Yum! brands reports second-quarter eps of $0.69, a decline of 5%,
excluding special items; expects strong second half in china; reconfirms
2015 full-year eps growth of at least 10%
Louisville, ky.--(business wire)--yum! brands, inc. (nyse: yum) today reported results for the second quarter ended june 13, 2015, including eps of $0.69, excluding special items. reported eps was $0.53. second-quarter highlights worldwide system sales grew 3%. worldwide restaurant margin was even at 15.5%, and worldwide operating profit decreased 1%. total international development was 291 new restaurants; 75% of this development occurred in emerging markets. china division system sales declined 4%, as 7% unit growth was offset by a 10% same-store sales decline. restaurant margin decreased 2.2 percentage points to 14.6%. operating profit decreased 25%. kfc division system sales increased 6%, driven by 2% unit growth and 3% same-store sales growth. operating margin increased 1.3 percentage points to 21.9%. operating profit increased 10%. pizza hut division system sales increased 1%, driven by 2% unit growth. same-store sales were even. operating margin decreased 0.9 percentage points to 22.6%. operating profit decreased 1%. taco bell division system sales increased 9%, driven by 3% unit growth and 6% same-store sales growth. operating margin increased 4.7 percentage points to 29.5%. operating profit increased 29%. india division system sales were even, as 16% unit growth was offset by an 11% same-store sales decline. worldwide effective tax rate increased to 25.6% from 24.9%. foreign currency translation negatively impacted operating profit by $22 million. second quarter year-to-date 2015 2014 % change 2015 2014 % change 1 see reconciliation of non-gaap measurements to gaap results for further detail of special items. special items in 2015 are primarily related to a non-cash charge associated with refranchising our mexico business. note: all comparisons are versus the same period a year ago and exclude special items unless noted. system sales and operating profit figures on this page exclude foreign currency translation; restaurant margin and operating margin figures are as reported. greg creed comments greg creed, ceo, said “eps exceeded our original expectations in the second quarter and i'm pleased with the continued progress we are making in china, as well as the performance from our taco bell and kfc divisions. i’m confident we will deliver full-year eps growth of at least 10%, driven by a strong second half in china and solid brand-building initiatives underway at each of our divisions. china division restaurant margin in the second quarter was an encouraging 14.6%, even though same-store sales declined 10%, reinforcing our belief in significant profit leverage as sales recover. we expect substantial same-store sales and profit growth in the second half given overall trends in sales and brand perceptions. furthermore, the china division remains on track to open at least 700 new restaurants this year, laying the groundwork for future growth. outside of china, taco bell is firing on all cylinders driven by industry-leading innovation and a solid breakfast platform. kfc continues to produce consistently positive results in both emerging and developed markets, including our u.s. business. at pizza hut, results continue to be soft, but we are taking clear steps to get the business back on track. internationally, we’re on pace to set a new record this year by opening 2,100 new restaurants, extending our lead in emerging markets. all of this should help us to achieve double-digit earnings growth this year, despite ongoing headwinds from foreign currency translation. our goal remains building three iconic, global brands people trust and champion, while delivering shareholder value through our three key drivers: same-store sales growth, new-unit development and high returns on invested capital. as we continue to strengthen our business around the world, i'm confident that this formula will produce consistent double-digit eps growth over the long term.” china division second quarter year-to-date 2015 2014 reported ex f/x 2015 2014 reported ex f/x china division system sales decreased 4%, prior to foreign currency translation. same-store sales declined 10%, including declines of 12% at kfc and 4% at pizza hut casual dining, reflecting continued recovery from adverse supplier publicity in july 2014. same-store sales declined 10%, including declines of 12% at kfc and 4% at pizza hut casual dining, reflecting continued recovery from adverse supplier publicity in july 2014. china division opened 80 new units during the quarter. 1 total includes east dawning and little sheep units. 2 represents year-over-year change. restaurant margin was 14.6% in a seasonally low period, a decrease of 2.2 percentage points, driven by sales deleverage. foreign currency translation negatively impacted operating profit by $1 million. kfc division second quarter year-to-date 2015 2014 reported ex f/x 2015 2014 reported ex f/x kfc division system sales increased 6%, excluding foreign currency translation. kfc division opened 122 new international restaurants in 39 countries, including 89 units in emerging markets. 85% of these new units were opened by franchisees. operating margin increased 1.3 percentage points, driven by same-store sales growth and new-unit development. foreign currency translation negatively impacted operating profit by $19 million, as approximately 90% of division profits are generated outside the u.s. percent of kfc system sales 2 1 see website www.yum.com under tab "investors" for a list of the countries within each of the markets. 2 reflects full year 2014. pizza hut division second quarter year-to-date 2015 2014 reported ex f/x 2015 2014 reported ex f/x pizza hut division system sales increased 1%, prior to foreign currency translation. pizza hut division opened 66 new international restaurants in 33 countries, including 33 units in emerging markets. 92% of these new units were opened by franchisees. operating margin declined 0.9 percentage points, driven by strategic investments in international g&a. foreign currency translation negatively impacted operating profit by $2 million. percent of pizza hut system sales2 1 see website www.yum.com under tab "investors" for a list of the countries within each of the markets. 2 reflects full year 2014. taco bell division second quarter year-to-date 2015 2014 reported ex f/x 2015 2014 reported ex f/x taco bell division system sales increased 9%, driven by 6% same-store sales growth and 3% unit growth. taco bell division opened 58 new restaurants; 88% of these new units were opened by franchisees. restaurant margin was 23.0%, an increase of 5.3 percentage points, driven by same-store sales growth. operating margin increased 4.7 percentage points, driven by same-store sales growth. india division india division system sales were even prior to foreign currency translation, as 16% unit growth was offset by an 11% same-store sales decline. operating loss was $3 million, as compared to an operating loss of $1 million in prior year. 1 total includes 6 taco bell units. 2 represents year-over-year change. special items / share repurchase update in 2010, we refranchised our mexico equity market but did not sell the underlying real estate. during the quarter, we initiated plans to sell this real estate, and as a result, we wrote down the carrying value of our mexico business to its fair value, triggering a $68 million non-cash special items charge to refranchising loss. this charge negatively impacted reported eps by $0.13 for the quarter, while benefiting our ex-special tax rate by 2 percentage points. year-to-date through july 13, 2015, we repurchased 4.4 million shares totaling $363 million at an average price of $82. conference call yum! brands, inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. eastern time wednesday, july 15, 2015. the number is 877/815-2029 for u.s. callers and 706/645-9271 for international callers. the call will be available for playback beginning at 1:00 p.m. eastern time wednesday, july 15, through midnight saturday, august 15, 2015. to access the playback, dial 855/859-2056 in the united states and 404/537-3406 internationally. the playback pass code is 50758903. the webcast and the playback can be accessed via the internet by visiting yum! brands' website, www.yum.com/investors and selecting “q2 2015 earnings conference call” under “events & presentations.” a podcast will be available within 24 hours. additional information online quarter end dates for each division, restaurant-count details and definitions of terms are available online at www.yum.com under “investors.” this announcement, any related announcements and the related webcast 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 can be identified by the fact that they do not relate strictly to historical or current facts. our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. factors that can cause our actual results to differ materially include, but are not limited to: food safety and food borne-illness issues; changes in economic conditions, consumer preferences, tax rates and laws and the regulatory environment, as well as increased competition and other risks in china, where a significant and growing portion of our restaurants are located; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; changes in economic and political conditions in the other countries outside the u.s. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our international development strategy; commodity, labor and other operating costs; the continued viability and success of our franchise and license operators; consumer preferences and perceptions of our brands; the impact of social media; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations; tax matters, including disagreements with taxing authorities; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; and competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. you should consult our filings with the securities and exchange commission (including the information set forth under the captions “risk factors” and “forward-looking statements” in our annual report on form 10-k) for additional detail about factors that could affect our financial and other results. forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. you should not place undue reliance on forward-looking statements, which speak only as of the date hereof. we are not undertaking to update any of these statements. yum! brands, inc., based in louisville, kentucky, has over 41,000 restaurants in more than 125 countries and territories. yum! is ranked #228 on the fortune 500 list with revenues of over $13 billion in 2014 and is one of the aon hewitt top companies for leaders in north america. the company's restaurant brands - kfc, pizza hut and taco bell - are the global leaders of the chicken, pizza and mexican-style food categories. outside the united states, the yum! brands system opens over five new restaurants per day on average, making it a leader in international retail development. yum! brands, inc. condensed consolidated summary of results (amounts in millions, except per share amounts) (unaudited) effective tax rate basic eps data diluted eps data see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. china division operating results (amounts in millions) (unaudited) see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. kfc division operating results (amounts in millions) (unaudited) see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. pizza hut division operating results (amounts in millions) (unaudited) see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. taco bell division operating results (amounts in millions) (unaudited) see accompanying notes. percentages may not recompute due to rounding. yum! brands, inc. condensed consolidated balance sheets (amounts in millions) 276 1,729 property, plant and equipment, net of accumulated depreciation and amortization of $3,704 in 2015 and $3,584 in 2014 622 8,294 1,726 (157 1,569 1,625 8,294 see accompanying notes. yum! brands, inc. condensed consolidated statements of cash flows (amounts in millions) (unaudited) see accompanying notes. reconciliation of non-gaap measurements to gaap results (amounts in millions, except per share amounts) (unaudited) yum! brands, inc. segment results (amounts in millions) (unaudited) pizza hut corporateandunallocated corporateandunallocated 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) corporateandunallocated taco bell corporateandunallocated 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) (c) in 2010 we refranchised our then remaining company-operated restaurants in mexico. to the extent we owned it, we did not sell the real estate related to certain of these restaurants, instead leasing it to the franchisee. during the quarter ended june 13, 2015 we initiated plans to sell this real estate and determined it was held for sale in accordance with gaap. the sales price we expect to receive for this real estate exceeds its book value. however, the sale of the real estate will represent a substantial liquidation of our mexican operations under u.s. gaap. accordingly, we are required to include accumulated translation losses associated with our mexican business within our held for sale impairment evaluations. as such, we recorded a $68 million non-cash special items charge to refranchising loss, consistent with the classification of the original market refranchising transaction, representing the excess of the sum of the book value of the real estate and our accumulated translation losses over the expected sales price for the real estate. our current expectation is that the real estate sale will close late in 2015 with limited, if any, additional pre-tax gain or loss. the refranchising is ultimately expected to result in a taxable gain as the anticipated proceeds will exceed the tax basis in the real estate, though the related tax expense will not be recognized until the sale closes. (d) during the first quarter of 2015, we reached an agreement with our kfc u.s. franchisees that will give us brand marketing control as well as an accelerated path to improved assets and customer experience. in connection with this agreement we recognized a special items charge of $8 million for the quarter ended june 13, 2015, primarily related to the funding of investments for new back-of-house equipment for franchisees. we continue to expect a total charge of approximately $90 million in 2015 for these and other investments we agreed to fund. (e) during both the quarters ended june 13, 2015 and june 14, 2014, we recorded special items gains of $1 million related to refranchising in the u.s. during the years to date ended june 13, 2015 and june 14, 2014, we recorded special items gains of $8 million and $3 million, respectively, related to refranchising in the u.s.
