YUM
$89.40
Yum! Brands
($.42)
(.47%)
Earnings Details
2nd Quarter June 2018
Thursday, August 2, 2018 7:00:00 AM
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Summary

Yum! Brands Beats

Yum! Brands (YUM) reported 2nd Quarter June 2018 earnings of $0.82 per share on revenue of $1.4 billion. The consensus earnings estimate was $0.74 per share on revenue of $1.4 billion. The Earnings Whisper number was $0.79 per share. Revenue fell 5.5% 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
$0.82
Earnings Whisper
$0.79
Consensus Estimate
$0.74
Reported Revenue
$1.37 Bil
Revenue Estimate
$1.37 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Yum! Brands Reports Second-Quarter GAAP Operating Profit Growth of 7%; Second-Quarter Core Operating Profit Decline of (6)%; Maintains Full-Year Guidance

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 30, 2018. Second-quarter GAAP EPS was $0.97, an increase of 68%. Second-quarter EPS excluding Special Items was $0.82, an increase of 20%.

This press release features multimedia. View the full release here:https://www.businesswire.com/news/home/20180802005127/en/

GREG CREED COMMENTS

Greg Creed, CEO, said, “We continue to execute against our multi-year transformation strategy and remain on track with our full-year 2018 guidance. Second quarter core operating profit was consistent with our expectations and we are seeing good progress against our plans as we start the second half of the year. Importantly, I remain confident our actions to become more focused, more franchised and more efficient are establishing the foundation required for sustainable, long-term growth that will translate to strong returns for all Yum! Brands stakeholders."

SECOND-QUARTER HIGHLIGHTS

     

  Worldwide system sales excluding foreign currency translation grew 4%, with KFC at 6%, Taco Bell at 5% and Pizza Hut flat.

We opened 243 net new units for 4% net new unit growth.

We refranchised 51 restaurants, including 28 KFC and 23 Pizza Hut units, for pre-tax proceeds of $47 million. We recorded net refranchising gains of $29 million in Special Items. As of quarter end, our global franchise ownership mix was 97%.

We repurchased 7.6 million shares totaling $643 million at an average price of $84.

We reflected the change in fair value of our investment in Grubhub by recording $25 million of pre-tax investment income, resulting in $0.06 in EPS.

Foreign currency translation favorably impacted divisional operating profit by $8 million.
 
       
    % Change

System Sales
Ex F/X

   

Same-Store
Sales

   

Net New Units

   

GAAP
Operating Profit

   

Core
Operating Profit

KFC Division +6     +2     +5     (3)     (6)
Pizza Hut Division Even (1) +2 (5) (6)
Taco Bell Division     +5     +2     +3     (2)     (2)
Worldwide     +4     +1     +4     +7     (6)
 
             
    Second Quarter     Year-to-Date
2018     2017     % Change     2018     2017     % Change
GAAP EPS $0.97     $0.58     +68     $2.25     $1.34     +67
Special Items EPS1 $0.15     $(0.10)     NM     $0.54     $0.01     NM
EPS Excluding Special Items     $0.82     $0.68     +20     $1.71     $1.33     +29

1

 

See Reconciliation of Non-GAAP Measurements to GAAP Results within this release for further detail of Special Items.

 

All comparisons are versus the same period a year ago. As required, we adopted a new accounting standard on revenue recognition effective January 1, 2018. Prior year results have not been restated for this change. See the Other Items section of this release for further details.

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 Non-GAAP Measurements to GAAP Results within this release for further details.

KFC DIVISION

             
    Second Quarter     Year-to-Date
        %/ppts Change             %/ppts Change
2018     2017     Reported     Ex F/X     2018     2017     Reported     Ex F/X
Restaurants 21,838 20,854 +5     N/A 21,838 20,854 +5     N/A
System Sales ($MM) 6,306 5,771 +9 +6 12,635 11,406 +11 +6
Same-Store Sales Growth (%) +2 +3 NM NM +2 +3 NM NM
Franchise and Property Revenues ($MM) 310 278 +11 +8 617 535 +15 +10
Operating Profit ($MM) 235 243 (3) (6) 456 450 +1 (3)
Operating Margin (%)     36.1     31.5     4.6     3.9     34.8     29.9     4.9     4.4
 
             
    Second Quarter (% Change)     Year-to-Date (% Change)
      International     U.S.     International     U.S.
System Sales Growth Ex F/X +7     Even     +7     (1)
Same-Store Sales Growth     +2     +1     +2     Even
 
       

KFC Division opened 301 gross new international restaurants in 52 countries.

Operating margin increased 4.6 percentage points driven by refranchising, partially offset by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard and lapping higher renewal and transfer fees.

Foreign currency translation favorably impacted operating profit by $7 million.
 
             
KFC Markets1    

Percent of KFC
System Sales2

    System Sales Growth Ex F/X
       

Second Quarter
(% Change)

   

Year-to-Date
(% Change)

China 27% +5     +7
United States 18% Even (1)
Asia 12% +6 +4
Australia 7% +6 +5
Russia & Eastern Europe 7% +23 +21
United Kingdom 6% (6) (8)
Latin America 5% +11 +13
Western Europe 5% +10 +12
Africa 4% +5 +5
Middle East / Turkey / North Africa 4% +15 +11
Canada 2% +2 +4
Thailand 2% +7 +6
India     1%     +20     +19
1  

Refer to investors.yum.com/financial-reports for a list of the countries within each of the markets.

2 Reflects Full Year 2017.
 

PIZZA HUT DIVISION

             
    Second Quarter     Year-to-Date
        %/ppts Change             %/ppts Change
2018     2017     Reported     Ex F/X     2018     2017     Reported     Ex F/X
Restaurants 16,823 16,452 +2     N/A 16,823 16,452 +2     N/A
System Sales ($MM) 2,894 2,827 +2 Even 5,926 5,699 +4 +1
Same-Store Sales Growth (%) (1) (1) NM NM Even (2) NM NM
Franchise and Property Revenues ($MM) 140 141 (1) (3) 289 285 +1 (1)
Operating Profit ($MM) 81 85 (5) (6) 169 168 +1 (2)
Operating Margin (%)     34.6     38.1     (3.5)     (3.8)     34.8     36.8     (2.0)     (2.4)
 
             
    Second Quarter (% Change)     Year-to-Date (% Change)
      International     U.S.     International     U.S.
System Sales Growth Ex F/X +1     (1)     +2     +1
Same-Store Sales Growth     (2)     Even     (2)     +2
 
       

Pizza Hut Division opened 176 gross new international restaurants in 47 countries.

Operating margin decreased 3.5 percentage points driven by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard, partially offset by refranchising and lower G&A related to litigation costs.

Foreign currency translation favorably impacted operating profit by $1 million.
 
             
Pizza Hut Markets1    

Percent of Pizza Hut System Sales2

    System Sales Growth Ex F/X
       

Second Quarter
(% Change)

   

Year-to-Date
(% Change)

United States 46% (1)     +1
China 18% (1) (1)
Asia 13% +4 +5
Europe 10% (1) +1
Latin America 6% (1) Even
Middle East / Turkey / North Africa 4% +3 +2
Canada 2% +1 +1
India 1% +22 +22
Africa     <1%     +43     +35
1  

Refer to investors.yum.com/financial-reports for a list of the countries within each of the markets.

2 Reflects Full Year 2017.
 

TACO BELL DIVISION

             
    Second Quarter     Year-to-Date
        %/ppts Change             %/ppts Change
2018     2017     Reported     Ex F/X     2018     2017     Reported     Ex F/X
Restaurants 6,905 6,686 +3     N/A 6,905 6,686 +3     N/A
System Sales ($MM) 2,489 2,373 +5 +5 4,836 4,635 +4 +4
Same-Store Sales Growth (%) +2 +4 NM NM +1 +6 NM NM
Franchise and Property Revenues ($MM) 134 120 +12 +12 262 234 +12 +12
Operating Profit ($MM) 149 152 (2) (2) 281 293 (4) (4)
Operating Margin (%)     30.8     33.4     (2.6)     (2.6)     29.7     32.3     (2.6)     (2.6)
 
     

  Taco Bell Division opened 43 gross new restaurants, including 9 new international restaurants.

Operating margin decreased 2.6 percentage points driven by the gross up of advertising fund revenues and offsetting expenses required by the revenue recognition accounting standard, higher restaurant-level costs and lapping lower litigation costs, partially offset by refranchising and same-store sales growth.

OTHER ITEMS

     

  Effective January 1, 2018, we adopted the new accounting standard on revenue recognition. As a result, we are now required to recognize upfront fees, such as initial and renewal fees we receive from franchisees, as revenue over the term of the related franchise agreement. We also record incentive payments we may make to franchisees (e.g., equipment funding provided under the KFC U.S. Acceleration Agreement) as a reduction of revenue over the period of expected cash flows from the franchise agreements to which the payment relates. Under our historical accounting, we recognized upfront fees from franchisees in full upon commencement of the related franchise agreements and incentive payments made to franchisees when we were obligated to make the payment.

 

Additionally, the new accounting standard requires us to begin recording other revenues we receive from franchisees and the related expenses on a gross basis within our Income Statement. Previously, these revenues and expenses, the largest of which relate to franchisee contributions to and subsequent expenditures from advertising cooperatives we consolidate, were reported on a net basis within our Income Statement. We have reported these revenues and expenses in our Income Statement on the two new line items of Franchise contributions for advertising and other services and Franchise advertising and other services expense.

 

Prior results have not been restated for the impact of this accounting change and therefore remain reported as they have been historically. However, the adoption was done on a modified retrospective basis resulting in the current year impact being reported as if the now-required accounting had been in place since the inception of currently active franchise agreements or when franchise incentive payments were originally made. On a full-year basis we anticipate that the non-cash impacts of adopting the new revenue recognition standard will negatively impact core operating profit growth by 2 to 3 percentage points. As a result of the new standard, core operating profit growth was negatively impacted by two percentage points during the second quarter and one percentage point year-to-date through June 30, 2018. The lower first half impact was expected as the majority of our new unit development for which we receive upfront fees, which will now be spread versus recognized upfront, is expected to occur later in the year.

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.
 

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 August 2, 2018. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers, conference ID 6389106.

The call will be available for playback beginning at 11:00 a.m. Eastern Time August 2, 2018 through September 13, 2018. To access the playback, dial 855/859-2056 in the U.S. and 404/537-3406 internationally, conference ID 6389106.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, investors.yum.com/events-and-presentations and selecting “Q2 2018 Yum! Brands, Inc. Earnings Call.”

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at investors.yum.com. 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; the success of our franchisees and licensees, and the success of our transformation initiatives, including our refranchising strategy; our significant exposure to the Chinese market; 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; our increasing dependence on digital commerce platforms and information technology systems; 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; 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; recent Tax Legislation (defined below) and other 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.

Information regarding the impact of the Tax Cuts and Jobs Act of 2017 (“Tax Legislation”) consists of preliminary estimates which are forward-looking statements and are subject to change. Information regarding the impact of Tax Legislation is based on our current calculations, as well our current interpretations, assumptions and expectations relating to Tax Legislation, which are subject to further ongoing change.

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 45,000 restaurants in more than 140 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. In 2018, Yum! Brands was recognized as part of the inaugural Bloomberg Gender-Equality Index and ranked among the top 100 Best Corporate Citizens by Corporate Responsibility Magazine. In 2017, Yum! Brands was named to the Dow Jones Sustainability North America Index. 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 seven 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
6/30/18     6/30/17 B/(W) 6/30/18     6/30/17 B/(W)
Revenues
Company sales $ 512 $ 909 (44) $ 1,024 $ 1,811 (43)
Franchise and property revenues 584 539 8 1,168 1,054 11
Franchise contributions for advertising and other services 272     N/A 547     N/A
Total revenues 1,368   1,448   (6) 2,739   2,865   (4)
 
Costs and Expenses, Net
Company restaurant expenses 421 748 44 859 1,506 43
General and administrative expenses 208 247 15 427 484 12
Franchise and property expenses 40 54 24 87 100 13
Franchise advertising and other services expense 274 N/A 546 N/A
Refranchising (gain) loss (29 ) (19 ) 58 (185 ) (130 ) 42
Other (income) expense 5   (1 ) NM 3   2   (82)
Total costs and expenses, net 919   1,029   11 1,737   1,962   11
 
Operating Profit 449 419 7 1,002 903 11
Investment (income) expense, net (23 ) (1 ) NM (89 ) (2 ) NM
Other pension (income) expense 3 4 30 6 32 81
Interest expense, net 112   105   (8) 219   215   (2)
Income before income taxes 357 311 15 866 658 32
Income tax provision 36   105   67 112   172   35
Net Income $ 321   $ 206   56 $ 754   $ 486   55
 
Effective tax rate 9.9 % 33.8 % 23.9 ppts. 12.9 % 26.2 % 13.3 ppts.
 

Basic EPS

EPS $ 0.99   $ 0.59   69 $ 2.30   $ 1.37   67
Average shares outstanding 324   350   8 328   354   7
 

Diluted EPS

EPS $ 0.97   $ 0.58   68 $ 2.25   $ 1.34   67
Average shares outstanding 331   358   7 336   361   7
 
Dividends declared per common share $ 0.36   $ 0.30   $ 0.72   $ 0.60  
 
 

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
6/30/18     6/30/17 B/(W) 6/30/18     6/30/17 B/(W)
 
Company sales $ 241 $ 492 (51) $ 486 $ 967 (50)
Franchise and property revenues 310 278 11 617 535 15
Franchise contributions for advertising and other services 100     N/A 206     N/A
Total revenues 651   770   (16) 1,309   1,502   (13)
 
Company restaurant expenses 210 415 49 430 825 48
General and administrative expenses 81 85 5 166 174 5
Franchise and property expenses 25 26 6 54 51 (4)
Franchise advertising and other services expense 101 N/A 205 N/A
Other (income) expense (1 ) 1   NM (2 ) 2   NM
Total costs and expenses, net 416   527   21 853   1,052   19
Operating Profit $ 235   $ 243   (3) $ 456   $ 450   1
 
Restaurant margin 12.5 % 15.7 % (3.2) ppts. 11.5 % 14.7 % (3.2) ppts.
 
Operating margin 36.1 % 31.5 % 4.6 ppts. 34.8 % 29.9 % 4.9 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
6/30/18     6/30/17 B/(W) 6/30/18     6/30/17 B/(W)
 
Company sales $ 18 $ 81 (78) $ 42 $ 171 (75)
Franchise and property revenues 140 141 (1) 289 285 1
Franchise contributions for advertising and other services 75     N/A 153     N/A
Total revenues 233   222   5 484   456   6
 
Company restaurant expenses 19 73 75 43 158 73
General and administrative expenses 46 54 14 96 107 10
Franchise and property expenses 8 10 12 19 23 16
Franchise advertising and other services expense 77 N/A 155 N/A
Other (income) expense 2     NM 2     NM
Total costs and expenses, net 152   137   (11) 315   288   (10)
Operating Profit $ 81   $ 85   (5) $ 169   $ 168   1
 
Restaurant margin (2.4 )% 8.5 % (10.9) ppts. (1.0 )% 7.4 % (8.4) ppts.
 
Operating margin 34.6 % 38.1 % (3.5) ppts. 34.8 % 36.8 % (2.0) 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
6/30/18     6/30/17 B/(W) 6/30/18     6/30/17 B/(W)
 
Company sales $ 253 $ 336 (25) $ 496 $ 673 (26)
Franchise and property revenues 134 120 12 262 234 12
Franchise contributions for advertising and other services 97     N/A 188     N/A
Total revenues 484   456   6 946   907   4
 
Company restaurant expenses 193 260 26 387 523 26
General and administrative expenses 41 39 (6) 81 81
Franchise and property expenses 6 5 (25) 12 10 (22)
Franchise advertising and other services expense 96 N/A 186 N/A
Other (income) expense (1 )   NM (1 )   NM
Total costs and expenses, net 335   304   (11) 665   614   (8)
Operating Profit $ 149   $ 152   (2) $ 281   $ 293   (4)
 
Restaurant margin 24.1 % 22.8 % 1.3 ppts. 21.9 % 22.3 % (0.4) ppts.
 
Operating margin 30.8 % 33.4 % (2.6) ppts. 29.7 % 32.3 % (2.6) ppts.
 
 

See accompanying notes.

Percentages may not recompute due to rounding.

 
       

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

 

(unaudited)
6/30/18

12/31/17

ASSETS
Current Assets
Cash and cash equivalents $ 313 $ 1,522
Accounts and notes receivable, less allowance: $30 in 2018 and $19 in 2017 527 400
Prepaid expenses and other current assets 363 384
Advertising cooperative assets, restricted   201  
Total Current Assets 1,203 2,507
 
Property, plant and equipment, net of accumulated depreciation and amortization of $1,418 in
2018 and $1,480 in 2017 1,533 1,697
Goodwill 502 512
Intangible assets, net 90 110
Other assets 787 346
Deferred income taxes 211   139  
Total Assets $ 4,326   $ 5,311  
 
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Accounts payable and other current liabilities $ 822 $ 813
Income taxes payable 48 123
Short-term borrowings 54 375
Advertising cooperative liabilities   201  
Total Current Liabilities 924 1,512
 
Long-term debt 9,612 9,429
Other liabilities and deferred credits 1,037   704  
Total Liabilities 11,573   11,645  
 
Shareholders' Deficit
Common stock, no par value, 750 shares authorized; 319 shares and 332 shares issued in 2018 and 2017, respectively
Accumulated deficit (6,965 ) (6,063 )
Accumulated other comprehensive loss (282 ) (271 )
Total Shareholders' Deficit (7,247 ) (6,334 )
Total Liabilities and Shareholders' Deficit $ 4,326   $ 5,311  
 

See accompanying notes.

 
   

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

 
Year to date
6/30/18     6/30/17
Cash Flows - Operating Activities
Net Income $ 754 $ 486
Depreciation and amortization 71 135
Refranchising (gain) loss (185 ) (130 )
Investment (income) expense, net (89 ) (2 )
Contributions to defined benefit pension plans (5 ) (12 )
Deferred income taxes (23 ) 10
Share-based compensation expense 27 43
Changes in accounts and notes receivable (15 ) 30
Changes in prepaid expenses and other current assets 4 3
Changes in accounts payable and other current liabilities (160 ) (137 )
Changes in income taxes payable (15 ) (83 )
Other, net 17   96  
Net Cash Provided by Operating Activities 381   439  
 
Cash Flows - Investing Activities
Capital spending (85 ) (150 )
Investment in Grubhub Inc. Common Stock (200 )
Proceeds from refranchising of restaurants 252 321
Other, net (9 ) 2  
Net Cash Provided by (Used in) Investing Activities (42 ) 173  
 
Cash Flows - Financing Activities
Proceeds from long-term debt 106 1,088
Repayments of long-term debt (449 ) (360 )
Revolving credit facilities, three months or less, net 202
Short-term borrowings by original maturity
More than three months - proceeds 51
More than three months - payments (43 )
Three months or less, net
Repurchase shares of Common Stock (1,168 ) (856 )
Dividends paid on Common Stock (236 ) (211 )
Debt issuance costs (32 )
Other, net (42 ) (39 )
Net Cash Used in Financing Activities (1,579 ) (410 )
Effect of Exchange Rate on Cash and Cash Equivalents (19 ) 23  
Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents (1,259 ) 225
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period 1,668   831  
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period $ 409   $ 1,056  
 

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 Generally Accepted Accounting Principles in the United States of America ("GAAP"), the Company provides the following non-GAAP measurements.

  • System sales and System sales excluding the impacts of foreign currency translation ("FX"). System sales 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 Condensed Consolidated Statements of Income; however, the franchise and license fees are included in the Company’s revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.
  • Diluted Earnings Per Share excluding Special Items (as defined below);
  • Effective Tax Rate excluding Special Items;
  • Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally.

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 these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.

Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance. The Special Items are described in (b), (c), (d), (e), (f), (g), (h) and (i) in the accompanying notes.

Certain non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.

       
Quarter ended Year to date
6/30/18     6/30/17 6/30/18     6/30/17
Detail of Special Items
Refranchising gain (loss)(b) $ 29 $ 19 $ 185 $ 130
YUM's Strategic Transformation Initiatives(c) (4 ) (1 ) (11 )
Costs associated with Pizza Hut U.S. Transformation Agreement(d) (1 ) (12 ) (2 ) (12 )
Costs associated with KFC U.S. Acceleration Agreement(e) (2 ) (5 ) (2 ) (8 )
Non-cash credits (charges) associated with share-based compensation(f) 2 (16 ) 1 (18 )
Other Special Items Income (Expense) 1   (2 ) 1   (2 )
Special Items Income (Expense) - Operating Profit 29 (20 ) 182 79
Special Items - Other Pension Income (Expense)(g)       (22 )
Special Items Income (Expense) before Income Taxes 29 (20 ) 182 57
Tax Benefit (Expense) on Special Items(h)

(18

) (17 )

(37

) (51 )
Tax Benefit (Expense) - U.S. Tax Act(i)

40

   

34

   
Special Items Income (Expense), net of tax 51 (37 ) 179 6
Average diluted shares outstanding 331   358   336   361  
Special Items diluted EPS $ 0.15   $ (0.10 ) $ 0.54   $ 0.01  
 
Reconciliation of GAAP Operating Profit to Core Operating Profit
 
Consolidated
GAAP Operating Profit $ 449 $ 419 $ 1,002 $ 903
Special Items Income (Expense) 29 (20 ) 182 79
Foreign Currency Impact on Divisional Operating Profit 8   N/A   24   N/A  
Core Operating Profit $ 412   $ 439   $ 796   $ 824  
 
KFC Division
GAAP Operating Profit $ 235 $ 243 $ 456 $ 450
Foreign Currency Impact on Divisional Operating Profit 7   N/A   20   N/A  
Core Operating Profit $ 228   $ 243   $ 436   $ 450  
 
       

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)

(amounts in millions, except per share amounts)

(unaudited)

 
Quarter ended Year to date
6/30/18     6/30/17 6/30/18     6/30/17

Pizza Hut Division

GAAP Operating Profit $ 81 $ 85 $ 169 $ 168
Foreign Currency Impact on Divisional Operating Profit 1   N/A   4   N/A  
Core Operating Profit $ 80   $ 85   $ 165   $ 168  
 

Taco Bell Division

GAAP Operating Profit $ 149 $ 152 $ 281 $ 293
Foreign Currency Impact on Divisional Operating Profit   N/A    

N/A

 
Core Operating Profit $ 149   $ 152   $ 281   $ 293  
 
Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPS $ 0.97 $ 0.58 $ 2.25 $ 1.34
Special Items Diluted EPS 0.15   (0.10 ) 0.54   0.01  
Diluted EPS excluding Special Items $ 0.82   $ 0.68   $ 1.71   $ 1.33  
 
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate 9.9 % 33.8 % 12.9 % 26.2 %
Impact on Tax Rate as a result of Special Items (7.5 )% 7.5 % (2.9 )% 6.1 %
Effective Tax Rate excluding Special Items 17.4 % 26.3 % 15.8 % 20.1 %
 
Reconciliation of Company sales to System sales
 

Consolidated

GAAP Company sales $ 512 $ 909 $ 1,024 $ 1,811
Franchise sales 11,177   10,062   22,373   19,929  
System sales 11,689 10,971 23,397 21,740
Foreign Currency Impact on System sales 263   N/A   729   N/A  
System sales, excluding FX $ 11,426   $ 10,971   $ 22,668   $ 21,740  
 

KFC Division

GAAP Company sales $ 241 $ 492 $ 486 $ 967
Franchise sales 6,065   5,279   12,149   10,439  
System sales 6,306 5,771 12,635 11,406
Foreign Currency Impact on System sales 203   N/A   566   N/A  
System sales, excluding FX $ 6,103   $ 5,771   $ 12,069   $ 11,406  
 

Pizza Hut Division

GAAP Company sales $ 18 $ 81 $ 42 $ 171
Franchise sales 2,876   2,746   5,884   5,528  
System sales 2,894 2,827 5,926 5,699
Foreign Currency Impact on System sales 59   N/A   159   N/A  
System sales, excluding FX $ 2,835   $ 2,827   $ 5,767   $ 5,699  
 

Taco Bell Division

GAAP Company sales $ 253 $ 336 $ 496 $ 673
Franchise sales 2,236   2,037   4,340   3,962  
System sales 2,489 2,373 4,836 4,635
Foreign Currency Impact on System sales 1   N/A   4   N/A  
System sales, excluding FX $ 2,488   $ 2,373   $ 4,832   $ 4,635  
 
                   

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

 
Quarter Ended 6/30/18 KFC Pizza Hut Taco Bell

Corporate
and
Unallocated

Consolidated
Total revenues $ 651   $ 233   $ 484   $   $ 1,368  
 
Company restaurant expenses 210 19 193 (1 ) 421
General and administrative expenses 81 46 41 40 208
Franchise and property expenses 25 8 6 1 40
Franchise advertising and other services expense 101 77 96 274
Refranchising (gain) loss (29 ) (29 )
Other (income) expense (1 ) 2   (1 ) 5   5  
Total costs and expenses, net 416   152   335   16   919  
Operating Profit $ 235   $ 81   $ 149   $ (16 ) $ 449  
 
 
 
Quarter Ended 6/30/17 KFC Pizza Hut Taco Bell

Corporate
and
Unallocated

Consolidated
Total revenues $ 770   $ 222   $ 456   $   $ 1,448  
 
Company restaurant expenses 415 73 260 748
General and administrative expenses 85 54 39 69 247
Franchise and property expenses 26 10 5 13 54
Refranchising (gain) loss (19 ) (19 )
Other (income) expense 1       (2 ) (1 )
Total costs and expenses, net 527   137   304   61   1,029  
Operating Profit $ 243   $ 85   $ 152   $ (61 ) $ 419  
 

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 6/30/18 KFC Pizza Hut Taco Bell

Corporate
and
Unallocated

Consolidated
Total revenues $ 1,309   $ 484   $ 946   $   $ 2,739  
 
Company restaurant expenses 430 43 387 (1 ) 859
General and administrative expenses 166 96 81 84 427
Franchise and property expenses 54 19 12 2 87
Franchise advertising and other services expense 205 155 186 546
Refranchising (gain) loss (185 ) (185 )
Other (income) expense (2 ) 2   (1 ) 4   3  
Total costs and expenses, net 853   315   665   (96 ) 1,737  
Operating Profit $ 456   $ 169   $ 281   $ 96   $ 1,002  
 
 
 
Year to Date 6/30/17 KFC Pizza Hut Taco Bell

Corporate
and
Unallocated

Consolidated
Total revenues $ 1,502   $ 456   $ 907   $   $ 2,865  
 
Company restaurant expenses 825 158 523 1,506
General and administrative expenses 174 107 81 122 484
Franchise and property expenses 51 23 10 16 100
Refranchising (gain) loss (130 ) (130 )
Other (income) expense 2         2  
Total costs and expenses, net 1,052   288   614   8   1,962  
Operating Profit $ 450   $ 168   $ 293   $ (8 ) $ 903  
 

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 June 30, 2018 and 2017 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 June 30, 2018 and 2017 of $29 million and $19 million, respectively, that have been reflected as Special Items. During the years to dated ended June 30, 2018 and 2017, we recorded net refranchising gains of $185 million and $130 million, respectively, that have been reflected as Special Items.

The second quarter 2018 net refranchising gains relate primarily to refranchising KFC restaurants in the UK. The second quarter 2017 net refranchising gains relate primarily to refranchising Taco Bell restaurants in the U.S., partially offset by charges associated with the refranchising of certain international markets.

 
(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 June 30, 2018 and 2017, we recognized Special Item charges of less than $1 million and $4 million, respectively, related to these initiatives. During the years to date ended June 30, 2018 and 2017, we recognized Special Item charges of $1 million and $11 million, respectively, related to these initiatives. 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 quarters ended June 30, 2018 and 2017, we recorded Special Item charges of $1 million and $12 million, respectively, for these investments. During the years to date ended June 30, 2018 and 2017, we recorded Special Item charges of $2 million and $12 million, respectively, for these investments. The majority of these costs were recorded within Franchise and property expenses.
 
(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 $2 million and $5 million for the quarters ended June 30, 2018 and 2017, respectively. During the years to date ended June 30, 2018 and 2017, we recognized Special Item charges of $2 million and $8 million, respectively. The majority of these costs were recorded within Franchise and property 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 Consolidated Statements of Income. During the quarter and year to date ended June 30, 2018, we recorded Special Item credits of $2 million and $1 million, respectively, due to depreciation in the market price of Yum China's stock. During the quarter and year to date ended June 30, 2017, we recorded Special Item charges of $16 million and $18 million, respectively, related to these awards.

 
(g) We recorded 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. This charge was recorded in Other pension (income) expense.
 
(h)

Tax Benefit (Expense) on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items. Additionally, during the quarter ended June 30, 2018, we recorded a $19 million increase to our Income tax provision for the correction of an error associated with the tax recorded on a prior year divestiture, the effects of which were previously recorded as a Special Item.

 
(i) During the quarter and year to date ended June 30, 2018 we recorded $32 million and $16 million decreases, respectively, related to our provisional deemed repatriation tax expense recorded in the fourth quarter of 2017 associated with the Tax Cuts and Jobs Act of 2017 ("Tax Act") that was reported as a Special Item. We also recorded benefit in the quarter and year to date ended June 30, 2018 related to current year U.S. foreign tax credits that became realizable directly as a result of the impact of the deemed repatriation.
 

Yum! Brands, Inc.
Analysts:
Keith Siegner, 888-298-6986
Vice President, Investor Relations, Corporate Strategy and Treasurer
or
Kelly Knybel, 888-298-6986
Director, Investor Relations
or
Media:
Virginia Ferguson, 502-874-8200
Director, Public Relations

Source: Yum! Brands, Inc.