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Yum! Brands Reports Second-Quarter Results; Significant Improvement from Early Quarter Lows with Strong Digital and Delivery Momentum; System Sales Decline of (12)% with a Same-Store Sales Decline of (15)% Offset by 3% Net Unit Growth

07/30/2020

 

LOUISVILLE, Ky.--(BUSINESS WIRE)-- Yum! Brands, Inc. (NYSE: YUM) today reported results for the second-quarter ended June 30, 2020. Worldwide system sales excluding foreign currency translation declined (12)%, with a (15)% same-store sales decline and 3% net-new unit growth. Second-quarter GAAP EPS was $0.67, a decrease of (27)% over the prior year quarter. Second-quarter EPS excluding Special Items was $0.82, a decrease of (12)% over the prior year quarter.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200730005180/en/

DAVID GIBBS COMMENTS

David Gibbs, CEO, said “While second-quarter results were meaningfully impacted by COVID-19, I couldn’t be prouder of how our brands adapted with remarkable agility, leveraging consumer insights and digitally enabled off-premise capabilities to adjust operations, menu options and marketing across the globe. Digital sales were a big driver of the dramatic improvement in sales from the initial impact of COVID-19, reaching an all-time high of $3.5 billion for the quarter, an increase of more than $1 billion over the prior year. World-class operations, including rapid implementation of contactless options, supported a steady pace of store reopening through the quarter, with approximately 95% of our global system restaurants now at least partially open. Same-store sales trends for open stores stabilized in June just a few points short of flat, despite the majority of our dining rooms still remaining closed, and these trends have continued into July.

As we continue to reopen our restaurants across the globe, we remain focused on our Recipe for Growth and Good strategy and on ensuring customers can access our delicious food in a safe, low-contact manner with outstanding value. Leveraging our scale and capabilities as the world’s largest restaurant company, our four iconic brands are optimally positioned to drive profitable system sales growth in the new customer environment. While COVID-19 has presented incredible challenges for the entire restaurant industry, I remain confident in the power and resiliency of our unique and highly diversified global business model and that we will emerge an even stronger growth company for all our stakeholders.”

SECOND-QUARTER HIGHLIGHTS

  • Worldwide system sales excluding foreign currency translation declined (12)%, with KFC at (18)%, Pizza Hut at (10)% and Taco Bell at (6)%.
  • We reported 3% year-over-year net unit growth and net units declined (118) during the quarter.
  • We recorded $84 million of pre-tax investment income related to the change in fair value of our investment in Grubhub, which resulted in a $0.21 benefit to EPS on the second-quarter. As we recorded $24 million of pre-tax investment income in the second-quarter of 2019 for a $0.06 benefit to EPS, our Grubhub investment favorably impacted year-over-year EPS growth by $0.15.
  • Foreign currency translation unfavorably impacted divisional operating profit by $6 million.
 

 

% Change

 

System Sales
Ex F/X

Same-Store Sales

Net-New Units

GAAP Operating
Profit

Core

Operating Profit2

KFC Division

(18)

 

(21)

 

+6

 

(41)

 

(40)

Pizza Hut Division

(10)

 

(9)

 

(1)

 

(9)

 

(8)

Taco Bell Division

(6)

 

(8)

 

+4

 

(3)

 

(3)

Worldwide1

(12)

 

(15)

 

+3

 

(36)

 

(25)

 

 

Second-Quarter

Year-to-Date

 

2020

2019

% Change

2020

2019

% Change

GAAP EPS

$0.67

$0.92

(27)

$0.94

$1.75

(46)

Special Items EPS2

$(0.15)

$(0.01)

NM

$(0.52)

$(0.01)

NM

EPS Excluding Special Items

$0.82

$0.93

(12)

$1.46

$1.76

(17)

1 Worldwide system sales ex F/X and net-new units include the benefit of our acquisition of Habit Burger Grill on March 18, 2020. Same-store sales reflects the inclusion of Habit Burger Grill in the prior year base.

2 See reconciliation of Non-GAAP Measurements to GAAP Results within this release for further detail of Core Operating Profit and Special Items.

All comparisons are versus the same period a year ago.

System sales growth figures exclude foreign currency translation ("F/X") and core operating profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of Non-GAAP Measurements to GAAP Results within this release for further details.

KFC DIVISION

 

 

Second-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2020

2019

Reported

Ex F/X

2020

2019

Reported

Ex F/X

Restaurants

24,390

 

23,118

 

+6

 

N/A

 

24,390

 

23,118

 

+6

 

N/A

System Sales ($MM)

5,288

 

6,648

 

(20)

 

(18)

 

11,575

 

13,195

 

(12)

 

(10)

Same-Store Sales Growth (%)

(21)

 

+6

 

NM

 

NM

 

(15)

 

+5

 

NM

 

NM

Franchise and Property Revenues ($MM)

251

 

332

 

(24)

 

(22)

 

566

 

655

 

(14)

 

(11)

Operating Profit ($MM)

153

 

261

 

(41)

 

(40)

 

377

 

497

 

(24)

 

(22)

Operating Margin (%)

37.4

 

44.7

 

(7.3)

 

(7.8)

 

38.7

 

43.2

 

(4.5)

 

(4.8)

 

 

Second-Quarter (% Change)

Year-to-Date (% Change)

 

International

U.S.

International

U.S.

System Sales Growth Ex F/X

(23)

+8

(12)

+4

Same-Store Sales Growth

(27)

+7

(18)

+2

 
  • KFC Division opened 234 gross new restaurants in 36 countries.
  • Operating margin decreased 7.3 percentage points driven by lower same-store sales, higher bad debt expense and lower company restaurant margins due to COVID-19, partially offset by net-new unit growth.
  • Foreign currency translation unfavorably impacted operating profit by $5 million.
 

KFC Markets 1

Percent of KFC
System Sales
2

System Sales Growth Ex F/X

Second-Quarter
(% Change)

Year-to-Date
(% Change)

China

27%

(6)

(10)

United States

16%

+8

+4

Asia

12%

(11)

(4)

Russia, Central & Eastern Europe

8%

(41)

(19)

Australia

7%

(3)

+3

United Kingdom

6%

(58)

(23)

Western Europe

6%

(34)

(20)

Latin America

5%

(41)

(19)

Africa

4%

(58)

(24)

Middle East / Turkey / North Africa

4%

(48)

(23)

Canada

2%

(4)

(3)

Thailand

2%

(15)

(5)

India

1%

(74)

(40)

1Refer to investors.yum.comunderFinancial Reports for a list of the countries within each of the markets.

2Reflects Full Year 2019.

PIZZA HUT DIVISION

 

 

Second-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2020

2019

Reported

Ex F/X

2020

2019

Reported

Ex F/X

Restaurants

18,326

 

18,515

 

(1)

 

N/A

 

18,326

 

18,515

 

(1)

 

N/A

System Sales ($MM)

2,753

 

3,098

 

(11)

 

(10)

 

5,554

 

6,229

 

(11)

 

(10)

Same-Store Sales Growth (%)

(9)

 

+2

 

NM

 

NM

 

(10)

 

+1

 

NM

 

NM

Franchise and Property Revenues ($MM)

126

 

143

 

(12)

 

(11)

 

259

 

288

 

(10)

 

(10)

Operating Profit ($MM)

87

 

96

 

(9)

 

(8)

 

163

 

193

 

(15)

 

(14)

Operating Margin (%)

36.8

 

38.7

 

(1.9)

 

(1.9)

 

34.8

 

39.4

 

(4.6)

 

(4.6)

 

 

Second-Quarter (% Change)

Year-to-Date (% Change)

 

International

U.S.

International

U.S.

System Sales Growth Ex F/X

(18)

+1

 

(15)

(3)

Same-Store Sales Growth

(19)

+5

 

(17)

(1)

 
  • Pizza Hut Division opened 70 gross new restaurants in 14 countries.
  • Operating margin decreased 1.9 percentage points driven by lower same-store sales, partially offset by U.S. franchise bad debt recoveries.
  • Foreign currency translation unfavorably impacted operating profit by $1 million.
  • Pizza Hut U.S. off-premise channel generated 21% same-store sales growth when excluding closed Express units, or 16% same-store sales growth when including closed Express units.
 

Pizza Hut Markets1

Percent of Pizza Hut
System Sales2

System Sales Growth Ex F/X

Second-Quarter
(% Change)

Year-to-Date
(% Change)

United States

42%

+1

(3)

China

17%

(12)

(25)

Asia

13%

+8

+8

Latin America / Spain / Portugal

11%

(37)

(21)

Europe (excluding Spain & Portugal)

9%

(32)

(19)

Middle East / Turkey / North Africa

4%

(46)

(25)

Canada

2%

+18

+11

India

1%

(66)

(38)

Africa

<1%

(38)

(11)

1Refer to investors.yum.com under Financial Reports for a list of the countries within each of the markets.

2Reflects Full Year 2019.

TACO BELL DIVISION

 

 

Second-Quarter

 

Year-to-Date

 

 

 

 

 

%/ppts Change

 

 

 

 

 

%/ppts Change

 

2020

 

2019

 

Reported

 

Ex F/X

 

2020

 

2019

 

Reported

 

Ex F/X

Restaurants

7,400

 

7,136

 

+4

 

N/A

 

7,400

 

7,136

 

+4

 

N/A

System Sales ($MM)

2,564

 

2,727

 

(6)

 

(6)

 

5,160

 

5,233

 

(1)

 

(1)

Same-Store Sales Growth (%)

(8)

 

+7

 

NM

 

NM

 

(4)

 

+6

 

NM

 

NM

Franchise and Property Revenues ($MM)

147

 

158

 

(7)

 

(6)

 

295

 

302

 

(2)

 

(2)

Operating Profit ($MM)

154

 

159

 

(3)

 

(3)

 

298

 

297

 

Even

 

Even

Operating Margin (%)

34.4

 

33.2

 

1.2

 

1.2

 

33.0

 

32.1

 

0.9

 

0.9

 
  • Taco Bell Division opened 22 gross new restaurants in 4 countries.
  • Operating margin increased 1.2 percentage points due to lower general and administrative and franchise and property expenses, partially offset by the impact of same-store sales declines.

HABIT BURGER GRILL DIVISION

  • The Habit Burger Grill Division same-store sales declined 18% during the second-quarter.
  • The Habit Burger Grill Division opened 2 gross new restaurants in the U.S.

OTHER ITEMS

  • Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the second-quarter Form 10-Q.
  • Digital sales include orders placed on mobile device, Internet and kiosk.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time July 30, 2020. The number is 877/871-3172 for U.S. callers, 412/902-6603 for international callers, conference ID 9876991.

The call will be available for playback beginning at 10:00 a.m. Eastern Time July 30, 2020 through August 6, 2020. To access the playback, dial 877/344-7529 in the U.S., 855/669-9658 in Canada, and 412/317-0088 internationally, conference ID 10145598.

The webcast and the playback can be accessed by visiting Yum! Brands' website, investors.yum.com/events-and-presentations and selecting “Q2 2020 Yum! Brands, Inc. Earnings Call.”

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant count details, definitions of terms and Restricted Group financial information are available at investors.yum.com. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included within this release.

FORWARD-LOOKING STATEMENTS

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,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections, our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: the severity and duration of the COVID-19 pandemic, food safety and food borne-illness issues; health concerns arising from outbreaks of a significant health epidemic; the success of our franchisees and licensees; our significant exposure to the Chinese market; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to successfully implement technology initiatives; our increasing dependence on digital commerce platforms and information technology systems; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the loss of key personnel, or labor shortages or difficulty finding qualified employees; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; harm or dilution to our brands caused by franchisee and third party activity; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including changes in tax laws or disagreements with taxing authorities; consumer preferences and perceptions of our brands; failure to protect our service marks or other intellectual property; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; not realizing the anticipated benefits from past or potential future acquisitions, investments or other strategic transactions, and risks relating to our significant amount of indebtedness. 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.

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. 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 most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 50,000 restaurants in more than 150 countries and territories primarily operating the company’s brands – KFC, Pizza Hut and Taco Bell – global leaders of the chicken, pizza and Mexican-style food categories. The Company’s family of brands also includes The Habit Burger Grill, a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. In 2019, Yum! Brands was named to the Dow Jones Sustainability North America Index and in 2020, the company ranked among the top 100 Best Corporate Citizens by 3BL Media.

 

   

YUM! Brands, Inc.

Condensed Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)

   

 

 

Quarter ended

 

% Change

 

Year to date

 

% Change

 

 

6/30/20

 

6/30/19

 

B/(W)

 

6/30/20

 

6/30/19

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

403

 

 

$

359

 

 

12

 

$

758

 

 

$

692

 

 

10

Franchise and property revenues

 

525

 

 

633

 

 

(17)

 

1,121

 

 

1,245

 

 

(10)

Franchise contributions for advertising and other services

 

270

 

 

318

 

 

(15)

 

582

 

 

627

 

 

(7)

Total revenues

 

1,198

 

 

1,310

 

 

(9)

 

2,461

 

 

2,564

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

349

 

 

286

 

 

(22)

 

647

 

 

558

 

 

(16)

General and administrative expenses

 

259

 

 

198

 

 

(30)

 

467

 

 

409

 

 

(14)

Franchise and property expenses

 

36

 

 

38

 

 

5

 

94

 

 

81

 

 

(17)

Franchise advertising and other services expense

 

264

 

 

315

 

 

16

 

574

 

 

616

 

 

7

Refranchising (gain) loss

 

(8

)

 

(4

)

 

82

 

(21

)

 

(10

)

 

NM

Other (income) expense

 

(2

)

 

6

 

 

NM

 

150

 

 

6

 

 

NM

Total costs and expenses, net

 

898

 

 

839

 

 

(7)

 

1,911

 

 

1,660

 

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

 

300

 

 

471

 

 

(36)

 

550

 

 

904

 

 

(39)

Investment (income) expense, net

 

(91

)

 

(25

)

 

NM

 

(57

)

 

(9

)

 

NM

Other pension (income) expense

 

2

 

 

 

 

NM

 

5

 

 

3

 

 

(57)

Interest expense, net

 

132

 

 

119

 

 

(10)

 

250

 

 

234

 

 

(7)

Income before income taxes

 

257

 

 

377

 

 

(32)

 

352

 

 

676

 

 

(48)

Income tax provision

 

51

 

 

88

 

 

42

 

63

 

 

125

 

 

50

Net Income

 

$

206

 

 

$

289

 

 

(29)

 

$

289

 

 

$

551

 

 

(48)

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

 

EPS

 

$

0.68

 

 

$

0.94

 

 

(28)

 

$

0.96

 

 

$

1.79

 

 

(47)

Average shares outstanding

 

303

 

 

307

 

 

1

 

302

 

 

307

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

 

EPS

 

$

0.67

 

 

$

0.92

 

 

(27)

 

$

0.94

 

 

$

1.75

 

 

(46)

Average shares outstanding

 

307

 

 

314

 

 

2

 

307

 

 

314

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

0.47

 

 

$

0.42

 

 

 

 

$

0.94

 

 

$

0.84

 

 

 

 

See accompanying notes.

Percentages may not recompute due to rounding.

 
   

YUM! Brands, Inc.

KFC DIVISION Operating Results

(amounts in millions)

(unaudited)

   

 

 

Quarter ended

 

% Change

 

Year to date

 

% Change

 

 

6/30/20

 

6/30/19

 

B/(W)

 

6/30/20

 

6/30/19

 

B/(W)

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

86

 

 

$

135

 

 

(36)

 

$

216

 

 

$

260

 

 

(17)

Franchise and property revenues

 

251

 

 

332

 

 

(24)

 

566

 

 

655

 

 

(14)

Franchise contributions for advertising and other services

 

72

 

 

117

 

 

(38)

 

193

 

 

235

 

 

(18)

Total revenues

 

409

 

 

584

 

 

(30)

 

975

 

 

1,150

 

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

83

 

 

113

 

 

26

 

198

 

 

221

 

 

10

General and administrative expenses

 

70

 

 

75

 

 

6

 

143

 

 

153

 

 

6

Franchise and property expenses

 

29

 

 

19

 

 

(52)

 

62

 

 

47

 

 

(32)

Franchise advertising and other services expense

 

70

 

 

116

 

 

40

 

190

 

 

232

 

 

18

Other (income) expense

 

4

 

 

 

 

NM

 

5

 

 

 

 

NM

Total costs and expenses, net

 

256

 

 

323

 

 

21

 

598

 

 

653

 

 

8

Operating Profit

 

$

153

 

 

$

261

 

 

(41)

 

$

377

 

 

$

497

 

 

(24)

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant margin

 

2.7

%

 

15.8

%

 

(13.1) ppts.

 

8.1

%

 

15.0

%

 

(6.9) ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

37.4

%

 

44.7

%

 

(7.3) ppts.

 

38.7

%

 

43.2

%

 

(4.5) ppts.

 

See accompanying notes.

Percentages may not recompute due to rounding.

   

YUM! Brands, Inc.

PIZZA HUT DIVISION Operating Results

(amounts in millions)

(unaudited)

   

 

 

Quarter ended

 

% Change

 

Year to date

 

% Change

 

 

6/30/20

 

6/30/19

 

B/(W)

 

6/30/20

 

6/30/19

 

B/(W)

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

19

 

 

$

11

 

 

71

 

$

37

 

 

$

22

 

 

66

Franchise and property revenues

 

126

 

 

143

 

 

(12)

 

259

 

 

288

 

 

(10)

Franchise contributions for advertising and other services

 

90

 

 

92

 

 

(1)

 

174

 

 

179

 

 

(2)

Total revenues

 

235

 

 

246

 

 

(4)

 

470

 

 

489

 

 

(4)

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

18

 

 

10

 

 

(66)

 

37

 

 

21

 

 

(70)

General and administrative expenses

 

44

 

 

44

 

 

(2)

 

90

 

 

91

 

 

Franchise and property expenses

 

1

 

 

9

 

 

89

 

13

 

 

14

 

 

6

Franchise advertising and other services expense

 

87

 

 

89

 

 

2

 

171

 

 

172

 

 

1

Other (income) expense

 

(2

)

 

(2

)

 

NM

 

(4

)

 

(2

)

 

NM

Total costs and expenses, net

 

148

 

 

150

 

 

1

 

307

 

 

296

 

 

(3)

Operating Profit

 

$

87

 

 

$

96

 

 

(9)

 

$

163

 

 

$

193

 

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant margin

 

4.5

%

 

1.6

%

 

2.9 ppts.

 

0.8

%

 

2.7

%

 

(1.9) ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

36.8

%

 

38.7

%

 

(1.9) ppts.

 

34.8

%

 

39.4

%

 

(4.6) ppts.

 

See accompanying notes.

Percentages may not recompute due to rounding.

 
   

YUM! Brands, Inc.

TACO BELL DIVISION Operating Results

(amounts in millions)

(unaudited)

   

 

 

Quarter ended

 

% Change

 

Year to date

 

% Change

 

 

6/30/20

 

6/30/19

 

B/(W)

 

6/30/20

 

6/30/19

 

B/(W)

 

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

 

$

194

 

 

$

213

 

 

(9)

 

$

392

 

 

$

410

 

 

(4)

Franchise and property revenues

 

147

 

 

158

 

 

(7)

 

295

 

 

302

 

 

(2)

Franchise contributions for advertising and other services

 

108

 

 

109

 

 

(2)

 

215

 

 

213

 

 

Total revenues

 

449

 

 

480

 

 

(7)

 

902

 

 

925

 

 

(3)

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

147

 

 

163

 

 

10

 

300

 

 

316

 

 

5

General and administrative expenses

 

37

 

 

41

 

 

10

 

75

 

 

84

 

 

11

Franchise and property expenses

 

5

 

 

8

 

 

38

 

16

 

 

17

 

 

5

Franchise advertising and other services expense

 

107

 

 

110

 

 

3

 

213

 

 

212

 

 

(1)

Other (income) expense

 

(1

)

 

(1

)

 

NM

 

 

 

(1

)

 

NM

Total costs and expenses, net

 

295

 

 

321

 

 

8

 

604

 

 

628

 

 

4

Operating Profit

 

$

154

 

 

$

159

 

 

(3)

 

$

298

 

 

$

297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant margin

 

24.5

%

 

23.6

%

 

0.9 ppts.

 

23.5

%

 

22.8

%

 

0.7 ppts.

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

 

34.4

%

 

33.2

%

 

1.2 ppts.

 

33.0

%

 

32.1

%

 

0.9 ppts.

   

See accompanying notes.

Percentages may not recompute due to rounding.

 
   

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

 

 

 

(unaudited)
6/30/20

 

12/31/19

ASSETS

 

 

 

 

Current Assets

 

 

 

 

Cash and cash equivalents

 

$

1,243

 

 

$

605

 

Accounts and notes receivable, less allowance: $101 in 2020 and $72 in 2019

 

530

 

 

584

 

Prepaid expenses and other current assets

 

625

 

 

338

 

Total Current Assets

 

2,398

 

 

1,527

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $1,167 in 2020 and $1,136 in 2019

 

1,265

 

 

1,170

 

Goodwill

 

602

 

 

530

 

Intangible assets, net

 

344

 

 

244

 

Other assets

 

1,313

 

 

1,313

 

Deferred income taxes

 

499

 

 

447

 

Total Assets

 

$

6,421

 

 

$

5,231

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

Current Liabilities

 

 

 

 

Accounts payable and other current liabilities

 

$

908

 

 

$

960

 

Income taxes payable

 

133

 

 

150

 

Short-term borrowings

 

434

 

 

431

 

Total Current Liabilities

 

1,475

 

 

1,541

 

 

 

 

 

 

Long-term debt

 

11,252

 

 

10,131

 

Other liabilities and deferred credits

 

1,802

 

 

1,575

 

Total Liabilities

 

14,529

 

 

13,247

 

 

 

 

 

 

Shareholders' Deficit

 

 

 

 

Common Stock, no par value, 750 shares authorized; 301 shares issued in 2020 and 300 issued in 2019

 

11

 

 

 

Accumulated deficit

 

(7,631

)

 

(7,628

)

Accumulated other comprehensive loss

 

(488

)

 

(388

)

Total Shareholders' Deficit

 

(8,108

)

 

(8,016

)

Total Liabilities and Shareholders' Deficit

 

$

6,421

 

 

$

5,231

 

 

See accompanying notes.

 
   

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

   

 

 

Year to date

 

 

6/30/20

 

6/30/19

Cash Flows - Operating Activities

 

 

 

 

Net Income

 

$

289

 

 

$

551

 

Depreciation and amortization

 

53

 

 

54

 

Impairment and closure (income) expenses

 

146

 

 

1

 

Refranchising (gain) loss

 

(21

)

 

(10

)

Investment (income) expense, net

 

(57

)

 

(9

)

Contributions to defined benefit pension plans

 

(1

)

 

(11

)

Deferred income taxes

 

(20

)

 

 

Share-based compensation expense

 

29

 

 

31

 

Changes in accounts and notes receivable

 

4

 

 

7

 

Changes in prepaid expenses and other current assets

 

(26

)

 

(24

)

Changes in accounts payable and other current liabilities

 

(76

)

 

(171

)

Changes in income taxes payable

 

(49

)

 

(36

)

Other, net

 

91

 

 

78

 

Net Cash Provided by Operating Activities

 

362

 

 

461

 

 

 

 

 

 

Cash Flows - Investing Activities

 

 

 

 

Capital spending

 

(67

)

 

(76

)

Acquisition of The Habit Restaurants, Inc.

 

(408

)

 

 

Proceeds from refranchising of restaurants

 

3

 

 

25

 

Other, net

 

 

 

(1

)

Net Cash Used in Investing Activities

 

(472

)

 

(52

)

 

 

 

 

 

Cash Flows - Financing Activities

 

 

 

 

Proceeds from long-term debt

 

600

 

 

 

Repayments of long-term debt

 

(41

)

 

(40

)

Revolving credit facilities, three months or less, net

 

575

 

 

157

 

Short-term borrowings by original maturity

 

 

 

 

More than three months - proceeds

 

85

 

 

48

 

More than three months - payments

 

(90

)

 

(44

)

Three months or less, net

 

 

 

 

Repurchase shares of Common Stock

 

 

 

(305

)

Dividends paid on Common Stock

 

(283

)

 

(257

)

Debt issuance costs

 

(7

)

 

 

Other, net

 

(31

)

 

(51

)

Net Cash Provided by (Used in) Financing Activities

 

808

 

 

(492

)

Effect of Exchange Rate on Cash and Cash Equivalents

 

(18

)

 

(2

)

Net Increase (Decrease) in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

 

680

 

 

(85

)

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - Beginning of Period

 

768

 

 

474

 

Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents - End of Period

 

$

1,448

 

 

$

389

 

 

 

 

 

 

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 Generally Accepted Accounting Principles in the United States of America ("GAAP"), the Company provides the following non-GAAP measurements.

  • Diluted Earnings Per Share ("EPS") excluding Special Items (as defined below);
  • Effective Tax Rate excluding Special Items;
  • Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally.

These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.

Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance. The Special Items are described in (b), (c), (d), (e), (f) and (g) in the accompanying notes.

Certain non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.

 

 

 

Quarter ended

 

Year to date

 

 

6/30/20

 

6/30/19

 

6/30/20

 

6/30/19

Detail of Special Items

 

 

 

 

 

 

 

 

Refranchising gain (loss)(b)

 

$

3

 

 

$

4

 

 

$

6

 

 

$

10

 

Costs associated with acquisition and integration of Habit Burger Grill(c)

 

(3

)

 

 

 

(9

)

 

 

Impairment of Habit Burger Grill goodwill(d)

 

 

 

 

 

(139

)

 

 

Unlocking Opportunity Initiative contribution(e)

 

(50

)

 

 

 

(50

)

 

 

Other Special Items Expense(f)

 

(4

)

 

(9

)

 

(7

)

 

(11

)

Special Items Income (Expense) - Operating Profit

 

(54

)

 

(5

)

 

(199

)

 

(1

)

Interest expense, net(f)

 

 

 

(2

)

 

 

 

(2

)

Special Items Income (Expense) before Income Taxes

 

(54

)

 

(7

)

 

(199

)

 

(3

)

Tax Benefit (Expense) on Special Items(g)

 

7

 

 

3

 

 

40

 

 

2

 

Special Items Income (Expense), net of tax

 

$

(47

)

 

$

(4

)

 

$

(159

)

 

$

(1

)

Average diluted shares outstanding

 

307

 

 

314

 

 

307

 

 

314

 

Special Items diluted EPS

 

$

(0.15

)

 

$

(0.01

)

 

$

(0.52

)

 

$

(0.01

)

 

 

 

 

 

 

 

 

 

Reconciliation of GAAP Operating Profit to Core Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

300

 

 

$

471

 

 

$

550

 

 

$

904

 

Special Items Income (Expense)

 

(54

)

 

(5

)

 

(199

)

 

(1

)

Foreign Currency Impact on Divisional Operating Profit

 

(6

)

 

N/A

 

(12

)

 

N/A

 

Core Operating Profit

 

$

360

 

 

$

476

 

 

$

761

 

 

$

905

 

 

 

 

 

 

 

 

 

 

KFC Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

153

 

 

$

261

 

 

$

377

 

 

$

497

 

Foreign Currency Impact on Divisional Operating Profit

 

(5

)

 

N/A

 

 

(10

)

 

N/A

 

Core Operating Profit

 

$

158

 

 

$

261

 

 

$

387

 

 

$

497

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of Non-GAAP Measurements to GAAP Results (Continued)
(amounts in millions, except per share amounts)
(unaudited)

 

 

 

Quarter ended

 

Year to date

 

 

6/30/20

 

6/30/19

 

6/30/20

 

6/30/19

Pizza Hut Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

87

 

 

$

96

 

 

$

163

 

 

$

193

 

Foreign Currency Impact on Divisional Operating Profit

 

(1

)

 

N/A

 

 

(2

)

 

N/A

 

Core Operating Profit

 

$

88

 

 

$

96

 

 

$

165

 

 

$

193

 

 

 

 

 

 

 

 

 

 

Taco Bell Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

154

 

 

$

159

 

 

$

298

 

 

$

297

 

Foreign Currency Impact on Divisional Operating Profit

 

 

 

N/A

 

 

 

 

N/A

 

Core Operating Profit

 

$

154

 

 

$

159

 

 

$

298

 

 

$

297

 

 

 

 

 

 

 

 

 

 

Habit Burger Grill Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

(6

)

 

N/A

 

 

$

(8

)

 

N/A

 

Foreign Currency Impact on Divisional Operating Profit

 

 

 

N/A

 

 

 

 

N/A

 

Core Operating Profit

 

$

(6

)

 

N/A

 

 

$

(8

)

 

N/A

 

 

 

 

 

 

 

 

 

 

Reconciliation of Diluted EPS to Diluted EPS excluding Special Items

 

 

 

 

 

 

 

 

Diluted EPS

 

$

0.67

 

 

$

0.92

 

 

$

0.94

 

 

$

1.75

 

Special Items Diluted EPS

 

(0.15

)

 

(0.01

)

 

(0.52

)

 

(0.01

)

Diluted EPS excluding Special Items

 

$

0.82

 

 

$

0.93

 

 

$

1.46

 

 

$

1.76

 

 

 

 

 

 

 

 

 

 

Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items

 

 

 

 

 

 

 

 

GAAP Effective Tax Rate

 

19.8

%

 

23.3

%

 

17.8

%

 

18.5

%

Impact on Tax Rate as a result of Special Items

 

1.0

%

 

(0.4

)%

 

(0.9

)%

 

(0.2

)%

Effective Tax Rate excluding Special Items

 

18.8

%

 

23.7

%

 

18.7

%

 

18.7

%

 

 

 

 

 

 

 

 

 

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

Quarter Ended 6/30/2020

 

KFC

 

Pizza Hut

 

Taco Bell

 

Habit
Burger

 

Corporate
and
Unallocated

 

Consolidated

Total revenues

 

$

409

 

 

$

235

 

 

$

449

 

 

$

105

 

 

$

 

 

$

1,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

83

 

 

18

 

 

147

 

 

101

 

 

 

 

349

 

General and administrative expenses

 

70

 

 

44

 

 

37

 

 

10

 

 

98

 

 

259

 

Franchise and property expenses

 

29

 

 

1

 

 

5

 

 

 

 

1

 

 

36

 

Franchise advertising and other services expense

 

70

 

 

87

 

 

107

 

 

 

 

 

 

264

 

Refranchising (gain) loss

 

 

 

 

 

 

 

 

 

(8

)

 

(8

)

Other (income) expense

 

4

 

 

(2

)

 

(1

)

 

 

 

(3

)

 

(2

)

Total costs and expenses, net

 

256

 

 

148

 

 

295

 

 

111

 

 

88

 

 

898

 

Operating Profit (Loss)

 

$

153

 

 

$

87

 

 

$

154

 

 

$

(6

)

 

$

(88

)

 

$

300

 

 

Quarter Ended 6/30/2019

 

KFC

 

Pizza Hut

 

Taco Bell

 

Corporate
and
Unallocated

 

Consolidated

   

 

Total revenues

 

$

584

 

 

$

246

 

 

$

480

 

 

$

 

 

$

1,310

 

   

 

 

 

 

 

 

 

 

 

 

 

 

   

 

Company restaurant expenses

 

113

 

 

10

 

 

163

 

 

 

 

286

 

   

 

General and administrative expenses

 

75

 

 

44

 

 

41

 

 

38

 

 

198

 

   

 

Franchise and property expenses

 

19

 

 

9

 

 

8

 

 

2

 

 

38

 

   

 

Franchise advertising and other services expense

 

116

 

 

89

 

 

110

 

 

 

 

315

 

   

 

Refranchising (gain) loss

 

 

 

 

 

 

 

(4

)

 

(4

)

   

 

Other (income) expense

 

 

 

(2

)

 

(1

)

 

9

 

 

6

 

   

 

Total costs and expenses, net

 

323

 

 

150

 

 

321

 

 

45

 

 

839

 

   

 

Operating Profit (Loss)

 

$

261

 

 

$

96

 

 

$

159

 

 

$

(45

)

 

$

471

 

   

 

 

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.

YUM! Brands, Inc.
Segment Results
(amounts in millions)
(unaudited)

   

Year to Date 6/30/2020

 

KFC

 

Pizza Hut

 

Taco Bell

 

Habit
Burger

 

Corporate
and
Unallocated

 

Consolidated

Total revenues

 

$

975

 

 

$

470

 

 

$

902

 

 

$

114

 

 

$

 

 

$

2,461

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

198

 

 

37

 

 

300

 

 

111

 

 

1

 

 

647

 

General and administrative expenses

 

143

 

 

90

 

 

75

 

 

11

 

 

148

 

 

467

 

Franchise and property expenses

 

62

 

 

13

 

 

16

 

 

 

 

3

 

 

94

 

Franchise advertising and other services expense

 

190

 

 

171

 

 

213

 

 

 

 

 

 

574

 

Refranchising (gain) loss

 

 

 

 

 

 

 

 

 

(21

)

 

(21

)

Other (income) expense

 

5

 

 

(4

)

 

 

 

 

 

149

 

 

150

 

Total costs and expenses, net

 

598

 

 

307

 

 

604

 

 

122

 

 

280

 

 

1,911

 

Operating Profit

 

$

377

 

 

$

163

 

 

$

298

 

 

$

(8

)

 

$

(280

)

 

$

550

 

Year to Date 6/30/2019

 

KFC

 

Pizza Hut

 

Taco Bell

 

Corporate
and
Unallocated

 

Consolidated

 

 

 

Total revenues

 

$

1,150

 

 

$

489

 

 

$

925

 

 

$

 

 

$

2,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

 

221

 

 

21

 

 

316

 

 

 

 

558

 

 

 

 

General and administrative expenses

 

153

 

 

91

 

 

84

 

 

81

 

 

409

 

 

 

 

Franchise and property expenses

 

47

 

 

14

 

 

17

 

 

3

 

 

81

 

 

 

 

Franchise advertising and other services expense

 

232

 

 

172

 

 

212

 

 

 

 

616

 

 

 

 

Refranchising (gain) loss

 

 

 

 

 

 

 

(10

)

 

(10

)

 

 

 

Other (income) expense

 

 

 

(2

)

 

(1

)

 

9

 

 

6

 

 

 

 

Total costs and expenses, net

 

653

 

 

296

 

 

628

 

 

83

 

 

1,660

 

 

 

 

Operating Profit

 

$

497

 

 

$

193

 

 

$

297

 

 

$

(83

)

 

$

904

 

 

 

 
 

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.

Notes to the Condensed Consolidated Summary of Results, Condensed Consolidated Balance Sheets
and Condensed Consolidated Statements of Cash Flows
(amounts in millions)
(unaudited)

 

(a)

Amounts presented as of and for the quarters and years to date ended June 30, 2020 and 2019 are preliminary.

 

 

(b)

We have reflected as Special Items those refranchising gains and losses that were recorded in connection with our previously announced plans to have at least 98% franchise restaurant ownership by the end of 2018. As such, refranchising gains and losses recorded during the quarters and years to date ended June 30, 2020 and 2019 as Special Items primarily include true-ups to refranchising gains and losses recorded prior to December 31, 2018.

 

 

 

During the quarters ended June 30, 2020 and 2019, we recorded net refranchising gains of $3 million and $4 million, respectively, that have been reflected as Special Items.

 

 

 

During the years to date ended June 30, 2020 and 2019, we recorded net refranchising gains of $6 million and $10 million, respectively, that have been reflected as Special Items.

 

 

 

Additionally, during the quarter and year to date ended June 30, 2020 we recorded refranchising gains of $5 million and $15 million, respectively, that have not been reflected as Special Items. These gains relate to the refranchising of restaurants in 2020 that were not part of our aforementioned plans to achieve 98% franchise ownership.

 

 

(c)

During the quarter and year to date ended June 30, 2020, we recorded Special Item charges of $3 million and $9 million, respectively, related to the acquisition and integration of The Habit Restaurants, Inc. ("Habit").

 

 

(d)

On March 18, 2020 we acquired all of the issued and outstanding common shares of Habit for total cash consideration of $408 million, net of cash acquired. During the first-quarter of 2020 the operation of substantially all Habit restaurants was impacted by government recommendations and mandates arising from containment and mitigation measures related to the COVID-19 global pandemic. As a result of the impacts of the COVID-19 pandemic on Habit’s results through March 31, 2020 as well as general market conditions, we recorded a goodwill impairment charge of $139 million to Other (income) expense, which has been reflected as a Special Item. We have also reflected the tax benefit of this impairment charge of $32 million as a Special Item.

 

 

(e)

On June 24, 2020, the Yum! Brands, Inc. Board of Directors approved the establishment of the Company’s new global “Unlocking Opportunity Initiative” including a $100 million investment over the next five years to fight inequality by unlocking opportunities for employees, restaurant team members and communities. The Company recorded a Special Item charge of $50 million in the quarter ended June 30, 2020 related to a contribution made to the Yum Foundation as part of these efforts and investment.

 

 

(f)

During the quarter ended June 30, 2019 we recorded charges of $8 million and $2 million to Other (income) expense and Interest expense, net, respectively, related to cash payments in excess of our recorded liability to settle contingent consideration associated with our acquisition of the KFC Turkey and Pizza Hut Turkey businesses in 2013. Consistent with prior adjustments to the recorded contingent consideration we have reflected this as a Special Item.

 

 

(g)

Tax Expense on Special Items was determined based upon the impact of the nature, as well as the jurisdiction of the respective individual components within Special Items.

 

Category: Earnings

Analysts are invited to contact:
Keith Siegner, Vice President, Investor Relations, M&A and Treasurer at 888/298-6986

Members of the media are invited to contact:
Virginia Ferguson, Senior Director, Public Relations, at 502/874-8200

Source: Yum! Brands, Inc.

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