February 4, 2014

Yum! Brands reports 4% earnings per share growth in 2013

For the fourth quarter ended December 28, 2013, Yum! Brands, Inc. reported earnings per share (EPS) growth of 4%, or US$0.86, excluding special items, with EPS at US$0.70 for the quarter and US$2.36 for the year.

The company's full-year highlights include KFC China sales and profits were significantly impacted by the effects of the December 2012 poultry supply incident, as well as subsequent news of avian flu. Worldwide system sales grew 2%, prior to foreign currency translation, including 5% growth at Yum! Restaurants International (YRI) and 1% growth in the US System sales declined 4% in China. Same-store sales declined 13% in China. Same-store sales grew 1%.

Total international development was 1,952 new restaurants; 82% of this development occurred in emerging markets. Worldwide restaurant margin declined 1.6 percentage points to 15.0%, including a decline of 2.7 percentage points in China.

Worldwide operating profit declined 10%, prior to foreign currency translation, including a decline of 26% in China. Operating profit grew 10% at YRI and 3% in the US. A non-cash, Special Items net charge of US$258 million related to the write-down of Little Sheep intangible assets was recorded in the third quarter. This charge impacted reported EPS by 16 percentage points for the full year.

The company repurchased US$550 million of outstanding debt in the fourth quarter and recorded a Special Items net charge of approximately US$75 million, primarily due to premiums paid related to this transaction. This impacted reported EPS by 22 percentage points for the quarter and five percentage points for the full year.

Yum! Brands fourth-quarter highlights reveal worldwide system sales grew 3%, prior to foreign currency translation, including 3% growth in China and 6% growth at YRI. System sales declined 1% in the US. Same-store sales declined 4% in China and 2% in the US. Same-store sales grew 2% at YRI. Worldwide restaurant margin declined 0.2 percentage points to 14.2%, including declines of 1.4 percentage points at YRI and 0.3 percentage points in the US China restaurant margin increased 0.4 percentage points. Worldwide operating profit grew 2%, prior to foreign currency translation, including 5% in China, 11% at YRI and 2% in the US.

David C. Novak, chairman and chief executive officer said, "While 2013 was a challenging year, I'm pleased to report continued progress as we enter 2014 with fourth-quarter EPS growth of 4%, excluding Special Items. More importantly, with the decisive actions we've taken to strengthen our company across the board, we are well positioned to deliver double-digit EPS growth in 2014 and the years ahead."

He also said that in China, the company strengthened their poultry supply chain, made significant progress rebuilding consumer trust in the KFC brand and made substantial gains in restaurant productivity. At Pizza Hut Casual Dining, they increased their asset base by 28%, grew same-store sales by 4% and expanded breakfast into over 120 restaurants. Overall, they opened 740 new restaurants in China, further strengthening their category-leading positions.

Outside of China, their franchise-led system opened over 1,200 new international restaurants, including more than 70% in high-growth emerging markets. Additionally, they continued to make investments ahead of the growth curve in India as they opened over 150 new units. In the US, Taco Bell delivered its eighth consecutive quarter of same-store sales growth and they are enthusiastic about their upcoming national breakfast launch. They are also excited about their plans at Pizza Hut to nationally advertise WingStreet and its award-winning chicken wings for the first time.

As of January 1, 2014, they combined their Yum! Restaurants International and US divisions into three global brand divisions: KFC, Pizza Hut and Taco Bell. China and India will remain separate divisions given their strategic importance and enormous growth potential. This new structure is designed to drive greater brand focus and lead to even more aggressive global growth.