Press Release

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands Inc. (NYSE: YUM) today reported results for the third quarter ended September 8, 2012 including EPS of $0.99, excluding Special Items. Reported EPS for the quarter was $1.00. Yum! raises full-year EPS growth forecast to at least 13%, or at least $3.24, excluding Special Items.

THIRD-QUARTER HIGHLIGHTS

• Worldwide operating profit grew 18%, prior to foreign currency translation, including 22% in China, 14% at Yum! Restaurants International (YRI) and 13% in the U.S. Worldwide operating profit increased 16%, after foreign currency translation.
• Worldwide restaurant margin increased 1.9 percentage points to 18.9%, including increases of 0.1 percentage points in China, 1.0 percentage point at YRI and 4.6 percentage points in the U.S. Restaurant margin increased 0.6 percentage points in China excluding Little Sheep.
• Worldwide system sales grew 6%, prior to foreign currency translation, including 22% in China, 4% at YRI and 1% in the U.S.
  • Worldwide system sales growth was 8%, excluding the acquisition of Little Sheep and the 2011 divestiture of Long John Silver's and A&W All-American Restaurants, including 19% in China, 5% at YRI and 6% in the U.S.
• Same-store sales grew 6% in China, 2% at YRI and 6% in the U.S. YRI same-store sales were negatively impacted by 1 percentage point due to the timing of Ramadan.
• Strong international development continued with 394 new restaurants opened, including 192 new units in China and 181 new units at YRI; 86% of this development occurred in emerging markets.
• On September 20, 2012, the Company announced an 18% increase in its quarterly dividend, marking the eighth consecutive year the dividend increased at a double-digit percentage rate.

Full-year EPS growth forecast raised to at least 13%, or at least $3.24, excluding Special Items.

David C. Novak, Chairman and CEO, said, “Very strong sales and profit at all of our divisions, including China, Yum! Restaurants International, India and the U.S., drove 19% third-quarter EPS growth. Given the strength of our year-to-date results, I’m pleased to report we are raising our full-year EPS growth forecast to at least 13%, excluding Special Items.

In China, our category-leading brands and competitive positions are stronger than ever. China system sales grew 22% as we opened 192 new restaurants and delivered same-store sales growth of 6%; operating profit grew 22%, prior to foreign currency translation. Importantly, China restaurant margin performance improved dramatically from the second quarter, once again demonstrating the ongoing strength of our business model. This strong performance, combined with our new expectation to open over 750 high-return new restaurants this year, further demonstrates why we are so confident in the long-term growth of our China business. Yum! Restaurants International (YRI) reported its best quarterly operating profit performance of the year with growth of 14%, prior to foreign currency translation. YRI, combined with Yum! Restaurants India, will have a record year of new unit development. When you add it all up for Yum!, we will open at least 1,750 new restaurants outside the U.S., further strengthening our leadership position in emerging markets. At the same time, our heightened operations focus and product innovation has driven much better performance in the U.S., with all three brands growing sales, margin and profit.

We expect 2012 to be our eleventh consecutive year of delivering at least 13% EPS growth, prior to Special Items. Our consistent track record is evidence that Yum! Brands is capable of delivering strong double-digit growth even in the most challenging economic times. We expect this to continue as we build on our track record of at least 10% EPS growth in 2013 and well into the future.”

CHINA DIVISION

• China Division system sales increased 22%, prior to foreign currency translation. Same-store sales increased 6%, overlapping strong prior year same-store sales growth of 19%.
• China opened 192 new units and we expect record new-unit development of at least 750 units this year.

• Restaurant margin increased 0.1 percentage points to 21.4%. Wage rate inflation was 8% and commodity inflation was 2%.
• The Little Sheep acquisition had a positive impact of 3 percentage points on system sales growth, a negative impact of 0.5 percentage points on restaurant margin, and a negative impact of 1 percentage point on operating profit growth.
• Foreign currency translation positively impacted operating profit by $5 million.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

• YRI Division system sales increased 4%, prior to foreign currency translation.
  • The timing of Ramadan had an estimated negative system sales impact of about 1%; the most sizable impact was in the Middle East franchise business which experienced a negative impact of 7%.
  • The 2011 divestiture of LJS and A&W had a negative impact of 1% on both system sales and operating profit growth.
  • Emerging markets system sales grew 10%, driven by 7% unit growth and 5% same-store sales growth.
  • Developed markets system sales grew 1%.
• YRI opened 181 new units in 46 countries; 93% were opened by our franchise partners.
  • For the quarter, 124 new units were opened in emerging markets.
• Foreign currency translation negatively impacted operating profit by $12 million.

U.S. DIVISION

• U.S. Division same-store sales increased 6%, including growth of 7% at Taco Bell, 6% at Pizza Hut and 4% at KFC.
• Restaurant margin increased 4.6 percentage points, driven primarily by strong same-store sales growth, as well as refranchising, supply chain efficiencies, and less discounting.
• The 2011 divestiture of LJS and A&W negatively impacted franchise and license fees growth by 5 percentage points and operating profit growth by 2 percentage points.

YUM! RESTAURANTS INDIA DIVISION

• India Division system sales increased 29%, prior to foreign currency translation. The system sales increase was driven by unit growth of 29% and same-store sales growth of 5%.

OWNERSHIP / SPECIAL ITEMS UPDATE

• In the U.S., we refranchised 176 units, including 158 KFCs. The KFC refranchising program was completed early in the fourth quarter this year. Currently, our company ownership is 11% in the U.S. Upon the completion of our U.S. refranchising program, total company ownership in the U.S. will be about 10%.

OTHER ITEMS UPDATE

• In the third quarter, we repurchased 6.5 million shares for $414 million at an average price of $64. Year-to-date, we repurchased 10.8 million shares for $702 million at an average price of $65.
• In an effort to reduce our ongoing volatility and administration expense in connection with the Company’s U.S. pension obligation, on October 9, 2012, the Company began notifying certain former employees of a limited opportunity to voluntarily elect an early payout of their pension benefits to be funded from existing pension assets. As a result of this program, we anticipate recording a pre-tax non-cash charge between $25 million and $75 million in the fourth quarter of 2012 within Special Items. The amount of this charge will depend on the actual number of participants electing the lump sum payment option.

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 10, 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 Wednesday, October 10, through midnight Wednesday, October 24, 2012. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 34802629.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' Web site, www.yum.com/investors and selecting “Q3 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 over 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.

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Yum! Brands Inc.
Analysts are invited to contact:
Tim Jerzyk, 888-298-6986
Senior Vice President Investor Relations
or
Steve Schmitt, 888-298-6986
Senior Director Investor Relations
or
Members of the media are invited to contact:
Amy Sherwood, 502-874-8200
Vice President Public Relations

Source: Yum! Brands Inc.