Press Release

Reiterates Guidance for Full-Year 2016 Operating Profit Growth in Constant Currency of 10%

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 26, 2015. Fourth-quarter EPS excluding Special Items was $0.68, an increase of 11%. Reported EPS was $0.63 for the quarter and $2.92 for the year.

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FOURTH-QUARTER HIGHLIGHTS

• Worldwide system sales grew 6%. Worldwide restaurant margin increased 3.4 percentage points to 13.6%. Worldwide operating profit increased 17%.
• New global restaurants totaled 1,160, including 384 in China, 374 at KFC, 270 at Pizza Hut, 109 at Taco Bell and 23 in India; 83% of international development occurred in emerging markets.
• China Division system sales increased 7%, driven by 7% unit growth and 2% same-store sales growth. Restaurant margin increased 4.3 percentage points to 11.4%. Operating profit increased 207%.
• KFC Division system sales increased 6%, driven by 3% unit growth and 3% same-store sales growth. Operating margin increased 0.4 percentage points to 22.4%. Operating profit increased 7%.
• Pizza Hut Division system sales increased 2%, driven by 1% unit growth and 1% same-store sales growth. Operating margin increased 1.0 percentage point to 23.4%. Operating profit increased 6%.
• Taco Bell Division system sales increased 7%, driven by 3% unit growth and 4% same-store sales growth. Operating margin decreased 2.7 percentage points to 25.0%. Operating profit decreased 7%.
• India Division system sales decreased 9%, driven by a 13% same-store sales decline.
• Worldwide effective tax rate decreased to 29.4% from 30.0%.
• Foreign currency translation negatively impacted operating profit by $37 million.

FULL-YEAR HIGHLIGHTS

• Worldwide system sales grew 5%. Worldwide restaurant margin increased 1.5 percentage points to 16.0%. Worldwide operating profit increased 7%.
• New global restaurants totaled 2,365, including 743 in China, 715 at KFC, 577 at Pizza Hut, 276 at Taco Bell and 54 in India; 80% of international development occurred in emerging markets.
• China Division system sales increased 2%, driven by 7% unit growth and partially offset by a 4% same-store sales decline. Restaurant margin increased 1.1 percentage points to 15.9%. Operating profit increased 8%.
• KFC Division system sales increased 7%, driven by 3% unit growth and 3% same-store sales growth. Operating margin increased 0.8 percentage points to 23.0%. Operating profit increased 8%.
• Pizza Hut Division system sales increased 2%, driven by 1% unit growth and 1% same-store sales growth. Operating margin decreased 0.4 percentage points to 25.2%. Operating profit increased 1%.
• Taco Bell Division system sales increased 8%, driven by 3% unit growth and 5% same-store sales growth. Operating margin increased 1.3 percentage points to 27.1%. Operating profit increased 12%.
• India Division system sales decreased 5%, driven by a 13% same-store sales decline.
• Worldwide effective tax rate increased to 25.6% from 25.5%.
• Foreign currency translation negatively impacted operating profit by $107 million.

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted. System sales and operating profit figures on this page exclude foreign currency translation; restaurant margin and operating margin figures are as reported.

SUMMARY FINANCIAL TABLE

GREG CREED COMMENTS

Greg Creed, CEO, said, “I’m pleased with the positive sales momentum we generated across the majority of Yum! in the fourth quarter. KFC China, for example, grew same-store sales 6% in the last quarter of 2015. Outside of China, each of our brand divisions grew same-store sales on a one-year and a two-year basis. Our U.S. results were particularly strong on a two-year basis, with growth of 2% at Pizza Hut, 8% at KFC and 10% at Taco Bell.

Fourth-quarter EPS grew 11%, with full-year EPS growth of 3% despite a 7% decline in the first half and six percentage points of foreign currency headwinds. For the full year, our brand divisions collectively grew operating profit 8% in constant currency, led by 12% operating profit growth at Taco Bell. Operating profit grew 8% in constant currency in China with impressive cost management partially offsetting weaker than originally anticipated sales results.

New-unit development continues to be a bright spot for our company. We added more than 2,300 new units globally in 2015. This year we expect to open nearly 2,400 new restaurants, which means we’re opening over six new restaurants a day, laying the groundwork for future growth. With all of this in mind, we are reiterating the guidance we initially gave in December. Given the results we have seen year-to-date and the plans we have laid out for each of the brands, we're confident in our ability to deliver 10% operating profit growth in constant currency in 2016.

2016 will be a transformational year for Yum! as we are on track to complete the spin-off of our China Division, ultimately creating two powerful, independent, focused growth companies. The fundamental goal of Yum!, however, is unchanged. We are 100% dedicated to building and strengthening KFC, Pizza Hut and Taco Bell all around the world, as strong brands are critical to delivering sustained growth and creating shareholder value over the long term."

CHINA DIVISION

• China Division system sales increased 7% for the quarter and 2% for the year, excluding foreign currency translation.
  • KFC same-store sales increased 6% for the quarter and declined 4% for the year.
  • Pizza Hut Casual Dining same-store sales declined 8% for the quarter and 5% for the year.
• China Division opened 384 new restaurants in the quarter. For the year, China Division opened 743 new restaurants, including 351 at KFC, 280 at Pizza Hut Casual Dining and 75 at Pizza Hut Home Service.

• Restaurant margin increased 4.3 percentage points to 11.4% for the quarter driven by productivity initiatives and KFC sales leverage. Restaurant margin increased 1.1 percentage points to 15.9% for the year driven by productivity initiatives, partially offset by sales deleverage.
• Foreign currency translation negatively impacted operating profit by $4 million for the quarter and $15 million for the year.

KFC DIVISION

• KFC Division system sales increased 6% for the quarter and 7% for the year, excluding foreign currency translation.

• KFC Division opened 370 new international restaurants during the quarter.
  • For the year, KFC Division opened 705 new international restaurants in 85 countries, including 524 units in emerging markets. 85% of these new units were opened by franchisees.
• Operating margin increased 0.4 percentage points for the quarter and 0.8 percentage points for the year driven by same-store sales growth and new-unit development.
• Foreign currency translation negatively impacted operating profit by $31 million for the quarter and $85 million for the year, as approximately 90% of division profits are generated outside the U.S.

PIZZA HUT DIVISION

• Pizza Hut Division system sales increased 2% for both the quarter and the year, excluding foreign currency translation.

• Pizza Hut Division opened 223 new international restaurants during the quarter.
  • For the year, Pizza Hut Division opened 429 new international restaurants in 64 countries, including 243 units in emerging markets. 92% of these new units were opened by franchisees.
• Operating margin increased 1.0 percentage point for the quarter led by an increase of 3.2 percentage points in restaurant margin. For the year, operating margin decreased 0.4 percentage points driven by strategic investments in international G&A.
• Foreign currency translation negatively impacted operating profit by $2 million for the quarter and $8 million for the year.

TACO BELL DIVISION

• Taco Bell Division system sales increased 7% for the quarter and 8% for the year.
• Taco Bell Division opened 109 new restaurants in the fourth quarter. For the year, Taco Bell Division opened 276 new restaurants; 87% of these new units were opened by franchisees.
• Restaurant margin increased 3.1 percentage points to 23.7% for the quarter driven by favorable U.S. commodities and same-store sales growth. Restaurant margin increased 3.4 percentage points to 22.3% for the year driven by same-store sales growth.
• Operating margin decreased 2.7 percentage points for the quarter driven by an expected increase in G&A related to incentive compensation, investment spending on strategic growth and technology initiatives, legal costs and creation of the Live Más scholarship program. The majority of the increase is either nonrecurring in nature or represents investments to sustain positive brand momentum. This was partially offset by same-store sales growth. For the year, operating margin increased 1.3 percentage points driven by same-store sales growth, partially offset by an increase in G&A primarily attributable to incentive compensation, pension and previously mentioned investments.

INDIA DIVISION

• India Division system sales decreased 9% for the quarter and 5% for the year, excluding foreign currency translation.
• Operating loss was $4 million for the quarter and $19 million for the year.
• During the quarter, we refranchised 86 KFC units, reducing equity ownership in India from 25% to 15%.

SPECIAL ITEMS / SHARE REPURCHASE UPDATE

• For the fourth quarter in the U.S., we refranchised 36 Taco Bell units and sold real estate related to 19 previously refranchised KFC units, resulting in total proceeds of $75 million. We recorded pre-tax U.S. refranchising gains of $51 million in Special Items. At the end of the fourth quarter, our company ownership in the U.S. across our three branded divisions was 9%.
• During the first quarter of 2015, we reached an agreement with our KFC U.S. franchisees that will give us brand marketing control, as well as an accelerated path to expanded menu offerings, improved assets and an enhanced customer experience. In connection with this agreement, we recognized a Special Items charge of $41 million during the fourth quarter, primarily related to the funding of investments for new back-of-house equipment for franchisees.
• In the fourth quarter, we repurchased 11.4 million shares totaling $830 million at an average price of $73. For the year, we repurchased 15.9 million shares totaling $1.2 billion at an average price of $75, with 420 million shares outstanding as of year end. During 2015, we reduced our outstanding share count by 14 million. For fiscal year 2016 through February 2, 2016, we repurchased 10.8 million shares totaling $749 million at an average price of $70.

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, February 4, 2016. 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 12:30 p.m. Eastern Time Thursday, February 4, through midnight Thursday, March 3, 2016. To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback passcode is 19873670.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q4 2015 Earnings Conference Call” under “Events & Presentations.”

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 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 generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements reflect our current expectations, estimates or projections concerning future results or events, including, without limitation, statements regarding the intended capital return to shareholders as well as the related borrowing required to fund such capital return, the planned separation of the Yum! Brands and Yum! China businesses, the timing of any such separation, the future earnings and performance as well as capital structure of Yum! Brands, Inc. or any of its businesses, including the Yum! Brands and Yum! China businesses on a standalone basis if the separation is completed. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks, uncertainties and assumptions that are difficult to predict and could cause our actual results to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or projections will be achieved. The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to return capital to shareholders at the times and in the amounts currently anticipated, if at all, as well as the corresponding costs of borrowing to fund such capital return as well as other costs; whether the separation of the Yum! Brands and Yum! China businesses is completed, as expected or at all, and the timing of any such separation; whether the operational and strategic benefits of the separation can be achieved; whether the costs and expenses of the separation can be controlled within expectations, including potential tax costs; as well as other risks. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. 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. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.yum.com/investors.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 42,500 restaurants in more than 130 countries and territories. Yum! is ranked #228 on the Fortune 500 List with revenues of over $13 billion in 2015 and is one of the Aon Hewitt Top Companies for Leaders in North America. 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 opens over five new restaurants per day on average, making it a leader in international retail development.

See accompanying notes.

Percentages may not recompute due to rounding.

See accompanying notes.

Percentages may not recompute due to rounding.

See accompanying notes.

Percentages may not recompute due to rounding.

See accompanying notes.

Percentages may not recompute due to rounding.

See accompanying notes.

Percentages may not recompute due to rounding.

See accompanying notes.

See accompanying notes.

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 2015 and 2014 on a basis before Special Items. Included in Special Items are gains/(losses) associated with the refranchising of equity markets outside the U.S., costs associated with the KFC U.S. Acceleration Agreement, a loss associated with the planned sale of an aircraft in China, costs associated with the planned spin-off of the China business and YUM! recapitalization, U.S. refranchising gains and the impairment of certain Little Sheep assets in 2014. These amounts are described in (c), (d), (e), (f), (g) and (h) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of the 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 the quarters and years to date ended December 26, 2015 and December 27, 2014 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.