Press Release

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter ended June 16, 2012 including EPS of $0.67, excluding Special Items. Reported EPS for the quarter was $0.69. Based on first-half results and current solid sales trends, Yum! reconfirms full-year EPS growth forecast of at least 12%, or at least $3.22, excluding Special Items. The Company also raises new-unit forecast to a record 1,700 new international units for the year, including at least 700 new units in China.

SECOND-QUARTER HIGHLIGHTS

• Worldwide operating profit grew 7%, prior to foreign currency translation, including 26% in the U.S. and 6% at Yum! Restaurants International (YRI). Operating profit declined 4% in China. Worldwide operating profit increased 8%, after foreign currency translation.
• Worldwide restaurant margin declined 0.6 percentage points to 15.2%, including declines of 4.1 percentage points in China and 1.1 percentage points at YRI. Restaurant margin increased 5.8 percentage points in the U.S.
• Worldwide system sales grew 8%, prior to foreign currency translation, including 27% in China, 7% at YRI and 1% in the U.S.
  • Excluding the acquisition of Little Sheep and the 2011 divestiture of Long John Silver’s and A&W All-American Restaurants, worldwide system sales growth was 10%, including 23% in China, 8% at YRI and 7% in the U.S.
• Same-store sales grew 10% in China, 4% at YRI and 7% in the U.S.
• Strong international development continued with 342 new restaurants opened, including 160 new units in China and 172 new units at YRI; 81% of this development occurred in emerging markets.
• Worldwide effective tax rate, prior to Special Items, increased to 23.9% from 16.7%. The increase in the tax rate negatively impacted EPS growth by 10 percentage points.
• The resolution of a California employment lawsuit at Taco Bell resulted in a pre-tax charge of $17 million to the U.S. division for the quarter, or $0.02 of EPS.

David C. Novak, Chairman and CEO, said, “I’m pleased to report we generated strong system sales growth in each of our divisions in the second quarter, with robust new-unit development and exceptional same-store sales growth. Operating profit increased 8% while EPS growth of 1% was negatively impacted, as expected, by a higher tax rate versus last year. Our U.S. business increased operating profit 26% in the second quarter and drove our overall operating profit growth. We expect China and Yum! Restaurants International (YRI) to drive our second-half profit growth. Based on our first-half results and current solid sales trends, we reconfirm our full-year guidance of at least 12% EPS growth, excluding special items.

Yum! China, our largest profit-contributing division, reported strong system sales growth of 27%, prior to foreign currency translation. However, operating profit declined 4%, prior to foreign currency translation, as high inflation drove restaurant margins down 4 percentage points versus last year. We expect this to be short-lived, returning to double-digit profit growth in the second half of the year. Our outstanding China team now expects to open a record of at least 700 new units this year.

System sales grew 7% at YRI and operating profit grew 6%, both prior to foreign currency translation. Same-store sales in YRI’s emerging markets grew 9%, driving overall same-store sales growth of 4% at YRI. System sales grew 32% in our India division. Our YRI and India divisions combined will also set a new-unit development record this year with over 1,000 new restaurants. Over 65% of these new units are expected to open in high-growth emerging markets.

Most importantly, I’m confident we’re making our brands even more vibrant around the world. Our long-term growth prospects have never been brighter as we continue to deliver consistently strong annual results. We expect this year to be our eleventh consecutive year of double-digit EPS growth, prior to special items.”

• China Division system sales increased 27%, prior to foreign currency translation. Same-store sales increased 10%, overlapping prior year same-store sales growth of 18%.
  • Same-store sales growth was driven by a 6% increase in same-store transactions.
  • Same-store sales growth was 9% at KFC and 10% at Pizza Hut Casual Dining, overlapping prior year same-store sales growth of 17% and 22%, respectively.
• China opened 160 new units and now projects record new-unit development of at least 700 units this year.

• Restaurant margin decreased 4.1 percentage points to 15.6%, driven primarily by wage rate inflation of 13% and commodity inflation of 6%, and higher start-up costs from an increased pace of development.
• Foreign currency translation positively impacted operating profit by $6 million.
• The Little Sheep acquisition had a positive impact of 4 percentage points on system sales growth, a negative impact of 0.3 percentage points on restaurant margin, and no impact on operating profit.

• YRI Division system sales increased 7%, prior to foreign currency translation.
  • Emerging markets system sales grew 13%, driven by 9% same-store sales growth and 7% unit growth.
  • Developed markets system sales grew 2%, driven by 1% same-store sales growth.
• YRI opened 172 new units in 45 countries.
  • For the quarter, 108 new units were opened in emerging markets.
  • Our franchise partners opened 91% of all new units.
• Restaurant margin decreased 1.1 percentage points driven by increased costs in Thailand and a same-store sales decline in KFC France. While same-store sales declined in KFC France, system sales grew 6% due to unit growth.
• Foreign currency negatively impacted operating profit by $5 million.

• U.S. Division same-store sales increased 7%, including growth of 13% at Taco Bell, 4% at Pizza Hut and 1% at KFC.
• Restaurant margin increased 5.8 percentage points, driven primarily by strong sales leverage.
• The 2011 divestiture of LJS and A&W negatively impacted revenue growth by 1 percentage point, franchise and license fees by 6 percentage points, and operating profit by 1 percentage point.

YUM! RESTAURANTS INDIA DIVISION

• India Division system sales increased 32%, prior to foreign currency translation. The system sales increase was driven by unit growth of 29% and same-store sales growth of 7%.

OWNERSHIP / SPECIAL ITEMS UPDATE

• In the U.S., we refranchised 38 units for proceeds of $21 million, primarily related to Taco Bell. We recorded pre-tax gains of $9 million related to these transactions in Special Items. Currently, our company ownership is 12% in the U.S. Upon the completion of our U.S. refranchising program, total company ownership in the U.S. will be 10% or slightly less.

OTHER ITEMS UPDATE

• In the second quarter, shares repurchased at an average price of $68 totaled $211 million for 3.1 million shares. Through the date of the release, shares repurchased totaled $438 million for 6.7 million shares at an average price of $66.

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, July 19, 2012. 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, July 19, through midnight Thursday, August 2, 2012. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 97854536.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q2 2012 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 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 120 countries and territories. Yum! is ranked #213 on the Fortune 500 List with revenues of more than $12 billion in 2011. The Company’s restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, 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 2012 and 2011 on a basis before Special Items. Included in Special Items are the U.S. refranchising gain (loss), the gain on the acquisition of Little Sheep, impairment charges and deal costs associated with the planned refranchising of the Pizza Hut UK business and the losses and other costs relating to our decision to divest the Long John Silver’s ("LJS") and A&W All-American Food Restaurants ("A&W") brands. These amounts are described in (d), (e), (f) and (g) in the accompanying notes. Other Special Items include the depreciation reductions from KFC U.S. and Pizza Hut UK restaurants impaired upon our decision and/or offer to refranchise that remained Company stores for some or all of the periods presented, gains from sales of real estate related to our previously refranchised Mexico business and charges relating to U.S. General and Administrative ("G&A") productivity initiatives and realignment of resources.

The Company uses earnings before Special Items as a key performance measure of results of operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results. 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 2012 and 2011 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 Condensed 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 Condensed 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.