Yum! Brands Reports Second-Quarter 2013 EPS Declined 16%, Excluding Special Items; China Division Sales And Profits Declined Significantly; KFC China Sales Recovering As Expected

Yum! Brands, Inc. (NYSE: YUM) today reported results for the second quarter ended June 15, 2013, including EPS of $0.56, excluding Special Items. Reported EPS was $0.61 for the quarter.

SECOND-QUARTER HIGHLIGHTS
  • Worldwide system sales grew 1%, prior to foreign currency translation, including 6% at Yum! Restaurants International (YRI) and 2% in the U.S. System sales declined 12% in China.
  • China Division sales and profits were significantly impacted by adverse publicity surrounding Avian flu, as well as the residual effect of the December poultry supply incident.
  • Same-store sales declined 20% in China. Same-store sales grew 1% at YRI and 1% in the U.S.
  • Total international development was 315 new restaurants; 76% of this development occurred in emerging markets.
  • Worldwide restaurant margin declined 2.7 percentage points to 12.5%, including a decline of 5.0 percentage points in China. Restaurant margin increased 0.8 percentage points at YRI and 0.8 percentage points in the U.S.
  • Worldwide operating profit declined 20%, prior to foreign currency translation, including a 63% decline in China. Operating profit grew 12% at YRI and 4% in the U.S.
  • Worldwide effective tax rate, prior to Special Items, decreased to 22.1% from 23.9%. The decrease in the tax rate positively impacted year-over-year EPS results by 2 percentage points.

CHINA SALES UPDATE
  • June same-store sales declined an estimated 10% for the China Division, improving from a 19% decline in May. This included an estimated decline of 13% at KFC and 6% growth at Pizza Hut Casual Dining. June sales are included in the China Division’s third-quarter results.

FULL-YEAR OUTLOOK

Estimated mid-single-digit full-year EPS decline versus prior year, excluding Special Items, remains unchanged. China Division same-store sales are expected to continue to recover over the course of the year and be positive in the fourth quarter.
 
  Second Quarter   Year-to-Date
2013   2012   % Change 2013   2012   % Change
EPS Excluding Special Items $ 0.56 $ 0.67 (16 )% $ 1.26 $ 1.43 (12 )%
Special Items Gain/(Loss) 1 $ 0.05 $ 0.02 NM $ 0.07 $ 0.22 NM
EPS   $ 0.61   $ 0.69   (13 )%   $ 1.33   $ 1.65   (19 )%

1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of the Special Items. Special Items for second quarter and year-to-date 2013 are primarily related to 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 NOVAK COMMENTS

David C. Novak, Chairman and CEO, said, “Second-quarter EPS declined 16%, which was generally in line with our expectations. KFC sales and profits in China were significantly impacted by intense media surrounding Avian flu, as well as the residual effect of the December poultry supply incident. The good news is that China sales are recovering as expected. The extensive media surrounding Avian flu in China has subsided and same-store sales at KFC are clearly improving.

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