LOUISVILLE, Ky., Apr 22, 2009 (BUSINESS WIRE) -- Yum! Brands Inc. (NYSE: YUM) today reported results for the first quarter ended March 21, 2009 including EPS growth of 14% excluding special items. EPS including special items declined 10% due to the lap of a $0.13 per share gain in 2008 from the sale of our minority interest in KFC Japan.

FIRST QUARTER HIGHLIGHTS

• Worldwide same-store-sales growth of 1% driven by +2% in mainland China and +6% in Yum! Restaurants International (YRI), partially offset by a decline of 2% in the U.S.
• International development continued at a robust pace with 256 new restaurants including a record 98 new units in mainland China.
• Worldwide system sales growth prior to foreign currency translation of +4% including +12% in mainland China, +10% in YRI, and a 2% decline in the U.S.
• Worldwide restaurant margin improvement of 1.4 percentage points was driven by the combination of pricing and moderating commodity inflation, as well as refranchising.
• Worldwide operating profit growth of 7%, excluding special items and foreign currency translation, driven by net unit development, improved restaurant margins, and proactive cost management. Each of our divisions generated profit growth prior to foreign currency translation: +21% in China, +7% in the U.S. and +4% for YRI.
• EPS growth also benefited from last year's substantial share repurchases and a lower effective tax rate partially offset by negative foreign currency translation of approximately $0.02 per share.

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 better-than-expected first quarter EPS growth of 14%, before special items. The power of our global portfolio allowed us to overcome a challenging environment with system sales growth of 4% and operating profit growth of 7%, prior to foreign currency translation. I'm proud that our teams around the world are rising to the challenge by accelerating productivity initiatives and managing costs while we continue to drive and invest in our global growth strategies.

"Our China business drove strong results with system sales growth of 12% and profit growth of 21% prior to foreign currency translation. Importantly, we opened a record 98 new restaurants in mainland China and we are on track to open at least 475 new units for the full year. While sales in the U.S. were lower than anticipated, our U.S. business generated 7% profit growth with proactive reductions in our cost structure and margin improvement. U.S. same-store-sales declined 2% due to weakness at KFC and Pizza Hut. We are excited about the U.S. launch of KFC's Kentucky Grilled Chicken, a great tasting product that will broaden the appeal of our brand.

"Our goal continues to be to deliver EPS growth of 10% this year in spite of the weak economy. We forecast the second quarter will likely be Yum's most challenging quarter and the low point of our year. However for the full year, much lower-than-expected commodity inflation should offset below target same-store-sales growth. Looking ahead, we expect to enter 2010 with even stronger brands and competitive positions everywhere we do business. Longer term, the fundamentals driving the growth of our global portfolio remain intact and give us the unique ability to generate unparalleled international new unit development, significant free cash flow, and an industry-leading return on invested capital."

CHINA DIVISION

• China Division system sales growth of 12%, excluding foreign currency translation, was driven by mainland China unit development and same-store-sales growth. System sales growth was negatively impacted by two percentage points due to an extra day in 2008 as a result of leap year.

• Mainland China opened a record 98 new restaurants in the first quarter further strengthening the company's leadership position in China's rapidly growing restaurant industry.

• Mainland China first quarter same-store-sales grew by 2%, lapping exceptional growth of 12% in 2008. Same-store-sales growth was adjusted to exclude the impact of leap year in 2008.

• Restaurant margin increased 1.7 percentage points driven by a combination of a higher average guest check and moderating commodity inflation, which was $3 million for the quarter and lower than expected. We now expect commodity deflation of approximately $50 million for the full year.
• Foreign currency conversion benefited operating profit by $6 million.
• Operating profit growth of 27% overlapped outstanding growth of 33% in the first quarter of 2008.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

• Strong system sales growth of 10%, excluding foreign currency translation. The table below provides further insight into key YRI markets.
• Same-store-sales growth of 6% lapped 5% growth in 2008.
• The opening of 145 new restaurants in more than 45 countries with our franchise partners opening 97% of these new units.
• Foreign currency translation negatively impacted operating profit by $21 million or 15 percentage points.
• The loss of a VAT exemption in our Mexico business adversely impacted restaurant margin by 0.7 percentage points for the quarter. This negatively impacted operating profit by $4 million or 3 percentage points of growth for the quarter. The negative impact from the loss of VAT will not impact comparisons in subsequent quarters of 2009.

U.S. DIVISION

• Same-store-sales declined 2% due to a weaker-than-anticipated consumer environment primarily impacting the dinner occasions at KFC and Pizza Hut.
• First quarter restaurant margin improved due to the combination of pricing and moderating commodity inflation, as well as refranchising and productivity initiatives. For the balance of 2009, we currently expect to see modest commodity deflation.
• U.S. G&A expenses were down $20 million driven by the proactive reduction in our U.S. cost structure initiated in the fourth quarter. This was better than expected mainly due to project timing. We continue to anticipate $60 million in cost savings for the full year.
• Operating profit growth of 7% and operating profit margin improvement of 2.7 points were driven by proactive reductions in our U.S. cost structure and improved restaurant margin.

U.S. REFRANCHISING UPDATE

In the first quarter, 109 company-owned U.S. restaurants were sold to franchisees reducing company ownership to 18%. As previously announced, we expect to refranchise 500 units in 2009.

Q2 2009 UPDATE

With our target of 10% EPS growth for the full year, we continue to expect that the first half of the year will be more challenging than the second half, with our second quarter results likely being the low point of the year due to:

• Lapping the all-time low quarterly tax rate of 14.8% in the second quarter of 2008.
• Continued negative impact of foreign currency translation on YRI's operating profit above the first quarter level or nearly $25 million.
• We anticipate an increase in year-over-year closure and impairment expenses driven by the lap of last year's gain of over $10 million from property sales and lease terminations. In 2009, we expect some minor closure expenses and the potential for an increase in impairment charges. This is in line with our previously disclosed 2009 full year guidance.
• Negative impact of international refranchising gain/loss of about $5 million versus last year.
• The lap of China's best quarterly performance of 2008 with very strong mainland China same-store-sales growth of 14% and China Division profit growth of 38%.

Additionally, we forecast special items to have a slightly negative impact to reported EPS in the second quarter.

FULL-YEAR OUTLOOK

The Company expects full year 2009 EPS of $2.10, or 10% growth, excluding special items.

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.

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 Thursday, April 23, 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 Thursday, April 23, through midnight Thursday, May 15. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 94762032.

The webcast and the playback can be accessed via the Internet by visiting Yum! Brands' Web site, www.yum.com/investors and selecting "Q1 2009 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

First 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://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," "should," 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 more than 36,000 restaurants in more than 110 countries and territories. The company is ranked #239 on the Fortune 500 List, with revenues in excess of $11 billion in 2008. 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 opened more than 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. Yum! Brands has been named one of the "100 Best Corporate Citizens" by Corporate Responsibility Officer magazine for its ongoing commitment to corporate responsibility and ranked among the best investor relations web sites in North America in the 2009 IR Global Rankings. 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. To date, this effort is helping to save approximately 4 million people in remote corners of the world, where hunger is most prevalent.

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SOURCE: Yum! Brands, Inc.

Yum! Brands, Inc.
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