Yum! brands reports fourth-quarter gaap operating profit decline of
(39)%; fourth-quarter core operating profit growth of +5%; on track with
strategic transformation to accelerate growth
Louisville, ky.--(business wire)--yum! brands, inc. (nyse: yum) today reported results for the fourth-quarter and year ended december 31, 2018. fourth-quarter gaap eps was $1.04, a decrease of (17)%. full-year gaap eps was $4.69, an increase of 24%. fourth-quarter eps excluding special items was $0.40, a decrease of (58)%. full-year eps excluding special items was $3.17, an increase of 7%. greg creed & david gibbs comments greg creed, ceo, said, “i am very proud of what we have been able to accomplish in just two short years since we announced the transformation of yum!. in 2018, our diverse portfolio of iconic brands generated over $49 billion in system sales and ended the year with over 48,000 restaurants. focus on our four growth drivers, increased collaboration and a new mindset are fueling strong results. during 2018, system sales grew 5% with same store sales growth of 2%, and net unit growth of 4%, excluding the impact of telepizza. combined across our brands and led by over 2,000 world-class franchisees, we opened a record 8 gross new restaurants per day across the globe in 2018. as we move into 2019, we will continue to pursue even more growth, leverage our unprecedented scale, and maximize value for all yum! stakeholders.” david gibbs, president, coo and cfo, continued, “fourth-quarter results were a strong finish to a solid year, and serve as a healthy foundation for our 2019 guidance. i am also pleased that we made significant progress on our transformation commitments in 2018, having achieved our goal of becoming at least 98% franchised. our commitment to being more focused, more franchised and more efficient is strengthening our enviable business model. yum! is well positioned to leverage our massive scale and expand our capabilities in order to improve franchise unit economics and accelerate growth.” summary financial table 1see reconciliation of non-gaap measurements to gaap results within this release for further detail of special items. fourth-quarter highlights • • • • • • 1pizza hut division and worldwide net new units include telepizza units. full-year highlights • • • • • • 1pizza hut division and worldwide net new units include telepizza units. kfc division • ○ • • percent of kfc system sales2 (% change) (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 2018. pizza hut division • • • • percent of pizza hut system sales2 (1) refer to http://www.yum.com/investors/financial-information/financial-reports for a list of the countries within each of the markets. (2) reflects full year 2018 and does not include any impact from telepizza. taco bell division • • 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. as a result of the new standard, core operating profit growth was negatively impacted by six percentage points during the fourth quarter and two percentage points on a full-year basis. • • • 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, february 7, 2019. the number is 877/815-2029 for u.s. callers and 706/645-9271 for international callers, conference id 6587363. the call will be available for playback beginning at 11:15 a.m. eastern time thursday, february 7, 2019 through thursday, april 11, 2019. to access the playback, dial 855/859-2056 in the u.s. and 404/537-3406 internationally, conference id 6587363. the webcast and playback can be accessed via the internet by visiting yum! brands' website, www.yum.com/investors/events-presentations and selecting “q4 2018 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. reconciliation of non-gaap financial measures to the most directly comparable gaap results 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 48,000 restaurants in more than 140 countries. the company’s restaurant brands - kfc, pizza hut and taco bell - are global leaders of the chicken, pizza and mexican-style food categories. worldwide, the yum! brands system opens over eight new restaurants per day on average, making it a leader in global retail development. in 2018, yum! brands was named to the dow jones sustainability north america index and ranked among the top 100 best corporate citizens by corporate responsibility magazine. in 2019, yum! brands was named to the bloomberg gender-equality index for the second consecutive year. b/(w) b/(w) basic eps diluted eps percentages may not recompute due to rounding. b/(w) b/(w) b/(w) b/(w) b/(w) b/(w) property, plant and equipment, net of accumulated depreciation and amortization of $1,116 in 2018 and $1,342 in 2017 see accompanying notes. 92 1,176 quikorder acquisition, net of cash acquired (66 313 see accompanying notes. reconciliation of non-gaap measurements to gaap results (amounts in millions, except per share amounts) (unaudited) • 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 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 ("eps") 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. consolidated kfc division pizza hut division taco bell division consolidated kfc division pizza hut division taco bell division 2019 eps guidance we have also provided certain forward-looking guidance using non-gaap measurements. specifically, in connection with the announcement of our strategic transformation initiatives in 2016, we announced a 2019 diluted eps target of at least $3.75 (“2019 adjusted eps target”). this 2019 adjusted eps target was intended to exclude: any impact from changes in fx rates (i.e. fx rates were assumed not to change from those in place when we determined the 2019 adjusted eps target in 2016) any special items; and the impact of the 53rd week in 2019 for our u.s. businesses and certain international subsidiaries that report on a period calendar; additionally, we acquired an interest in grubhub common stock subsequent to our original determination of the 2019 adjusted eps target and thus are excluding any resulting mark-to-market adjustment for that investment from the 2019 adjusted eps target. at this time, we are unable to forecast any special items or grubhub mark-to-market adjustments for 2019, and therefore cannot provide an estimate of 2019 eps on a gaap basis. the forecasted impacts of fx and the 53rd week on our 2019 adjusted eps target are shown below. this impact of fx has been determined as the difference in translating our current local currency forecasts for 2019 at current fx forward rates and fx rates at the time the 2019 adjusted eps target was determined in 2016. notes to the consolidated summary of results, consolidated balance sheets and consolidated statements of cash flows (amounts in millions) (unaudited)
