Press Release

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands Inc. (NYSE: YUM) today reported results for the third quarter ended September 3, 2011 including EPS of $0.83, excluding Special Items. After a Special Items loss of $0.03, reported EPS was $0.80. As a result of strong performance in China and other emerging markets, Yum! reconfirms full year EPS growth forecast of at least 12%, excluding special items.

THIRD-QUARTER HIGHLIGHTS

• Operating profit grew 7% in China and 3% at Yum! Restaurants International (“YRI”), prior to foreign currency translation. Operating profit declined 16% in the U.S.
• Foreign currency translation positively impacted operating profit by $32 million.
• Worldwide system sales grew 6%, prior to foreign currency translation, including 29% in China and 8% at YRI. System sales in the U.S. declined 3%.
• Strong international development continued with 331 new restaurants opened, including 138 new units in China. We are now expecting to open a record 600 new units in China this year. Additionally, we expect to open 900 new units in YRI.
• Same-store sales grew 19% in China and 3% at YRI, and declined 3% in the U.S.
• Worldwide restaurant margin declined 1.9 percentage points to 17.2%.
• During the quarter, the Company announced a 14% increase in its quarterly dividend.

Reconfirms Full Year EPS Growth Forecast of at least 12%, Excluding Special Items

David C. Novak, Chairman and CEO said, “I’m pleased to report EPS growth of 13% in the third quarter, excluding special items. As a result of strong performance in China and other emerging markets, we confidently reaffirm our full-year EPS growth forecast of at least 12%, which will make 2011 the 10^th consecutive year we exceed our annual target of at least 10% EPS growth.

In China, operating profit grew 7% for the quarter as system sales jumped 29%, prior to foreign currency translation. Likewise, year-to-date operating profit increased 15% with system sales up 27%. This tremendous sales growth, combined with our expectation to open a record 600 new restaurants this year, gives us even more confidence our China business model is as strong as ever. At Yum! Restaurants International (YRI), operating profit increased 3% in the quarter and 7% year-to-date, prior to foreign currency translation. We are extremely excited about our progress in emerging markets like India, Africa and Russia, as these businesses will contribute meaningful profit growth to Yum! in the coming years. Importantly, we expect to open about 900 new restaurants this year at YRI. The robust new unit growth in China and YRI not only contributes to this year’s earnings, but positions Yum! for strong growth in 2012 as well.

Our impressive international growth was offset by a 16% decline in U.S. profits. We’re obviously disappointed in our U.S. performance. However, we have aggressively developed a pipeline of category leading innovation and have productivity initiatives planned to dramatically improve sales and profit performance in 2012. Looking ahead, the strength of our international brands and outstanding new unit development, combined with aggressive U.S. initiatives, make us confident we will continue our track record of double-digit earnings growth next year and beyond.”

CHINA DIVISION

• China Division system sales increased 29%, prior to foreign currency translation, driven by same-store sales growth of 19% and new unit development. The same-store sales growth was driven by a 27% increase in same-store transactions.
  • KFC same-store sales grew 19%.
  • Pizza Hut Casual Dining same-store sales grew 19%, marking its seventh consecutive quarter of double-digit same-store sales growth.
  • 138 new restaurants opened in the third quarter. We are now expecting to open a record 600 new units this year in China.

• Restaurant margin decreased 3.9 percentage points, driven by commodity and labor inflation. New menu pricing was taken after the quarter ended. We expect full year restaurant margins of 20%.
• Consistent with our previously communicated full year commodity inflation guidance of 9%, we are expecting peak commodity inflation in the fourth quarter.
• Operating profit growth of 7%, prior to foreign currency translation, included the impact of a $10 million benefit from our participation in the Shanghai World Expo last year. This reduced operating profit growth by 4 percentage points.
• Foreign currency translation positively impacted operating profit by $16 million.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

• YRI Division system sales increased 8%, prior to foreign currency translation, driven by new unit development and same-store sales growth of 3%.
  • Emerging markets led the way with 13% system sales growth, driven by 6% unit growth and 7% same-store sales growth.
  • Developed market system sales grew 4%, including 2% unit growth.
• YRI opened 193 new units in 50 countries, including 127 new units in emerging markets. Our franchise partners opened 94% of all new units. Franchise fees are on pace for a record year of over $850 million, growing at a double-digit pace.
• Operating profit grew 3%, prior to foreign currency translation, driven by strong emerging market performance. Third quarter operating profit growth was hindered by a 5 percentage point impact from a $6 million non-cash expense related to expected Pizza Hut UK restaurant closures.
• Restaurant margin decreased 0.2 percentage points to 12.3%.
• Foreign currency translation positively impacted operating profit by $16 million.

U.S. DIVISION

• U.S. Division same-store sales declined 3%, including declines of 2% at Taco Bell, 3% at Pizza Hut, and 3% at KFC.
• Restaurant margin declined 2.3 percentage points and operating profit declined 16% due to $15 million of commodity inflation and a decline in same-store sales.
• Profit performance is expected to improve in the fourth quarter.

OTHER ITEMS UPDATE

• Worldwide effective tax rate, prior to Special Items, declined to 25.1% from 27.4% in the third quarter of last year.
• Share repurchases totaled $238 million for 4.6 million shares at an average price of $52 per share. Share repurchases totaled $545 million year-to-date.

OWNERSHIP / SPECIAL ITEMS UPDATE

• During the third quarter, we decided to refranchise our entire Pizza Hut UK business. As a result, we recorded a non-cash pre-tax charge in Special Items of $76 million, primarily related to the impairment of long-lived assets.
• Subsequent to the end of the third quarter, we reached definitive agreements to sell Long John Silver’s and A&W All American Restaurants to key franchisee leaders. During the third quarter, we recorded $53 million in tax benefits related to tax losses from the sales.
• In the U.S., we have essentially completed Pizza Hut refranchising, and KFC is now our main refranchising focus. Year-to-date we have refranchised 128 restaurants, including 104 KFCs. Our target for Pizza Hut and KFC is about 5% company ownership. We expect to refranchise about 400 restaurants in the U.S. for the full year. Since the inception of our refranchising program in late 2007, we have sold over 1,400 units across all brands, excluding Long John Silver’s and A&W Restaurants.

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 Wednesday, October 5, 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 Wednesday, October 5, through midnight Wednesday, October 19, 2011. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 10916412.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q3 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 more than 38,000 restaurants in more than 110 countries and territories. The Company is ranked #214 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.

Reconciliation of Non-GAAP Measurements to GAAP Results

(amounts in millions, except per share amounts)

(unaudited)

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 or year to date ended September 3, 2011, charges relating to U.S. General and Administrative ("G&A") productivity initiatives and realignment of resources, the losses associated with refranchising equity markets outside the U.S., and the impairment of intangibles, other costs and anticipated tax benefits 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), (d) and (e) 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 tables reconcile 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.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.

The above tables reconcile 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.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.

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Yum! Brands Inc.
Analysts:
Tim Jerzyk, Senior Vice President Investor Relations
888-298-6986
or
Steve Schmitt, Director Investor Relations
888-298-6986
or
Media:
Amy Sherwood, Vice President Public Relations
502-874-8200

Source: Yum! Brands Inc.