Press Release

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands Inc. (NYSE: YUM) today reported results for the first quarter ended March 19, 2011 including EPS of $0.63, excluding Special Items. After a Special Items loss of $0.09, reported EPS was $0.54. Yum! reconfirms full year 2011 EPS growth of at least 10%, excluding Special Items.

FIRST-QUARTER HIGHLIGHTS

• Worldwide operating profit grew 5%, prior to foreign currency translation, including 18% in China and 8% in Yum! Restaurants International (“YRI”), partially offset by a 13% decline in the U.S.
• Worldwide system sales grew 5%, prior to foreign currency translation, including 24% in China and 6% in YRI. System sales in the U.S. were flat.
• Strong international development continued with 223 new restaurants opened, including 92 new units in China.
• Same-store sales grew 13% in China and 2% in YRI, with a 1% decline in the U.S.
• Worldwide restaurant margin improved 0.6 percentage points to 17.6%.
• Share repurchases totaled $142 million for 2.9 million shares at an average price of $49 per share.
• Worldwide tax rate increased to 27.1% from 25.7%.'

David C. Novak, Chairman and CEO said, “I’m pleased to report strong international performance helped Yum! Brands deliver EPS growth of 7% in the first quarter, prior to special items.

Our China business continues to fire on all cylinders. Operating profit grew 18%, prior to foreign currency translation, as same-store sales jumped a remarkable 13%, driven by a 15% increase in same-store transactions. This strong increase in traffic gives us even more confidence that our category-leading brands in China are stronger than ever, and well positioned for sustained growth ahead. Yum! Restaurants International (YRI) operating profit increased 8%, led by outstanding performance in high-growth emerging markets, where system sales grew 10%, both prior to foreign currency translation. Importantly, we continue to build scale in India, the second-largest emerging market, where system sales were up 42%.

In spite of these international results, our overall performance was dampened by an unexpected 13% decline in U.S. profits. We knew commodity inflation would be a headwind, but did not plan for a significant reversal in sales trends at Taco Bell due to false claims made about our food quality that resulted in negative publicity. Given Taco Bell's category leadership we remain bullish on its long-term growth strategy.

Looking ahead, our international performance and trends are strong, and new unit development is robust. We expect the continued strength of both our China and YRI businesses to overcome a challenging year in the U.S., and that 2011 will be the tenth consecutive year we achieve our annual target of at least 10% EPS growth.”

• China Division system sales increased 24%, excluding foreign currency translation, driven by same-store-sales growth of 13% and new unit development of 12%. The same-store-sales growth was driven by a 15% increase in same-store transactions. KFC same-store sales grew 14%, due in part to several successful sales-building initiatives, including breakfast, delivery and 24-hour operation. Pizza Hut Casual Dining leveraged strong promotions and their semi-annual menu refresh to post 12% same-store-sales growth.
  • Opened 92 new restaurants in the first quarter, led by strong company development.

• Overlapping record levels from the first quarter of 2010, restaurant margin decreased 1.5 percentage points, driven primarily by higher wage rates, commodity inflation and a new business tax that took effect in December 2010. We now estimate commodity inflation of approximately 7% for the full year.
• Operating profit growth of 18% overlapped growth of 37%, excluding foreign currency translation, in the first quarter of 2010.
• Foreign currency translation benefited operating profit by $7 million.

• YRI Division system sales growth of 6%, excluding foreign currency translation, was driven by new unit development and a 2% increase in same-store sales. Emerging markets led the way with 10% system sales growth, driven by 6% unit growth. Developed market system sales grew 4%, driven by 2% unit growth.
• YRI opened 131 new units in 41 countries, including 90 in emerging markets. Our franchise partners opened 92% of the total new units.
• Restaurant margin increased 1.4 percentage points to 12.7%, primarily as a result of strong performance in Thailand, France and KFC UK.
• Operating profit grew 8%, prior to foreign currency translation, driven by new unit growth, same-store-sales growth and improved restaurant margins. Weak performance in Pizza Hut UK and KFC Australia partially offset overall YRI profit growth.
• Foreign currency translation positively impacted operating profit by $5 million.

• U.S. Division same-store sales declined 1%, including an increase of 1% at KFC, flat sales at Taco Bell and a decline of 3% at Pizza Hut.
• Taco Bell began the year with strong sales momentum and grew same-store sales 4% in the first period of the quarter. However, due to false claims made about our food quality that resulted in negative publicity, we saw a significant reversal in sales trends. Sales declined 2% over the balance of the first quarter. On April 18^th, the law firm for the plaintiff that initiated these false claims voluntarily withdrew its class action suit against the company without any payments to the plaintiffs, and without any changes to Taco Bell’s products or advertising.
• Restaurant margin declined 1.6 percentage points and operating profit declined 13% due to commodity inflation, a decline in same-store sales and the impact of a value-oriented menu mix shift. Food inflation remains a headwind and we now estimate commodity inflation of approximately 6% for the full year.
• The combination of near-term weak sales at Taco Bell and higher food inflation should make the second quarter our most challenging of the year in the U.S.

SPECIAL ITEMS UPDATE

• During the first quarter, we decided to sell our Long John Silver’s and A&W All American Food brands. As a result, we recorded a non-cash pre-tax charge in Special Items of $66 million related to the impairment of intangible assets.

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 Thursday, April 21, 2011. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at noon Eastern Time Thursday, April 21, through midnight Thursday, May 5, 2011. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 58167873.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q1 2011 Earnings Conference Call” under “Investment Events.” A podcast will be available within 24 hours.

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant-count details, and definitions of terms including Key Markets are available online at www.yum.com under “Investors.”

This announcement, any related announcements and the related webcast may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all 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. 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 our actual results to differ materially include, but are not limited to: food borne-illness or food safety issues; economic and political conditions in the countries where we operate; currency exchange and interest rates; commodity, labor and other operating costs; our ability to secure and maintain distribution and adequate supply to our restaurants; the effectiveness of our operating initiatives and marketing; the success of our strategies for refranchising and international development; the continued viability and success of our franchise and license operators; publicity that may impact our business and/or industry; pending or future legal claims; the impact of any widespread illness; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; accounting policies and practices; and competition, consumer preferences or perceptions. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world’s largest restaurant company in terms of system restaurants with nearly 38,000 restaurants in more than 110 countries and territories. The Company is ranked #216 on the Fortune 500 List and generated revenues of more than $11 billion in 2010. 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. A&W Restaurants is the longest running quick-service franchise chain in America. Outside the United States in 2010, the Yum! Brands system opened approximately four new restaurants each day of the year, making it a leader in international retail development.

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) throughout this document, the Company has provided non-GAAP measurements which present operating results in 2011 and 2010 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the depreciation reduction from the KFC restaurants impaired upon our offer to refranchise in 2010 that remained Company stores for some or all of the quarter ended March 19, 2011, charges relating to U.S. General and Administrative (“G&A”) productivity initiatives and realignment of resources, the 2010 loss recognized as a result of refranchising an equity market outside the U.S., and the impairment of intangibles and other costs relating to the planned sale of our Long John Silver’s (“LJS”) and A&W All-American Food Restaurants (“A&W”) brands. These amounts are described in (b), (c) and (d) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in 2011 and 2010 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

The above table reconciles segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

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Source: Yum! Brands Inc.

Yum! Brands Inc.

Analysts:

Tim Jerzyk, Senior Vice President Investor Relations, 888-298-6986

Steve Schmitt, Director Investor Relations, 888-298-6986

or

Media:

Amy Sherwood, Vice President Public Relations, 502-874-8200