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Yum! Brands Reports Third-Quarter 2013 EPS Declined 15%, Excluding Special Items; Soft KFC China Sales And Higher Tax Rate Reduce Full-Year EPS Expectations

Yum! Brands, Inc. (NYSE: YUM) today reported results for the third quarter ended September 7, 2013, including EPS of $0.85, excluding Special Items. Reported EPS was $0.33 for the quarter, which included a $0.55 non-cash charge related to the write-down of Little Sheep intangible assets.

  • Worldwide system sales grew 1%, prior to foreign currency translation, including 5% growth at Yum! Restaurants International (YRI). System sales declined 2% in China and were flat in the U.S.
  • Same-store sales declined 11% in China. Same-store sales grew 1% at YRI and were flat in the U.S.
  • Total international development was 364 new restaurants; 79% of this development occurred in emerging markets.
  • Worldwide restaurant margin declined 1.3 percentage points to 17.6%, including declines of 1.9 percentage points in China, 0.6 percentage points at YRI and 0.7 percentage points in the U.S.
  • Worldwide operating profit declined 9%, prior to foreign currency translation, including declines of 14% in China and 2% at YRI. Operating profit grew 1% in the U.S.
  • Worldwide effective tax rate, prior to Special Items, increased to 33.1% from 25.1% driven primarily by a tax reserve adjustment. The tax rate increase negatively impacted EPS results by 10 percentage points.
  • A non-cash, Special Item net charge of $258 million related to the write-down of Little Sheep intangible assets was recorded in the quarter. This charge impacted reported EPS by 55 percentage points.
  • On September 19, 2013, the Company announced a 10% increase in its quarterly dividend, marking the ninth consecutive year the dividend increased at a double-digit percentage rate.

  • September same-store sales, which will be included in China Division’s fourth-quarter results, declined an estimated 11% for the China Division. This included estimated growth of 6% at Pizza Hut Casual Dining and an estimated decline of 13% at KFC, where sales have not yet fully recovered from the adverse publicity surrounding the December poultry supply incident.


Based on KFC China sales for September, it is now unlikely China Division same-store sales will be positive for the fourth quarter. Given lower-than-expected China sales and a higher-than-expected full-year tax rate, the Company now estimates a high-single to low-double-digit full-year EPS decline versus prior year, excluding Special Items. This compares to our previous guidance of a mid-single-digit decline in EPS.

Third Quarter




% Change



% Change
EPS Excluding Special Items $0.85 $0.99 (15)% $2.11 $2.42 (13)%
Special Items Gain/(Loss) 1 $(0.52) $0.01 NM $(0.45) $0.23 NM
  EPS     $0.33     $1.00     (67)%     $1.66     $2.65     (37)%  

1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for 2013 are primarily related to the impairment of Little Sheep and U.S. refranchising gains. Special Items for 2012 comparable periods are primarily related to the Little Sheep acquisition gain, U.S. refranchising gains and Pizza Hut UK refranchising.

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.


David C. Novak, Chairman and CEO, said, “Despite the disappointing third-quarter performance, I remain as confident as ever in our ability to deliver strong, sustainable growth in the years to come. Given a slower-than-expected sales recovery at KFC China and a higher-than-expected tax rate, we are now estimating a high-single to low-double-digit percentage decline in full-year EPS versus prior year, excluding Special Items. Our revised full-year EPS outlook is obviously well below our 11-year track record of double-digit growth through 2012. We also recorded a significant non-cash Special Item charge for the write-down of Little Sheep intangible assets. Little Sheep remains the number-one brand in China’s largest casual dining category, and we remain committed to this concept as an engine of future growth.

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