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."
Exception caught in main.
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.
