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Yum! Brands Reports Second-Quarter EPS Growth Of 1%, Or $0.67 Per Share, Excluding Special Items; Projects Record International New-Unit Development For The Year; Reconfirms Full-Year 2012 EPS Growth Forecast Of At Least 12%

Yum! China, our largest profit-contributing division, reported strong system sales growth of 27%, prior to foreign currency translation. However, operating profit declined 4%, prior to foreign currency translation, as high inflation drove restaurant margins down 4 percentage points versus last year. We expect this to be short-lived, returning to double-digit profit growth in the second half of the year. Our outstanding China team now expects to open a record of at least 700 new units this year.

System sales grew 7% at YRI and operating profit grew 6%, both prior to foreign currency translation. Same-store sales in YRI’s emerging markets grew 9%, driving overall same-store sales growth of 4% at YRI. System sales grew 32% in our India division. Our YRI and India divisions combined will also set a new-unit development record this year with over 1,000 new restaurants. Over 65% of these new units are expected to open in high-growth emerging markets.

Most importantly, I’m confident we’re making our brands even more vibrant around the world. Our long-term growth prospects have never been brighter as we continue to deliver consistently strong annual results. We expect this year to be our eleventh consecutive year of double-digit EPS growth, prior to special items.”

CHINA DIVISION
 

Second Quarter 1
 

Year-to-Date
  % Change     % Change

2012
 

2011

Reported
 

Ex F/X

2012

2011

Reported
 

Ex F/X
System Sales Growth +31 +27 +32 +28
Same-Store Sales Growth (%) +10 +18 NM NM +12 +16 NM NM
Restaurant Margin (%) 15.6 19.7 (4.1 ) (4.1 ) 19.1 22.0 (2.9 ) (3.0 )
Operating Profit ($MM)   182   182       (4 )   438   397   +10     +6  

1 The second quarter of 2012 is the first quarter to include the consolidated operating results of Little Sheep.
 
  • China Division system sales increased 27%, prior to foreign currency translation. Same-store sales increased 10%, overlapping prior year same-store sales growth of 18%.
    • Same-store sales growth was driven by a 6% increase in same-store transactions.
    • Same-store sales growth was 9% at KFC and 10% at Pizza Hut Casual Dining, overlapping prior year same-store sales growth of 17% and 22%, respectively.
  • China opened 160 new units and now projects record new-unit development of at least 700 units this year.
 
China Units   Q2 2012   % Change 2
Traditional Restaurants 1   4,785   +18
KFC 3,917 +16
Pizza Hut Casual Dining   696   +28

1 Total includes Pizza Hut Home Service and East Dawning; excludes Little Sheep units

2 Annual Rate of Change excludes Little Sheep units for comparability of core business
 
  • Restaurant margin decreased 4.1 percentage points to 15.6%, driven primarily by wage rate inflation of 13% and commodity inflation of 6%, and higher start-up costs from an increased pace of development.
  • Foreign currency translation positively impacted operating profit by $6 million.
  • The Little Sheep acquisition had a positive impact of 4 percentage points on system sales growth, a negative impact of 0.3 percentage points on restaurant margin, and no impact on operating profit.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION
 

Second Quarter 3
 

Year-to-Date 3
 

% Change
 

% Change

2012
 

2011

Reported
 

Ex F/X

2012
 

2011

Reported
 

Ex F/X
Traditional Restaurants 1 14,105 13,675 +3 NA 14,105 13,675 +3 NA
System Sales Growth +4 +7 +5 +7
Restaurant Margin (%) 11.8 12.9 (1.1 ) (1.1 ) 12.0 12.9 (0.9 ) (0.9 )
Franchise & License Fees ($MM) 193 186 +4 +7 392 372 +5 +8
Operating Profit ($MM) 2 150 146 +3 +6 318 304 +5 +7
Operating Margin (%)   19.5   19.9   (0.4 )   (0.3 )   21.5   21.9   (0.4 )   (0.3 )
 

1 During the fourth quarter of 2011, we sold the LJS and A&W brands. As a result, 341 LJS and A&W restaurants have been removed from the 2011 unit balance. LJS and A&W results remain in all other 2011 financial numbers.

2 The 2011 divestiture of LJS and A&W had a negligible impact on operating profit.

3 Results for all periods exclude the India Division. India is now a standalone segment and reported separately.
 
  • YRI Division system sales increased 7%, prior to foreign currency translation.
    • Emerging markets system sales grew 13%, driven by 9% same-store sales growth and 7% unit growth.
    • Developed markets system sales grew 2%, driven by 1% same-store sales growth.
  • YRI opened 172 new units in 45 countries.
    • For the quarter, 108 new units were opened in emerging markets.
    • Our franchise partners opened 91% of all new units.
  • Restaurant margin decreased 1.1 percentage points driven by increased costs in Thailand and a same-store sales decline in KFC France. While same-store sales declined in KFC France, system sales grew 6% due to unit growth.
  • Foreign currency negatively impacted operating profit by $5 million.
 
YRI MARKETS 1   SYSTEM Sales Growth (Ex F/X)

Percent of YRI 2
  Second Quarter (%)   Year-to-Date (%)
Franchise    

Asia (ex Japan) 3
16 % +3 +6
Japan 11 % +5 +2
Latin America 11 % +11 +10
Middle East 8 % +15 +16
Continental Europe 7 % +6 +7
Canada 6 % +1 +1
 
Combined Company / Franchise
UK 12 % +4 +5
Australia / New Zealand 12 % (2 ) (1 )
Thailand 2 % +13 +10
Korea 1 % +10 +7
 
Key Growth
Africa 6 % +13 +14
France 4 % +6 +13
Germany / Netherlands 2 % +14 +14
Russia   2 %   +44     +45  
 

1 See website www.yum.com under tab "Investors" for a list of the countries within each of the YRI markets.

2 Percentage of Total YRI System Sales for Full Year 2011.

3 The timing of Chinese New Year negatively impacted Asia system sales growth by approximately 2 percentage points in the second quarter while benefiting the first quarter by approximately 2 percentage points.
 
 
 

U.S. DIVISION
 

Second Quarter
 

Year-to-Date

2012
 

2011
 

% Change

2012
 

2011
 

% Change
Same-Store Sales Growth (%) +7 (4 ) NM +6 (2 ) NM
Restaurant Margin (%) 17.5 11.7 5.8 16.0 11.2 4.8
Franchise and License Fees ($MM) 188 180 +4 366 352 +4
Operating Profit ($MM) 166 132 +26 324 255 +27
Operating Margin (%)   20.4   15.0     5.4   20.1   14.8     5.3
 
  • U.S. Division same-store sales increased 7%, including growth of 13% at Taco Bell, 4% at Pizza Hut and 1% at KFC.
  • Restaurant margin increased 5.8 percentage points, driven primarily by strong sales leverage.
  • The 2011 divestiture of LJS and A&W negatively impacted revenue growth by 1 percentage point, franchise and license fees by 6 percentage points, and operating profit by 1 percentage point.

YUM! RESTAURANTS INDIA DIVISION
  • India Division system sales increased 32%, prior to foreign currency translation. The system sales increase was driven by unit growth of 29% and same-store sales growth of 7%.
 
India Units   Q2 2012   % Change 1
Traditional Restaurants 2   479   +29
KFC 212 +38
Pizza Hut Casual Dining 168 +8
Pizza Hut Home Service   96   +68

1 Annual rate of change

2 Total includes 3 Taco Bell units
 
 

OWNERSHIP / SPECIAL ITEMS UPDATE
  • In the U.S., we refranchised 38 units for proceeds of $21 million, primarily related to Taco Bell. We recorded pre-tax gains of $9 million related to these transactions in Special Items. Currently, our company ownership is 12% in the U.S. Upon the completion of our U.S. refranchising program, total company ownership in the U.S. will be 10% or slightly less.

OTHER ITEMS UPDATE
  • In the second quarter, shares repurchased at an average price of $68 totaled $211 million for 3.1 million shares. Through the date of the release, shares repurchased totaled $438 million for 6.7 million shares at an average price of $66.

CONFERENCE CALL

Yum! Brands Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. Eastern Time Thursday, July 19, 2012. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

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