YUM
$79.18
Yum! Brands
($.05)
(.06%)
Earnings Details
3rd Quarter September 2017
Thursday, November 02, 2017 7:00:03 AM
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Summary

Yum! Brands Misses

Yum! Brands (YUM) reported 3rd Quarter September 2017 earnings of $0.68 per share on revenue of $1.4 billion. The consensus earnings estimate was $0.66 per share on revenue of $1.4 billion. The Earnings Whisper number was $0.69 per share. Revenue fell 56.7% compared to the same quarter a year ago.

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
$0.68
Earnings Whisper
$0.69
Consensus Estimate
$0.66
Reported Revenue
$1.44 Bil
Revenue Estimate
$1.39 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Yum! Brands Reports Third-Quarter GAAP Operating Profit Growth of 61%; Delivers Third-Quarter Core Operating Profit Growth of 11%; Maintains Full-Year Core Operating Profit Growth Guidance

Yum! Brands, Inc. (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%.

This press release features multimedia. View the full release here: http://www.businesswire.com/news/home/20171102005405/en/

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 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

a- Worldwide system sales grew 6%, with KFC at 7%, Taco Bell at 6% and
Pizza Hut at 3%.
a- We opened 362 net new units for 3% net unit growth.
a- 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%.
a- We repurchased 6.6 million shares totaling $501 million at an
average price of $75.
a- Foreign currency translation favorably impacted divisional operating
profit by $2 million.
% Change
System Sales
Same-Store
Net New Units
GAAP
Core
Sales
Operating Profit
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
$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
a- KFC Division opened 291 new international restaurants in 51
countries, including 249 units in emerging markets.
a- Operating margin increased 3.6 percentage points driven by
refranchising and same-store sales growth.
a- Foreign currency translation favorably impacted GAAP operating
profit by $2 million.
KFC Markets(1)
Percent of KFC
System Sales Growth Ex F/X
System Sales(2)
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
a- Pizza Hut Division opened 192 new international restaurants in 47
countries, including 144 units in emerging markets.
a- 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
System Sales Growth Ex F/X
Hut System Sales(2)
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
a- Taco Bell Division opened 70 new restaurants, including 15
international new restaurants.
a- Operating margin increased 3.5 percentage points driven by
refranchising and same-store sales growth partially offset by food
and labor inflation.

OTHER ITEMS

a- 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 $716 million, recording net
refranchising gains of $331 million in Special Items.
a- Year-to-date through the end of the third quarter, we repurchased
19.1 million shares totaling $1.3 billion at an average price of
$69. As of quarter end, there was $588 million remaining under our
current share repurchase authorization.
a- 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.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company’s financial performance and strategies at 8:15 a.m. Eastern Time Thursday, November 2, 2017. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 93593025.

The call will be available for playback beginning at 11:15 a.m. Eastern Time Thursday, November 2, 2017 through Wednesday, December 6, 2017. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 93593025.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ website, www.yum.com/investors/events-presentations and selecting "Q3 2017 Yum! Brands, Inc. Earnings Conference Call."

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at www.yum.com/investors/financial-information/financial-reports. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within this release.

FORWARD-LOOKING STATEMENTS

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," "seek," "project," "model," "ongoing," "will," "should," "forecast," "outlook" or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; the success of our franchisees and licensees; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including disagreements with taxing authorities; consumer preferences and perceptions of our brands; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; and risks relating to our significant amount of indebtedness. 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.

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. 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 most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 44,000 restaurants in more than 135 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. In 2017, Yum! Brands was named to the Dow Jones Sustainability North America Index and among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. 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
9/30/17
9/30/16
B/(W)
9/30/17
9/30/16
B/(W)
Company sales
$
871
$
992
(12)
$
2,682
$ 2,951
(9)
Franchise and license fees and income
565
526
7
1,619
1,519
7
Total revenues
1,436
1,518
(5)
4,301
4,470
(4)
Company restaurant expenses
Food and paper
275
303
10
831
897
7
Payroll and employee benefits
224
260
14
707
780
9
Occupancy and other operating expenses
218
268
18
685
798
14
Company restaurant expenses
717
831
14
2,223
2,475
10
General and administrative expenses
215
270
20
699
767
9
Franchise and license expenses
61
40
(53)
161
145
(12)
Closures and impairment (income) expenses
1
1
74
3
10
77
Refranchising (gain) loss
(201 )
(21 )
NM
(331 )
(75 )
NM
Other (income) expense
--
(1 )
NM
--
(14 )
NM
Total costs and expenses, net
793
1,120
29
2,755
3,308
17
Operating Profit
643
398
61
1,546
1,162
33
Other pension (income) expense
10
(1 )
NM
42
(2 )
NM
Interest expense, net
109
98
(11)
322
191
(69)
Income from continuing operations before income taxes
524
301
75
1,182
973
22
Income tax provision
106
83
(28)
278
263
(6)
Income from continuing operations
418
218
92
904
710
27
Income from discontinued operations, net of tax
--
422
NM
--
630
NM
Net Income
418
640
(35)
904
1,340
(33)
Effective tax rate from Continuing Operations
20.2 %
27.5 %
7.3 ppts.
23.5 %
27.0 %
3.5 ppts.
Basic EPS from Continuing Operations
EPS
$
1.21
$ 0.56
116
$
2.58
$
1.76
47
Average shares outstanding
345
388
11
351
404
13
Diluted EPS from Continuing Operations
EPS
$
1.18
$ 0.55
115
$
2.52
$
1.73
46
Average shares outstanding
353
395
11
358
410
13
Basic EPS from Discontinued Operations
EPS
N/A
$ 1.09
NM
N/A
$
1.56
NM
Average shares outstanding
N/A
388
NM
N/A
404
NM
Diluted EPS from Discontinued Operations
EPS
N/A
$ 1.07
NM
N/A
$
1.54
NM
Average shares outstanding
N/A
395
NM
N/A
410
NM
Dividends declared per common share
$ --
$ 0.51
$
0.60
$
1.43
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
9/30/17
9/30/16
B/(W)
9/30/17
9/30/16
B/(W)
Company sales
$
498
$
520
(4)
$
1,465
$
1,541
(5)
Franchise and license fees and income
296
267
11
831
761
9
Total revenues
794
787
1
2,296
2,302
--
Company restaurant expenses
Food and paper
172
178
3
504
526
4
Payroll and employee benefits
114
120
5
345
362
5
Occupancy and other operating expenses
133
144
8
395
432
9
Company restaurant expenses
419
442
5
1,244
1,320
6
General and administrative expenses
85
89
5
259
276
6
Franchise and license expenses
29
26
(11)
80
82
2
Closures and impairment (income) expenses
1
--
NM
3
6
51
Other (income) expense
--
--
NM
--
--
NM
Total costs and expenses, net
534
557
4
1,586
1,684
6
Operating Profit
$
260
$
230
14
$
710
$
618
15
Company sales
100.0 %
100.0 %
100.0 %
100.0 %
Food and paper
34.5 %
34.2 %
(0.3) ppts.
34.4 %
34.1 %
(0.3) ppts.
Payroll and employee benefits
23.0 %
23.2 %
0.2 ppts.
23.6 %
23.5 %
(0.1) ppts.
Occupancy and other operating expenses
26.6 %
27.6 %
1.0 ppts.
26.9 %
28.0 %
1.1 ppts.
Restaurant margin
15.9 %
15.0 %
0.9 ppts.
15.1 %
14.4 %
0.7 ppts.
Operating margin
32.8 %
29.2 %
3.6 ppts.
30.9 %
26.8 %
4.1 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
9/30/17
9/30/16
B/(W)
9/30/17
9/30/16
B/(W)
Company sales
$
55
$ 106
(47)
$
226
$ 366
(38)
Franchise and license fees and income
148
145
2
433
433
--
Total revenues
203
251
(19)
659
799
(17)
Company restaurant expenses
Food and paper
16
29
46
65
101
36
Payroll and employee benefits
19
35
45
74
116
36
Occupancy and other operating expenses
19
38
49
73
120
38
Company restaurant expenses
54
102
47
212
337
37
General and administrative expenses
44
55
21
151
170
12
Franchise and license expenses
21
11
(91)
44
35
(27)
Closures and impairment (income) expenses
--
1
NM
--
3
NM
Other (income) expense
2
(2 )
NM
2
(2 )
NM
Total costs and expenses, net
121
167
28
409
543
25
Operating Profit
$
82
$
84
(1)
$
250
$ 256
(2)
Company sales
100.0 %
100.0 %
100.0 %
100.0 %
Food and paper
29.0 %
28.1 %
(0.9) ppts.
28.7 %
27.7 %
(1.0) ppts.
Payroll and employee benefits
34.4 %
33.0 %
(1.4) ppts.
32.7 %
31.8 %
(0.9) ppts.
Occupancy and other operating expenses
34.7 %
35.4 %
0.7 ppts.
32.6 %
32.6 %
--
Restaurant margin
1.9 %
3.5 %
(1.6) ppts.
6.0 %
7.9 %
(1.9) ppts.
Operating margin
40.5 %
33.3 %
7.2 ppts.
38.0 %
32.0 %
6.0 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
9/30/17
9/30/16
B/(W)
9/30/17
9/30/16
B/(W)
Company sales
$
318
$
366
(13)
$
991
$ 1,044
(5)
Franchise and license fees and income
124
115
7
358
327
9
Total revenues
442
481
(8)
1,349
1,371
(2)
Company restaurant expenses
Food and paper
87
96
10
262
270
3
Payroll and employee benefits
91
105
13
288
302
5
Occupancy and other operating expenses
71
86
17
222
246
10
Company restaurant expenses
249
287
13
772
818
6
General and administrative expenses
41
48
15
122
141
14
Franchise and license expenses
6
4
(97)
16
13
(30)
Closures and impairment (income) expenses
--
--
NM
--
1
NM
Other (income) expense
(1 )
(1 )
NM
(1 )
(2 )
(69)
Total costs and expenses, net
295
338
13
909
971
6
Operating Profit
$
147
$
143
3
$
440
$
400
10
Company sales
100.0 %
100.0 %
100.0 %
100.0 %
Food and paper
27.0 %
26.1 %
(0.9) ppts.
26.5 %
25.9 %
(0.6) ppts.
Payroll and employee benefits
28.6 %
28.6 %
--
29.0 %
28.9 %
(0.1) ppts.
Occupancy and other operating expenses
22.5 %
23.6 %
1.1 ppts.
22.4 %
23.5 %
1.1 ppts.
Restaurant margin
21.9 %
21.7 %
0.2 ppts.
22.1 %
21.7 %
0.4 ppts.
Operating margin
33.3 %
29.8 %
3.5 ppts.
32.6 %
29.2 %
3.4 ppts.
See accompanying notes.
Percentages may not recompute due to rounding.
YUM! Brands, Inc.
Condensed Consolidated Balance Sheets
(amounts in millions)
(unaudited)
9/30/17
12/31/16
ASSETS
Current Assets
Cash and cash equivalents
$
980
$
725
Accounts and notes receivable, less allowance: $20 in 2017 and $14
358
370
in 2016
Inventories
15
37
Prepaid expenses and other current assets
465
236
Advertising cooperative assets, restricted
181
137
Total Current Assets
1,999
1,505
Property, plant and equipment, net of accumulated depreciation and
1,861
2,113
amortization of $1,761 in 2017 and $1,995 in 2016
Goodwill
525
536
Intangible assets, net
116
151
Other assets
304
376
Deferred income taxes
649
772
Total Assets
$
5,454
$
5,453
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and other current liabilities
$
823
$
1,067
Income taxes payable
27
32
Short-term borrowings
372
66
Advertising cooperative liabilities
181
137
Total Current Liabilities
1,403
1,302
Long-term debt
9,479
9,059
Other liabilities and deferred credits
693
704
Total Liabilities
11,575
11,065
Shareholders’ Deficit
Common stock, no par value, 750 shares authorized; 339 shares and
--
--
355 shares issued in 2017 and 2016, respectively
Retained earnings (accumulated deficit)
(5,817 )
(5,158 )
Accumulated other comprehensive income (loss)
(304 )
(454 )
Total Shareholders’ Deficit
(6,121 )
(5,612 )
Total Liabilities and Shareholders’ Deficit
$
5,454
$
5,453
See accompanying notes.
YUM! Brands, Inc.
Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)
Year to Date
9/30/17
9/30/16
Cash Flows - Operating Activities from Continuing Operations
Net income
$
904
$
1,340
Income from discontinued operations, net of tax
--
(630 )
Depreciation and amortization
195
224
Closures and impairment (income) expenses
3
10
Refranchising (gain) loss
(331 )
(75 )
Contributions to defined benefit pension plans
(47 )
(7 )
Deferred income taxes
122
29
Share-based compensation expense
35
42
Changes in accounts and notes receivable
17
31
Changes in inventories
7
6
Changes in prepaid expenses and other current assets
(14 )
19
Changes in accounts payable and other current liabilities
(168 )
(54 )
Changes in income taxes payable
(125 )
8
Other, net
120
(7 )
Net Cash Provided by Operating Activities from Continuing
718
936
Operations
Cash Flows - Investing Activities from Continuing Operations
Capital spending
(228 )
(292 )
Proceeds from refranchising of restaurants
716
147
Other, net
1
18
Net Cash Provided by (Used in) Investing Activities from
489
(127 )
Continuing Operations
Cash Flows - Financing Activities from Continuing Operations
Proceeds from long-term debt
1,088
6,900
Repayments of long-term debt
(372 )
(310 )
Revolving credit facilities, three months or less, net
35
(685 )
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
--
--
Repurchase shares of Common Stock
(1,348 )
(4,316 )
Dividends paid on Common Stock
(315 )
(559 )
Debt issuance costs
(32 )
(86 )
Net transfers from discontinued operations
--
180
Other, net
(85 )
(82 )
Net Cash Provided by (Used in) Financing Activities from
(1,029 )
442
Continuing Operations
Effect of Exchange Rate on Cash and Cash Equivalents
42
(8 )
Net Increase in Cash and Cash Equivalents, Restricted Cash and
220
1,243
Restricted Cash Equivalents - Continuing Operations
Cash, Cash Equivalents, Restricted Cash and Restricted Cash
831
351
Equivalents - Beginning of Period
Cash, Cash Equivalents, Restricted Cash and Restricted Cash
$
1,051
$
1,594
Equivalents - End of Period
Cash Provided by Operating Activities from Discontinued Operations
$ --
$
761
Cash Used in Investing Activities from Discontinued Operations
--
(231 )
Cash Used in Financing Activities from Discontinued Operations
--
(186 )
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 Diluted Earnings Per Share from Continuing Operations
excluding Special Items, our Effective Tax Rate excluding Special
Items, System Sales and Core Operating Profit. Core Operating Profit
excludes Special Items and foreign currency translation and we use
Core Operating Profit for the purposes of evaluating performance
internally. Special Items are not included in any of our division
segment results, and we believe the elimination of the foreign
currency translation impact provides better year-to-year
comparability without the distortion of foreign currency
fluctuations. The Special Items are described in (b), (c), (d), (e),
(f) and (g) in the accompanying notes.
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 Diluted
Earnings Per Share from Continuing Operations excluding Special
Items, our Effective Tax Rate excluding 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 September
30, 2017 and September 30, 2016 that the Company does not believe
are indicative of our ongoing operations due to their size and/or
nature. System sales and system sales growth include the results
of all restaurants regardless of ownership, including
company-owned and franchise restaurants that operate our Concepts.
Sales of franchise restaurants typically generate ongoing
franchise and license fees for the Company at a rate of 3% to 6%
of sales. Franchise restaurant sales are not included in Company
sales on the Consolidated Statements of Income; however, the
franchise and license fees are included in the Company’s revenues.
We believe system sales and system sales growth are useful to
investors as significant indicators of the overall strength of our
business as they incorporate all of our revenue drivers, Company
and franchise same-store sales as well as net unit growth.
Quarter ended
Year to date
9/30/17
9/30/16
9/30/17
9/30/16
Detail of Special Items
Refranchising gain (loss)(b)
$
201
$
21
$
331
$
75
YUM’s Strategic Transformation Initiatives(c)
(4 )
(30 )
(15 )
(34 )
Costs associated with Pizza Hut U.S. Transformation Agreement(d)
(8 )
--
(20 )
--
Costs associated with KFC U.S. Acceleration Agreement(e)
(4 )
--
(12 )
(17 )
Non-cash charges associated with share-based compensation(f)
--
--
(18 )
--
Other Special Items Income (Expense)
5
(1 )
3
(3 )
Special Items Income (Expense) - Operating Profit
190
(10 )
269
21
Special Items - Other Pension Income (Expense)(g)
(1 )
--
(23 )
--
Special Items Income (Expense) from Continuing Operations before
189
(10 )
246
21
Income Taxes
Tax Benefit (Expense) on Special Items
(13 )
5
(64 )
--
Special Items Income (Expense), net of tax
176
(5 )
182
21
Average diluted shares outstanding
353
395
358
410
Special Items diluted EPS
$
0.50
$
(0.01 )
$
0.51
$
0.05
Reconciliation of GAAP Operating Profit to Core Operating Profit
Consolidated
GAAP Operating Profit
$
643
$
398
$
1,546
1,162
Special Items Income (Expense)
190
(10 )
269
21
Foreign Currency Impact on Reported Operating Profit
2
N/A
(9 )
N/A
Core Operating Profit
$
451
$
408
$
1,286
$
1,141
KFC Division
GAAP Operating Profit
$
260
$
230
$
710
$
618
Foreign Currency Impact on Reported Operating Profit
2
N/A
(5 )
N/A
Core Operating Profit
$
258
$
230
$
715
$
618
Pizza Hut Division
GAAP Operating Profit
$
82
$
84
$
250
$
256
Foreign Currency Impact on Reported Operating Profit
--
N/A
(4 )
N/A
Core Operating Profit
$
82
$
84
$
254
$
256
Taco Bell Division
GAAP Operating Profit
$
147
$
143
$
440
$
400
Foreign Currency Impact on Reported Operating Profit
--
N/A
--
N/A
Core Operating Profit
$
147
$
143
$
440
$
400
Reconciliation of Non-GAAP Measurements to GAAP Results
(Continued)
(amounts in millions, except per share amounts)
(unaudited)
Quarter ended
Year to date
9/30/17
9/30/16
9/30/17
9/30/16
Reconciliation of Diluted EPS from Continuing Operations to
Diluted EPS from Continuing Operations excluding Special Items
Diluted EPS from Continuing Operations
$
1.18
$
0.55
$
2.52
$
1.73
Special Items Diluted EPS
0.50
(0.01 )
0.51
0.05
Diluted EPS from Continuing Operations excluding Special Items
$
0.68
$
0.56
$
2.01
$
1.68
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate
excluding Special Items
GAAP Effective Tax Rate
20.2 %
27.5 %
23.5 %
27.0 %
Impact on Tax Rate as a result of Special Items
(7.6 )%
(0.5 )%
0.7 %
(0.6 )%
Effective Tax Rate excluding Special Items
27.8 %
28.0 %
22.8 %
27.6 %
Reconciliation of GAAP Company Sales to System Sales
Consolidated
GAAP Company sales
$
871
$
992
$
2,682
$
2,951
Franchise sales
10,800
10,018
30,729
29,019
System sales
$ 11,671
$ 11,010
$ 33,411
$ 31,970
KFC Division
GAAP Company sales
$
498
$
520
$
1,465
$
1,541
Franchise sales
5,784
5,313
16,223
15,277
System sales
$
6,282
$
5,833
$ 17,688
$ 16,818
Pizza Hut Division
GAAP Company sales
$
55
$
106
$
226
$
366
Franchise sales
2,911
2,778
8,439
8,263
System sales
$
2,966
$
2,884
$
8,665
$
8,629
Taco Bell Division
GAAP Company sales
$
318
$
366
$
991
$
1,044
Franchise sales
2,105
1,927
6,067
5,479
System sales
$
2,423
$
2,293
$
7,058
$
6,523
YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)
Quarter Ended 9/30/17
KFC
Pizza Hut
Taco Bell
Corporate
Consolidated
and
Unallocated
Total revenues
$
794
$
203
$
442
$
(3 )
$
1,436
Company restaurant expenses
419
54
249
(5 )
717
General and administrative expenses
85
44
41
45
215
Franchise and license expenses
29
21
6
5
61
Closures and impairment (income) expenses
1
--
--
--
1
Refranchising (gain) loss
--
--
--
(201 )
(201 )
Other (income) expense
--
2
(1 )
(1 )
--
Total costs and expenses, net
534
121
295
(157 )
793
Operating Profit (loss)
$
260
$
82
$
147
$
154
$
643
Quarter Ended 9/30/16
KFC
Pizza Hut
Taco Bell
Corporate
Consolidated
and
Unallocated
Total revenues
$
787
$
251
$
481
$
(1 )
$
1,518
Company restaurant expenses
442
102
287
--
831
General and administrative expenses
89
55
48
78
270
Franchise and license expenses
26
11
4
(1 )
40
Closures and impairment (income) expenses
--
1
--
--
1
Refranchising (gain) loss
--
--
--
(21 )
(21 )
Other (income) expense
--
(2 )
(1 )
2
(1 )
Total costs and expenses, net
557
167
338
58
1,120
Operating Profit (loss)
$
230
$
84
$
143
$
(59 )
$
398

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 9/30/17
KFC
Pizza Hut
Taco Bell
Corporate
Consolidated
and
Unallocated
Total revenues
$
2,296
$
659
$
1,349
$
(3 )
$
4,301
Company restaurant expenses
1,244
212
772
(5 )
2,223
General and administrative expenses
259
151
122
167
699
Franchise and license expenses
80
44
16
21
161
Closures and impairment (income) expenses
3
--
--
--
3
Refranchising (gain) loss
--
--
--
(331 )
(331 )
Other (income) expense
--
2
(1 )
(1 )
--
Total costs and expenses, net
1,586
409
909
(149 )
2,755
Operating Profit (loss)
$
710
$
250
$
440
$
146
$
1,546
Year to Date 9/30/16
KFC
Pizza Hut
Taco Bell
Corporate
Consolidated
and
Unallocated
Total revenues
$
2,302
$
799
$
1,371
$
(2 )
$
4,470
Company restaurant expenses
1,320
337
818
--
2,475
General and administrative expenses
276
170
141
180
767
Franchise and license expenses
82
35
13
15
145
Closures and impairment (income) expenses
6
3
1
--
10
Refranchising (gain) loss
--
--
--
(75 )
(75 )
Other (income) expense
--
(2 )
(2 )
(10 )
(14 )
Total costs and expenses, net
1,684
543
971
110
3,308
Operating Profit (loss)
$
618
$
256
$
400
$
(112 )
$
1,162

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.

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 quarters and years to date
ended September 30, 2017 and 2016 are preliminary.
(b)
In connection with our previously announced plans to have at least
98% franchise restaurant ownership by the end of 2018, we recorded
net refranchising gains during the quarters ended September 30,
2017 and 2016 of $201 million and $21 million, respectively, that
have been reflected as Special Items. During the years to date
ended September 30, 2017 and 2016, we recorded net refranchising
gains of $331 million and $75 million, respectively, that have
been reflected as Special Items.
The third quarter 2017 net refranchising gains relate primarily to
refranchising Taco Bell restaurants in the U.S. The third quarter
2016 net refranchising gains relate primarily to refranchising Pizza
Hut and Taco Bell restaurants in the U.S.
(c)
In the fourth quarter of 2016, we announced our plan to transform
our business. Major features of the Company’s strategic
transformation plans involve being more focused on development of
our three brands, increasing our franchise ownership and creating
a leaner, more efficient cost structure ("YUM’s Strategic
Transformation Initiatives"). During the quarters ended September
30, 2017 and 2016, we recognized Special Item charges of $4
million and $30 million, respectively, related to these
initiatives. During the years to date ended September 30, 2017 and
2016, we recognized Special Item charges of $15 million and $34
million, respectively. These costs primarily related to severance
and relocation costs that were recorded within G&A.
(d)
On May 1, 2017, we reached an agreement with Pizza Hut U.S.
franchisees that will improve brand marketing alignment,
accelerate enhancements in operations and technology and includes
a permanent commitment to incremental advertising contributions by
franchisees beginning in 2018. During the quarter and year to date
ended September 30, 2017, we recorded Special Item charges of $8
million and $20 million, respectively, for these investments.
These amounts were recorded as Franchise and license expenses or
G&A.
(e)
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 $4 million and less than $1 million for the quarters
ended September 30, 2017 and 2016, respectively. During the years
to date ended September 30, 2017 and 2016, we recognized Special
Item charges of $12 million and $17 million, respectively. The
majority of these costs were recorded as Franchise and license
expenses.
(f)
In connection with the separation of Yum China, we modified
certain share-based compensation awards held as part of our
Executive Income Deferral Plan in YUM stock to provide one Yum
China share-based award for each outstanding YUM share-based
award. These Yum China awards may now be settled in cash, as
opposed to stock, which requires recognition of the fair value of
these awards each quarter within G&A in our Condensed Consolidated
Income Statement. During the quarter and year to date ended
September 30, 2017, we recorded non-cash Special Item charges of
less than $1 million and $18 million, respectively, related to
these awards.
(g)
Reflects a non-cash charge of $22 million related to the
adjustment of certain historical deferred vested liability
balances in our qualified U.S. plan during the first quarter of
2017. Additionally, during the fourth quarter of 2016 the Company
allowed certain former employees with deferred vested balances in
the YUM Retirement Plan an opportunity to voluntarily elect an
early payout of their pension benefits. In connection with this
program we incurred an additional Special Items settlement charge
of $1 million during the quarter ended September 30, 2017. These
charges are recorded in Other pension (income) expense.
(h)
In March 2017, the Financial Accounting Standards Board ("FASB")
issued guidance on the presentation of net periodic pension cost
and net periodic postretirement benefit cost. The standard
requires that an employer report the service cost component in the
same line item or items as other compensation costs arising from
services rendered by employees during the period. The other
components of net benefit cost are required to be presented in the
income statement separately from the service cost component and
outside a subtotal of income from operations. We early adopted the
standard beginning with the quarter ended March 31, 2017 on a
retrospective basis and have reported the other components of net
benefit costs within Other pension (income) expense for the
quarters and years to date ended September 30, 2017 and 2016.
(i)
In March 2016, the FASB issued guidance related to stock-based
compensation which is intended to simplify several aspects of the
accounting for employee share-based payment transactions,
including their income tax consequences, classification of awards
as either equity or liabilities and classification on the
statement of cash flows. We adopted this standard beginning with
the quarter ended March 31, 2017. The primary impact of adoption
of this standard was that beginning January 1, 2017 we are
required to report excess tax benefits associated with share-based
compensation, which we previously recognized within Common Stock,
within our Income tax provision.

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SOURCE: Yum! Brands, Inc.

Yum! Brands, Inc.
Analysts are invited to contact:
Keith Siegner, 888-298-6986
Vice President, Investor Relations, Corporate Strategy and Treasurer
or
Kelly Knybel, 888-298-6986
Director, Investor Relations
or
Members of the media are invited to contact:
Virginia Ferguson, 502-874-8200
Director, Public Relations