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Yum! Brands Announces Full-Year 2012 EPS Growth Of 13%, Or $3.25 Per Share, Excluding Special Items; Opens A Record 1,976 New International Restaurants; Adverse Publicity Regarding Poultry Supply Continues To Significantly Impact China KFC Sales

Stocks in this article: YUM

“Although we cannot predict how long it will take to restore sales, we are steadfast in our belief that the power and popularity of the KFC brand in China will ultimately drive a full sales recovery. Having weathered other storms in the past, we know that our brands are resilient. As a result, we will stay the course with our target to develop at least 700 new units in 2013 in China to lay the foundation for future growth, and will not let this event detract from our unparalleled China growth opportunity.

“Our growth strategies are unchanged, in China, Yum! Restaurants International, India and the U.S. With our category-leading brands and outstanding people capability, I’m confident we will bounce back strongly and restore our track record of double-digit EPS growth in the years ahead.”

 

CHINA DIVISION

 
 

Fourth Quarter

 

Full Year 1

  % Change     % Change

2012

 

2011

Reported

 

Ex F/X

2012

2011

Reported

 

Ex F/X

System Sales Growth +12 +11 +23 +20
Same-Store Sales Growth (%) (6) +21 NM NM +4 +19 NM NM
Restaurant Margin (%) 13.9 15.8 (1.9) (1.9) 18.1 19.7 (1.6) (1.6)
Operating Profit ($MM)   203   210   (3)   (5)   1,015   908   +12   +9

1 The second quarter of 2012 is the first quarter to include the consolidated operating results of Little Sheep.

 
  • China Division KFC same-store sales turned sharply negative during the last two weeks of December as a result of adverse publicity from the China poultry supply situation.
  • China system sales increased 20% for the year and 11% in the fourth quarter, prior to foreign currency translation.
    • KFC same-store sales grew 3% for the year and declined 8% in the fourth quarter.
    • Pizza Hut Casual Dining same-store sales grew 10% for the year and 7% in the fourth quarter.
  • We estimate the timing of Chinese New Year had a negative mid teen impact on January same-store sales growth for both KFC and Pizza Hut Casual Dining. We expect this negative impact of Chinese New Year to reverse in February. January 2013 estimated same-store sales declined 37%, including 41% for KFC and 15% at Pizza Hut Casual Dining.
  • China opened a record 889 new units during the year, including 369 in the fourth quarter.
China Units   Q4 2012   % Change 2
Traditional Restaurants 1   5,275   +17
KFC 4,260 +15
Pizza Hut Casual Dining   826   +32

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 1.6 percentage points to 18.1% for the year, driven by wage rate inflation of 10%, commodity inflation of 1% and higher start-up costs from an increased pace of development. Restaurant margin decreased 1.9 percentage points to 13.9% in the fourth quarter, driven by a decline in same-store transactions.
  • Foreign currency translation positively impacted operating profit by $26 million for the year and $3 million in the quarter.
  • For the year, the Little Sheep acquisition had a positive impact of 3 percentage points on system sales growth, a negative impact of 0.4 percentage points on restaurant margin and a negative impact of 1 percentage point on operating profit. For the quarter, 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 a negligible impact on operating profit.
 

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

 
 

Fourth Quarter

 

Full Year

    % Change     % Change

2012

2011

Reported

 

Ex F/X

2012

2011

Reported

 

Ex F/X

Traditional Restaurants 14,500 13,987 +4 NA 14,500 13,987 +4 NA
System Sales Growth +1 +3 +2 +5
Restaurant Margin (%) 14.1 11.9 2.2 2.2 12.9 12.4 0.5 0.5
Franchise & License Fees ($MM) 283 268 +5 +8 879 851 +3 +7
Operating Profit ($MM) 224 206 +8 +10 715 673 +6 +10
Operating Margin (%)   21.6   20.3   1.3   1.4   21.8   21.1   0.7   0.7
 
  • YRI Division system sales increased 5% for the year and 3% in the fourth quarter, prior to foreign currency translation. The system sales increases were driven by record new-unit development and 3% same-store sales growth for both the quarter and the year.
    • The 2011 divestiture of LJS / A&W and 53rd week had a negative impact of 2% on system sales for the year.
    • Emerging markets system sales grew 12% for the year, driven by 7% same-store sales growth and 7% unit growth.
    • Developed markets system sales grew 1% for the year, driven by 1% same-store sales growth and 1% unit growth.
  • YRI opened a record 949 new units in 78 countries. This included 473 new units in the fourth quarter.
    • For the year, 617 new units were opened in emerging markets.
    • Our franchise partners opened 92% of all new units.
  • Foreign currency negatively impacted operating profit by $26 million for the year and $5 million in the fourth quarter.
  • The 2011 divestiture of LJS / A&W had a negative impact of 1% on operating profit growth for the year.
 
YRI MARKETS 1       SYSTEM Sales Growth

Ex F/X and Ex 53rd Week

Percent of YRI 2   Fourth Quarter (%)   Full Year (%)
Franchise    
Asia (ex Japan) 16% +1 +2
Japan 10% (4) (2)
Latin America 11% +9 +9
Middle East 8% +10 +11
Continental Europe 7% +2 +4
Canada 6% +1 Flat
 
Combined Company / Franchise
UK 12% +3 +4
Australia / New Zealand 11% +4 +2
Thailand 2% +20 +14
Korea 2% +16 +11
 
Key Growth
Africa 7% +21 +17
France 4% +5 +8
Germany / Netherlands 2% +12 +11
Russia   2%   +47   +46

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 2012.

 
 

U.S. DIVISION

 
   

Fourth Quarter

   

Full Year

2012

   

2011

   

% Change

2012

   

2011

   

% Change

Same-Store Sales Growth (%) +3 +1 NM +5 (1) NM
Restaurant Margin (%) 16.7 13.4 3.3 16.3 12.1 4.2
Franchise and License Fees ($MM) 247 252 (2) 802 786 +2
Operating Profit ($MM) 180 191 (5) 666 589 +13
Operating Margin (%)     19.0     16.1     2.9     19.9     15.5     4.4
 
  • U.S. Division same-store sales increased 5% for the year, including growth of 8% at Taco Bell, 3% at Pizza Hut and 3% at KFC. In the fourth quarter, same-store sales increased 3%, driven by growth of 5% at Taco Bell, 4% at KFC and offset by a decline of 1% at Pizza Hut.
  • Restaurant margin increased 4.2 percentage points for the year, driven primarily by strong sales leverage. In the fourth quarter, restaurant margin increased 3.3 percentage points.
  • Positive net-unit development of 21 units for the year.
  • The 2011 divestiture of LJS / A&W and the 53rd week negatively impacted franchise and license fees by 7 percentage points and operating profit by 1 percentage point for the year; and negatively impacted franchise and license fees by 10 percentage points and operating profit by 12 percentage points for the quarter.

INDIA DIVISION

  • India Division system sales increased 29% for the year and 24% for the fourth quarter, prior to foreign currency translation. The system sales increase was driven by unit growth of 27% and same-store sales growth of 5% for the year.
         
India Units   Q4 2012   % Change 1
Traditional Restaurants 2   593   +27
KFC 280 +38
Pizza Hut Casual Dining 181 +9
Pizza Hut Home Service   129   +37

1 Annual rate of change

2 Total includes 3 Taco Bell units

 

OWNERSHIP / SPECIAL ITEMS UPDATE

  • For the year in the U.S., we refranchised 468 units for proceeds of $311 million, primarily related to Taco Bell. We recorded pre-tax U.S. refranchising gains of $122 million in Special Items. At fiscal year end, our company ownership in the U.S. is 11%.
  • During the quarter, we refranchised our Pizza Hut UK Dine-In business, which included 331 units. This resulted in a Special Items charge of $46 million for the quarter. At fiscal year end, our company ownership at YRI is 8%.
  • During the quarter, in an effort to reduce ongoing volatility and administration expense in connection with the Company’s U.S. pension obligation, the Company offered certain former employees the limited opportunity to voluntarily elect an early payout of their pension benefits funded from existing pension plan assets. As a result of the program, we recorded a pre-tax non-cash pension settlement charge of $84 million in Special Items for the quarter.

OTHER ITEMS UPDATE

  • For the year, worldwide effective tax rate, prior to Special Items, increased 1.6 percentage points to 25.8%.
  • Increased annual dividend rate to $1.34 per share. This 18% increase marked the eighth consecutive year the dividend increased at a double-digit percentage rate.
  • For the year, we repurchased 14.9 million shares totaling $985 million at an average of $66. In the quarter, we repurchased 4.1 million shares for $283 million at an average price of $69.

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 Tuesday, February 5, 2013. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

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