LOUISVILLE, Ky., Feb 03, 2009 (BUSINESS WIRE) -- Yum! Brands Inc. (NYSE: YUM) today reported results for the fourth quarter and year ended December 27, 2008.

FULL-YEAR HIGHLIGHTS

• Worldwide system-sales growth of 7%, excluding foreign currency translation, driven by record international development of 1,495 new units and same-store-sales growth of 3%.
• Worldwide operating profit growth of 8%, excluding special items, including double-digit operating profit growth from China Division of 25% and Yum! Restaurants International (YRI) of 10%, partially offset by a 6% decline in the U.S.
• Record shareholder payout of $2 billion through share buybacks and dividends, with share buybacks reducing average diluted share count by 9%.
• An industry leader with return on invested capital (ROIC) of 20%.

FOURTH-QUARTER HIGHLIGHTS

• Worldwide system-sales growth of 6%, excluding foreign currency translation, with strong international development of 630 new units and same-store-sales growth of 3%, which marks our 21^st consecutive quarter of same-store-sales growth.
• Strong worldwide operating profit growth of 17%, excluding special items, driven by 18% growth in China Division, 7% growth in the U.S., and lower corporate and unallocated G&A partially offset by a 2% decline in YRI due to the negative impact of foreign currency translation.

Note: All comparisons are versus the same period a year ago unless noted.

David C. Novak, Chairman and CEO, said, "I'm very pleased to report 14% EPS growth for the full year 2008, ending the year with impressive 17% operating profit growth in the fourth quarter, both before special items. These results for 2008 again exceeded our annual target for at least 10% EPS growth and represent our seventh straight year of at least 13% growth. Our China and YRI Divisions, which now account for 60% of operating profit, are a major factor in driving this consistency of performance. 2008 was no exception, as we opened a record 1,495 new restaurants outside the U.S., generated worldwide same-store-sales growth of 3%, and grew worldwide operating profit by 8%.

"As we go into 2009 we continue to target at least 10% growth in EPS, while recognizing that in particular the U.S. consumer is under extreme financial pressure, making sales growth more difficult to achieve than in recent times. This is particularly evident for the higher guest check dinner occasion. Nevertheless, we remain confident that the power of our global portfolio will enable us to once again perform relatively well in what promises to be a challenging environment.

"The good news is that we have already taken actions to significantly improve our 2009 cost structure in the U.S. and at the corporate level. We are also more focused than ever on bringing innovative incremental sales layers and value to our consumers around the globe. In 2008, this included successful launches of the Tuscani pasta line at Pizza Hut, and the "Why Pay More?" menu and Frutista Freeze line of beverages at Taco Bell. For 2009, we will continue to build on these successful new sales layers with product additions, as well as create new sales layers such as Kentucky Grilled Chicken at KFC. Finally, it is important to note that we do not need to access the credit markets in 2009 to finance our company and our strong cash flow and balance sheet provide us with the flexibility to successfully navigate through these challenging financial times.

"Overall, the long-term fundamentals driving the growth of our global portfolio remain intact and continue to give us the unique ability to drive unparalleled international new unit development while also achieving same-store-sales growth, and improving our industry-leading return on invested capital. Given all this, we expect to continue to drive shareholder value in 2009 and beyond."

CHINA DIVISION

• China Division system-sales growth of 20% for the full year and 15% for the fourth quarter, excluding foreign currency translation, was driven by mainland China unit development and same-store-sales growth. Foreign currency translation benefited fourth quarter and full year reported system sales growth.

Mainland China opened a record of 504 new units in 2008, surpassing 3,000 units, which further strengthened the company's leadership position in China's rapidly growing restaurant industry.

Mainland China full year same-store-sales grew by 7%, lapping growth of 12% in 2007. Fourth quarter same-store-sales growth of 1% lapped exceptional growth of 17%. Note, the fourth quarter performance was negatively impacted by one point due to a weekend shift in December.

• For the full year and fourth quarter 2008, the decrease in China Division restaurant margin percentage was due to continued high commodity inflation, as well as labor inflation. Commodity inflation was $78 million for the full year and $22 million for the fourth quarter. We expect 2009 commodity inflation to moderate as the year progresses resulting in at least flat margins for the full year.
• Foreign currency conversion benefited full year and fourth quarter operating profit by $41 million and $10 million, respectively.
• Fourth quarter operating profit growth of 18% lapped exceptionally strong growth of 44% in 2007.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

• YRI continued to generate strong system-sales growth of 9% for the quarter and 8% for the full year, excluding foreign currency translation, demonstrating the power of the YRI portfolio, which includes over 700 franchisees and presence in over 110 countries. In the fourth quarter, reported system-sales growth was negatively impacted by 8 percentage points due to foreign currency translation. The table below provides further insight into key YRI markets.

• For the full year, YRI same-store-sales grew by 4%, lapping growth of 6% in 2007. Fourth quarter same-store-sales growth of 5% lapped growth of 5%.
• For 2008, YRI opened a record 924 new restaurants in more than 75 countries with our franchise partners opening 94% of these new units.
• Foreign currency translation negatively impacted operating profit by $13 million in the fourth quarter and generated a full year benefit of $9 million.
• The loss of a Value Added Tax (VAT) exemption in our Mexico business adversely impacted restaurant margin percentage by more than one percentage point for the quarter and the full year. This negatively impacted operating profit by $11 million or 8 points of growth for the quarter and $34 million or 7 points of growth for the full year. For the first quarter of 2009, the negative impact is expected to be $4 million after which it will no longer impact subsequent quarters.

U.S. DIVISION

• Fourth quarter system same-store-sales growth was 2%, the sixth straight quarter of growth.
• Fourth quarter restaurant and operating margin percentages improved due to the benefit from pricing and refranchising partially offset by $32 million of commodity inflation. Full year restaurant and operating margins declined due primarily to record high commodity inflation of $119 million.

U.S. REFRANCHISING UPDATE

During 2008, a total of 700 company-owned U.S. restaurants were sold to franchisees reducing company ownership to 19%. As previously announced, we expect to refranchise 500 units in 2009 and reduce company ownership to 10% or less by year-end 2010.

We expect U.S. refranchising will generate the following financial impacts over the three-year period (2008-2010): pretax sales proceeds of about $1 billion, U.S. restaurant margin improvement of about 2.5 percentage points, neutral to slightly dilutive to U.S. operating profit, Yum ROIC improvement of about 3 percentage points, net refranchising gains of about $150 million, and EPS accretion of about 2%.

SHAREHOLDER PAYOUTS

In 2008, shareholder payouts totaled $2 billion, including $1.6 billion in share buybacks and $322 million in dividends. During the fourth quarter, we purchased 4 million shares at an average purchase price of $26.55, or a total of $116 million. For the full year, we purchased 47 million shares at an average purchase price of $34.50 reducing average diluted shares outstanding by 9%. Over the past four years, average diluted shares outstanding declined by 20% due to over $5 billion in share buybacks.

CORPORATE AND UNALLOCATED G&A EXPENSE

In the fourth quarter, corporate and unallocated G&A expense, excluding special items, declined by $33 million primarily due to the lapping of higher annual incentive compensation and investments in strategic projects in the fourth quarter of 2007. Including special items of $41 million discussed in the following section, corporate and unallocated G&A expense increased from $109 million to $117 million.

SPECIAL ITEMS

For the full year, special items totaled a gain of $0.05 per share including a $100 million gain from the sale of our minority interest in KFC Japan and items related to the transformation of our U.S. business: $5 million of U.S. refranchising losses and $56 million of U.S. restructuring charges and U.S. brand reinvestments. In the fourth quarter, special items totaled a loss of $0.03 per share including U.S. refranchising gains of $17 million and $43 million of U.S. restructuring charges and U.S. brand reinvestments.

Looking ahead to the first quarter of 2009, we expect special items to adversely impact reported EPS due to U.S. brand reinvestments of approximately $25 million related to the installation of new ovens in KFC franchise restaurants and U.S. G&A restructuring charges of about $5 million partially offset by refranchising gains. In first quarter 2008, a significant special item net gain of $68 million occurred which included the $100 million gain from the sale of our minority interest in KFC Japan partially offset by U.S. refranchising losses, U.S. restructuring charges, and U.S. brand reinvestments.

Note: All special item dollar amounts are pre-tax, per share figures are after-tax.

FIRST QUARTER 2009 OUTLOOK

As we previously communicated in our Investor Update Meeting on December 10th, our plan for 2009 growth will be back-end loaded. A number of factors that will impact our full year 2009 performance are most evident in the first quarter: (1) the majority of our full year commodity inflation is expected to hit the first quarter, (2) the financial benefits of the G&A restructuring announced in the fourth quarter will not be fully realized until the second quarter as these actions are still in progress, (3) KFC U.S. does not anticipate significant improvement until the launch of Kentucky Grilled Chicken in the second quarter, and (4) China is lapping exceptionally strong performance in the first half of 2009 as mainland China same-store-sales growth was 13% and China Division operating profit growth was 35% in the first half of 2008.

Additionally, significant negative impact from foreign currency translation in YRI's results will impact the first quarter, and is expected to continue through all of 2009, based on current foreign currency rates.

Given all of these factors, we expect EPS, excluding special items, to decline in the first quarter of 2009.

2009 GUIDANCE

The company expects full year 2009 EPS of at least 10% growth, or $2.10 per share, excluding special items.

Full details of our 2009 Guidance can be found online at http://www.yum.com/investors/news.asp and http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

DEFINITIONS OF KEY MARKETS

The following list of definitions provides the significant countries and territories with at least 25 restaurants that are included in key markets that generally follow Yum! business management units for internal reporting purposes. For a complete list of countries and territories please see our detailed store count information available on our website.

China Division includes mainland China, Thailand (KFC and Pizza Hut), and Taiwan (KFC).

YRI Division

Asia (ex China Division) includes Thailand (A&W), Japan, Indonesia, Malaysia, Philippines, Hawaii, Korea (KFC), Singapore, Taiwan (Pizza Hut and Long John Silver's), Hong Kong, and Vietnam.

Australia includes Australia and New Zealand.

Continental Europe includes Belgium, Spain, Portugal, Cyprus, Germany (Pizza Hut), Greece, Italy, Israel, Romania, Poland, and the Czech Republic.

Latin America includes Brazil, El Salvador, Guatemala, Honduras, Costa Rica, Dominican Republic, Jamaica, Panama, Trinidad & Tobago, Chile, Ecuador, Peru, and Puerto Rico.

Middle East includes Bahrain, United Arab Emirates, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Morocco, Turkey, and Pakistan.

New Growth Markets include France, Russia, and India.

UK includes Great Britain, Ireland, and Northern Ireland.

U.S. Division includes the continental United States and Alaska.

RETURN ON INVESTED CAPITAL (ROIC)

Return on invested capital (ROIC), along with same-store-sales growth and net unit development, is a key driver of shareholder value. For calculation details, please see our website at www.yum.com/investors.

CONFERENCE CALL

Yum! Brands Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. ET Wednesday, February 4, 2009.

For U.S. callers, the number is 877/815-2029. For international callers, the number is 706/645-9271.

The call will be available for playback beginning at noon Eastern Time Wednesday, February 4, through midnight Wednesday, February 18. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 82072032.

The webcast and the playback can be accessed via the Internet by visiting Yum! Brands' Web site, www.yum.com/investors and selecting "Q4 2008 Earnings Call".

For your added convenience . . . A podcast will be available within 24 hours of the end of the call at www.yum.com/investors.

ADDITIONAL INFORMATION ONLINE

Fourth-quarter restaurant-count details, definitions of terms, and segment-results reconciliation are available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

For our detailed full-year 2009 guidance, please refer online to http://www.yum.com/investors/news.asp and http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

This announcement contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend such 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. These statements often include words such as "may," "will," "estimate," "intend," "seek," "expect," "project," "anticipate," "believe," "plan" or other similar terminology. These forward-looking statements are based on current expectations and assumptions and upon data available at the time of the statements and are neither predictions nor guarantees of future events or circumstances. 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 actual results to differ materially include, but are not limited to, global and local economic and political conditions in the countries where we operate, including the effects of war and terrorist activities; currency exchange and interest rates; commodity, labor and other operating costs; competition, consumer preferences or perceptions concerning the products of the company and/or our competitors; the impact that any widespread illness, food borne illness or general health concern may have on our business and the economy of the countries in which we operate; the effectiveness of our operating initiatives and marketing; new-product and concept development by us and our competitors; the success of our corporate restructuring and/or our strategies for refranchising and international development and operations; the continued viability of our franchise and license operators; our ability to secure distribution and adequate supply to our restaurants; unexpected disruptions in our supply chain; publicity that may impact our business and/or industry; pending or future legal claims involving the company; our effective tax rates; our actuarially determined casualty loss estimates; government regulations applicable to our business; and accounting policies and practices. Additional detail about factors that could affect our financial and other results are included in our Forms 10-Q and 10-K, filed with the Securities and Exchange Commission. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to address or update each factor in future filings or communications regarding our business results.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world's largest restaurant company in terms of system restaurants, with over 36,000 restaurants in more than 110 countries and territories. The company is ranked #253 on the Fortune 500 List, with revenues in excess of $10 billion in 2007. Four of the company's restaurant brands - KFC, Pizza Hut, Taco Bell and Long John Silver's - are the global leaders of the chicken, pizza, Mexican-style food and quick-service seafood categories, respectively. Outside the United States, the Yum! Brands system opens an average of about four new restaurants each day of the year, making it the largest retail developer in the world. The company has consistently been recognized for its reward and recognition culture, diversity leadership, community giving, and consistent shareholder returns. For the second year, the company launched the world's largest private sector hunger relief effort in partnership with the United Nations World Food Programme and other hunger relief agencies. This effort will help save over 1.8 million people from starvation in remote corners of the world, where hunger is most prevalent.

SOURCE: Yum! Brands Inc.

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