Yum! Brands Inc. Announces First Quarter 2011 EPS Growth of 7%, Or $0.63 Per Share, Excluding Special Items

Yum! Brands Inc. (NYSE: YUM) today reported results for the first quarter ended March 19, 2011 including EPS of $0.63, excluding Special Items. After a Special Items loss of $0.09, reported EPS was $0.54. Yum! reconfirms full year 2011 EPS growth of at least 10%, excluding Special Items.

“I’m pleased to report strong international performance helped Yum! Brands deliver EPS growth of 7% in the first quarter, prior to special items.”

FIRST-QUARTER HIGHLIGHTS

• Worldwide operating profit grew 5%, prior to foreign currency translation, including 18% in China and 8% in Yum! Restaurants International (“YRI”), partially offset by a 13% decline in the U.S.
• Worldwide system sales grew 5%, prior to foreign currency translation, including 24% in China and 6% in YRI. System sales in the U.S. were flat.
• Strong international development continued with 223 new restaurants opened, including 92 new units in China.
• Same-store sales grew 13% in China and 2% in YRI, with a 1% decline in the U.S.
• Worldwide restaurant margin improved 0.6 percentage points to 17.6%.
• Share repurchases totaled $142 million for 2.9 million shares at an average price of $49 per share.
• Worldwide tax rate increased to 27.1% from 25.7%.'

David C. Novak, Chairman and CEO said, “I’m pleased to report strong international performance helped Yum! Brands deliver EPS growth of 7% in the first quarter, prior to special items.

Our China business continues to fire on all cylinders. Operating profit grew 18%, prior to foreign currency translation, as same-store sales jumped a remarkable 13%, driven by a 15% increase in same-store transactions. This strong increase in traffic gives us even more confidence that our category-leading brands in China are stronger than ever, and well positioned for sustained growth ahead. Yum! Restaurants International (YRI) operating profit increased 8%, led by outstanding performance in high-growth emerging markets, where system sales grew 10%, both prior to foreign currency translation. Importantly, we continue to build scale in India, the second-largest emerging market, where system sales were up 42%.

In spite of these international results, our overall performance was dampened by an unexpected 13% decline in U.S. profits. We knew commodity inflation would be a headwind, but did not plan for a significant reversal in sales trends at Taco Bell due to false claims made about our food quality that resulted in negative publicity. Given Taco Bell's category leadership we remain bullish on its long-term growth strategy.

Looking ahead, our international performance and trends are strong, and new unit development is robust. We expect the continued strength of both our China and YRI businesses to overcome a challenging year in the U.S., and that 2011 will be the tenth consecutive year we achieve our annual target of at least 10% EPS growth.”

• China Division system sales increased 24%, excluding foreign currency translation, driven by same-store-sales growth of 13% and new unit development of 12%. The same-store-sales growth was driven by a 15% increase in same-store transactions. KFC same-store sales grew 14%, due in part to several successful sales-building initiatives, including breakfast, delivery and 24-hour operation. Pizza Hut Casual Dining leveraged strong promotions and their semi-annual menu refresh to post 12% same-store-sales growth.
  • Opened 92 new restaurants in the first quarter, led by strong company development.

• Overlapping record levels from the first quarter of 2010, restaurant margin decreased 1.5 percentage points, driven primarily by higher wage rates, commodity inflation and a new business tax that took effect in December 2010. We now estimate commodity inflation of approximately 7% for the full year.
• Operating profit growth of 18% overlapped growth of 37%, excluding foreign currency translation, in the first quarter of 2010.
• Foreign currency translation benefited operating profit by $7 million.

• YRI Division system sales growth of 6%, excluding foreign currency translation, was driven by new unit development and a 2% increase in same-store sales. Emerging markets led the way with 10% system sales growth, driven by 6% unit growth. Developed market system sales grew 4%, driven by 2% unit growth.
• YRI opened 131 new units in 41 countries, including 90 in emerging markets. Our franchise partners opened 92% of the total new units.
• Restaurant margin increased 1.4 percentage points to 12.7%, primarily as a result of strong performance in Thailand, France and KFC UK.
• Operating profit grew 8%, prior to foreign currency translation, driven by new unit growth, same-store-sales growth and improved restaurant margins. Weak performance in Pizza Hut UK and KFC Australia partially offset overall YRI profit growth.
• Foreign currency translation positively impacted operating profit by $5 million.

• U.S. Division same-store sales declined 1%, including an increase of 1% at KFC, flat sales at Taco Bell and a decline of 3% at Pizza Hut.
• Taco Bell began the year with strong sales momentum and grew same-store sales 4% in the first period of the quarter. However, due to false claims made about our food quality that resulted in negative publicity, we saw a significant reversal in sales trends. Sales declined 2% over the balance of the first quarter. On April 18^th, the law firm for the plaintiff that initiated these false claims voluntarily withdrew its class action suit against the company without any payments to the plaintiffs, and without any changes to Taco Bell’s products or advertising.
• Restaurant margin declined 1.6 percentage points and operating profit declined 13% due to commodity inflation, a decline in same-store sales and the impact of a value-oriented menu mix shift. Food inflation remains a headwind and we now estimate commodity inflation of approximately 6% for the full year.
• The combination of near-term weak sales at Taco Bell and higher food inflation should make the second quarter our most challenging of the year in the U.S.

SPECIAL ITEMS UPDATE

• During the first quarter, we decided to sell our Long John Silver’s and A&W All American Food brands. As a result, we recorded a non-cash pre-tax charge in Special Items of $66 million related to the impairment of intangible assets.

Reader Comments:

Be the first to leave a comment for this article