197
199
1
Occupancy and other operating expenses
83
82
(2)
160
160
--
Company restaurant expenses
274
286
4
531
557
4
General and administrative expenses
45
47
5
91
91
--
Franchise and license expenses
5
4
(70)
9
6
(46)
Closures and impairment (income) expenses
1
1
47
1
2
63
Other (income) expense
(1 )
(1 )
50
(1 )
(1 )
23
Total costs and expenses, net
324
337
4
631
655
3
Operating Profit
$ 139
$ 140
(1)
$ 258
$ 254
1
Company sales
100.0
%
100.0
%
100.0
%
100.0
%
Food and paper
25.9
27.8
1.9 ppts.
25.7
28.0
2.3 ppts.
Payroll and employee benefits
28.4
27.4
(1.0 ppts.)
29.1
28.2
(0.9 ppts.)
Occupancy and other operating expenses
23.4
21.9
(1.5 ppts.)
23.6
22.5
(1.1 ppts.)
Restaurant margin
22.3
%
22.9
%
(0.6 ppts.)
21.6
%
21.3
%
0.3 ppts.
Operating margin
29.9
%
29.3
%
0.6 ppts.
29.0
%
28.0
%
1.0 ppts.

See accompanying notes.

Percentages may not recompute due to rounding.

YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
6/11/16
12/26/15
ASSETS
Current Assets
Cash and cash equivalents
$
795
$
737
Accounts and notes receivable, less allowance: $18 in 2016 and $16
395
377
in 2015
Inventories
255
229
Prepaid expenses and other current assets
332
241
Advertising cooperative assets, restricted
102
103
Total Current Assets
1,879
1,687
Property, plant and equipment, net of accumulated depreciation and
4,096
4,189
amortization of $3,699 in 2016 and $3,643 in 2015
Goodwill
649
656
Intangible assets, net
264
271
Investments in unconsolidated affiliates
46
61
Other assets
528
521
Deferred income taxes
722
676
Total Assets
$
8,184
$
8,061
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current Liabilities
Accounts payable and other current liabilities
$
2,016
$
1,985
Income taxes payable
122
77
Short-term borrowings
39
922
Advertising cooperative liabilities
102
103
Total Current Liabilities
2,279
3,087
Long-term debt
5,324
3,041
Other liabilities and deferred credits
912
958
Total Liabilities
8,515
7,086
Redeemable noncontrolling interest
--
6
Shareholders’ Equity (Deficit)
Common stock, no par value, 750 shares authorized; 399 shares and
--
--
420 shares issued in 2016 and 2015, respectively
Retained earnings (deficit)
(123 )
1,150
Accumulated other comprehensive income (loss)
(266 )
(239 )
Total Shareholders’ Equity (Deficit) - YUM! Brands, Inc.
(389 )
911
Noncontrolling interests
58
58
Total Shareholders’ Equity (Deficit)
(331 )
969
Total Liabilities, Redeemable Noncontrolling Interest and
$
8,184
$
8,061
Shareholders’ Equity (Deficit)

See accompanying notes.

YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to date
6/11/16
6/13/15
Cash Flows - Operating Activities
Net income - including noncontrolling interests
$
730
$
597
Depreciation and amortization
314
326
Closures and impairment (income) expenses
40
27
Refranchising (gain) loss
(60 )
58
Contributions to defined benefit pension plans
(3 )
(78 )
Deferred income taxes
(43 )
(77 )
Equity income from investments in unconsolidated affiliates
(26 )
(16 )
Distributions of income received from unconsolidated affiliates
13
4
Excess tax benefit from share-based compensation
(26 )
(40 )
Share-based compensation expense
27
28
Changes in accounts and notes receivable
32
16
Changes in inventories
(29 )
21
Changes in prepaid expenses and other current assets
3
(27 )
Changes in accounts payable and other current liabilities
(44 )
17
Changes in income taxes payable
84
91
Changes in restricted cash
(81 )
(6 )
Other, net
(35 )
6
Net Cash Provided by Operating Activities
896
947
Cash Flows - Investing Activities
Capital spending
(343 )
(404 )
Changes in short-term investments, net
(51 )
(16 )
Proceeds from refranchising of restaurants
98
29
Other, net
8
39
Net Cash Used in Investing Activities
(288 )
(352 )
Cash Flows - Financing Activities
Proceeds from long-term debt
2,300
--
Repayments of long-term debt
(304 )
(7 )
Short-term borrowings by original maturity
More than three months - proceeds
1,400
--
More than three months - payments
(2,000 )
--
Three months or less, net
--
--
Revolving credit facilities, three months or less, net
37
65
Repurchase shares of Common Stock
(1,559 )
(287 )
Excess tax benefit from share-based compensation
26
40
Employee stock option proceeds
2
11
Dividends paid on Common Stock
(379 )
(355 )
Other, net
(61 )
(43 )
Net Cash Used in Financing Activities
(538 )
(576 )
Effect of Exchange Rate on Cash and Cash Equivalents
(12 )
39
Net Increase in Cash and Cash Equivalents
58
58
Cash and Cash Equivalents - Beginning of Period
737
578
Cash and Cash Equivalents - End of Period
$
795
$
636

See accompanying notes.

Reconciliation of Non-GAAP Measurements to GAAP Results (amounts in millions, except per share amounts) (unaudited)

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements which present earnings before Special Items and Operating profit on a basis before Special Items and foreign currency translation ("Core Operating Profit"). Included in Special Items are gains/(losses) associated with the costs associated with the planned spin-off of the China business and YUM recapitalization, costs associated with the KFC U.S. Acceleration Agreement, certain refranchising initiatives and the impact of redeeming the Little Sheep noncontrolling interest. These amounts are described in (c), (d), (e) and (f) in the accompanying notes.

The Company excludes Special Items and foreign currency translation impacts for the purposes of evaluating performance internally. Special Items are not included in any of our externally reported segment results. Additionally, we believe the elimination of the foreign currency translation impact provides better year-to-year comparability without the distortion of foreign currency fluctuations, which is quantified by translating current year results at prior year average exchange rates. These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings before Special Items and Core Operating Profit provide additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years to date ended June 11, 2016 and June 13, 2015 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

Quarter ended
Year to date
6/11/16
6/13/15
6/11/16
6/13/15
Detail of Special Items
Costs associated with the planned spin-off of the China business and
$
(10 )
$ --
$
(19 )
$ --
YUM recapitalization(c)
Costs associated with KFC U.S. Acceleration Agreement(d)
(8 )
(8 )
(17 )
(10 )
Refranchising initiatives(e)
53
(72 )
56
(65 )
Other Special Items Income (Expense)
(6 )
2
(6 )
2
Special Items Income (Expense) - Operating Profit
29
(78 )
14
(73 )
Tax Benefit (Expense) on Special Items
(13 )
3
(9 )
1
Special Items Income (Expense), net of tax - including
16
(75 )
5
(72 )
noncontrolling interests
Special Items Income (Expense), net of tax - noncontrolling interests(f)
(8 )
--
(8 )
--
Special Items Income (Expense), net of tax - Yum! Brands, Inc.
$
24
$
(75 )
$
13
$
(72 )
Average diluted shares outstanding
417
445
420
446
Special Items diluted EPS
$ 0.06
$
(0.16 )
$
0.03
$
(0.16 )
Reconciliation of Core Operating Profit to Reported Operating
Profit
Core Operating Profit
$
478
$
449
$ 1,085
$
950
Special Items Income (Expense)
29
(78 )
14
(73 )
Foreign Currency Impact on Reported Operating Profit
(16 )
N/A
(44 )
N/A
Reported Operating Profit
$
491
$
371
$ 1,055
$
877
Reconciliation of EPS Before Special Items to Reported EPS
Diluted EPS Before Special Items
$ 0.75
$
0.69
$
1.71
$
1.50
Special Items EPS
0.06
(0.16 )
0.03
(0.16 )
Reported EPS
$ 0.81
$
0.53
$
1.74
$
1.34
Reconciliation of Effective Tax Rate Before Special Items to
Reported Effective Tax Rate
Effective Tax Rate Before Special Items
24.6
%
25.6
%
24.8
%
24.4
%
Impact on Tax Rate as a result of Special Items
1.2
%
4.8
%
0.6
%
1.9
%
Reported Effective Tax Rate
25.8
%
30.4
%
25.4
%
26.3
%
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 6/11/16
China
KFC
Pizza
Taco
Corporate
Consolidated
Hut
Bell
and
Unallocated
Total revenues
$
1,588
$
712
$
246
$
463
$
(1 )
$
3,008
Company restaurant expenses
1,315
443
114
274
--
2,146
General and administrative expenses
102
94
56
45
68
365
Franchise and license expenses
5
23
10
5
7
50
Closures and impairment (income) expenses
31
3
2
1
--
37
Refranchising (gain) loss
--
--
--
--
(53 )
(53 )
Other (income) expense
(12 )
--
--
(1 )
(15 )
(28 )
1,441
563
182
324
7
2,517
Operating Profit (loss)
$
147
$
149
$
64
$
139
$
(8 )
$
491
Quarter Ended 6/13/15
China
KFC
Pizza
Taco
Corporate
Consolidated
Hut
Bell
and
Unallocated
Total revenues
$
1,636
$
726
$
266
$
477
$ --
$
3,105
Company restaurant expenses
1,374
457
131
286
--
2,248
General and administrative expenses
100
97
63
47
46
353
Franchise and license expenses
5
21
9
4
8
47
Closures and impairment (income) expenses
17
3
3
1
--
24
Refranchising (gain) loss
--
--
--
--
68
68
Other (income) expense
(4 )
(1 )
--
(1 )
--
(6 )
1,492
577
206
337
122
2,734
Operating Profit (loss)
$
144
$
149
$
60
$
140
$
(122 )
$
371

The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Year to Date 6/11/16
China
KFC
Pizza
Taco
Corporate
Consolidated
Hut
Bell
and
Unallocated
Total revenues
$
2,891
$
1,337
$
511
$
889
$
(1 )
$
5,627
Company restaurant expenses
2,307
809
231
531
--
3,878
General and administrative expenses
168
170
106
91
116
651
Franchise and license expenses
9
44
20
9
16
98
Closures and impairment (income) expenses
31
5
3
1
--
40
Refranchising (gain) loss
--
--
--
--
(60 )
(60 )
Other (income) expense
(27 )
--
--
(1 )
(7 )
(35 )
2,488
1,028
360
631
65
4,572
Operating Profit (loss)
$
403
$
309
$
151
$
258
$
(66 )
$
1,055
Year to Date 6/13/15
China
KFC
Pizza
Taco
Corporate
Consolidated
Hut
Bell
and
Unallocated
Total revenues
$
2,892
$
1,388
$
538
$
909
$ --
$
5,727
Company restaurant expenses
2,376
854
258
557
--
4,045
General and administrative expenses
168
179
120
91
90
648
Franchise and license expenses
9
38
18
6
10
81
Closures and impairment (income) expenses
19
3
3
2
--
27
Refranchising (gain) loss
--
--
--
--
58
58
Other (income) expense
(14 )
(1 )
(2 )
(1 )
9
(9 )
2,558
1,073
397
655
167
4,850
Operating Profit (loss)
$
334
$
315
$
141
$
254
$
(167 )
$
877
Notes to the Condensed Consolidated Summary of Results,
Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
(a)
Amounts presented as of and for the quarter and year to date ended
June 11, 2016 are preliminary.
(b)
Other (income) expense for the China Division primarily consists of
equity (income) loss from investments in unconsolidated affiliates.
(c)
In connection with our planned separation of the YUM China business
into an independent, publicly-traded company and the related
recapitalization of YUM, we incurred $10 million and $19 million of
costs in the quarter and year to date ended June 11, 2016,
respectively, which were recorded in General and administrative
("G&A") expenses.
(d)
During the first quarter of 2015, we reached an agreement with our
KFC U.S. franchisees that gave us brand marketing control as well as
an accelerated path to improved assets and customer experience. In
connection with this agreement we recognized Special Item charges of
$8 million for both the quarters ended June 11, 2016 and June 13,
2015. During the years to date ended June 11, 2016 and June 13,
2015, we recognized Special Item charges of $17 million and $10
million, respectively. The majority of these costs were recorded in
Franchise and license expense. These charges primarily related to
the funding of investments for new back-of-house equipment for
franchisees.
(e)
We have historically recorded refranchising gains and losses in the
U.S. as Special Items due to the scope of our refranchising program
and the volatility in associated gains and losses. Beginning in
2016, we are also including all international refranchising gains
and losses, excluding China, in Special Items. The inclusion in
Special Items of these additional international refranchising gains
and losses is the result of the anticipated size and volatility of
refranchising initiatives outside the U.S. that will take place in
connection with our previously announced plans to have 96% franchise
ownership by the end of 2017. During the quarters ended June 11,
2016 and June 13, 2015 we recorded a refranchising gain of $53
million and a refranchising loss of $72 million, respectively, that
have been reflected as Special Items. During the years to date ended
June 11, 2016 and June 13, 2015 we recorded a refranchising gain of
$56 million and a refranchising loss of $65 million, respectively,
that have been reflected as Special Items.
The second quarter 2016 refranchising gains relate primarily to
refranchising Pizza Hut restaurants in the U.S.
In 2010 we refranchised our then-remaining Company-operated
restaurants in Mexico. To the extent we owned real estate related
to these restaurants, we did not sell the real estate, but instead
leased it to the franchisee. During the quarter ended June 13,
2015 we initiated plans to sell this real estate and determined it
was held for sale in accordance with GAAP. The sales price we
expected to receive for this real estate exceeded its book value.
However, the sale of the real estate represented a substantial
liquidation of our Mexican operations under GAAP. Accordingly, we
were required to include accumulated translation losses associated
with our Mexican business within our held for sale impairment
evaluations. As such, we recorded a $68 million non-cash charge to
Refranchising Loss, consisting of losses of $36 million and $32
million for our KFC and Pizza Hut Divisions, respectively. This
loss represented the excess of the sum of the book value of the
real estate and related assets, an insignificant amount of
goodwill and our accumulated translation losses over the expected
sales price. We subsequently sold this real estate in 2015.
(f)
During the quarter ended June 11, 2016, the Little Sheep founding
shareholders exercised their redemptive rights and sold their
remaining 7% Little Sheep ownership interest to YUM. The
difference between the purchase price and the carrying value of
this redeemable noncontrolling interest was recorded as an $8
million loss attributable to noncontrolling interest, which was
reflected as a Special Item consistent with the 2012 Little Sheep
acquisition gain and subsequent impairments.

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SOURCE: Yum! Brands, Inc.

Yum! Brands, Inc.
Analysts:
Donny Lau, 888-298-6986
Senior Director, Investor Relations & Corporate Strategy
or
Elizabeth Grenfell, 888-298-6986
Director, Investor Relations
or
Media:
Virginia Ferguson, 502-874-8200
Director, Public Relations