Yum! Brands Reports Third-Quarter Results

Yum! Brands, Inc. (NYSE: YUM) today reported results for the third quarter ended September 30, 2022. Worldwide system sales excluding foreign currency translation grew 7%, with 5% same-store sales growth and 4% unit growth. Third quarter GAAP operating profit grew 4%. Third quarter core operating profit grew 8% including a 3-point headwind from Russia. Third quarter GAAP EPS was $1.14 and third quarter EPS excluding Special Items was $1.09. Our year-over-year EPS excluding Special Items results reflect a $0.23 negative impact from a higher current year tax rate, lower investment gains and the removal of Russia-based profits. Foreign currency translation also unfavorably impacted our EPS by $0.10.

DAVID GIBBS COMMENTS

David Gibbs, CEO, said "I'm pleased to report another strong quarter for Yum!, with system sales growth of 10% excluding Russia, driven by strong demand for our iconic brands, increased digital adoption and continued momentum on unit development. Our three global brands delivered widespread system sales growth, once again demonstrating that our globally diversified business, led by our world-class teams and franchisees, can thrive in any environment."

RUSSIA UPDATE

• As previously announced, Yum! entered into a sale and purchase agreement to transfer ownership of our Russian KFC restaurants, operating system and master franchise rights, including the network of KFC franchised restaurants, to Smart Service Ltd., a business operated by one of our existing KFC franchisees in Russia. Under the agreement, the buyer will be responsible for rebranding locations to a non-Yum! concept and retaining employees in Russia. Completion of the transaction is subject to regulatory and governmental approvals, as well as other conditions. Following the completion of the transaction, we will have ceased our corporate presence in Russia.
• As of the beginning of the second quarter, we elected to remove Russia from our unit count and system sales, negatively impacting those key performance metrics as presented in our THIRD-QUARTER HIGHLIGHTS section and the remainder of this release.
• Removing Russia from our prior year base, key performance metrics would have been as follows:

THIRD-QUARTER HIGHLIGHTS

• Worldwide system sales grew 7%, excluding foreign currency translation, with KFC at 8%, Taco Bell at 9% and Pizza Hut 4%.
• We added 979 gross units during the third quarter resulting in 644 net-new units.
• Russia units are excluded from our same-store sales results for the quarter.
• Reported digital sales of approximately $6 billion, with digital mix exceeding 40%.
• Foreign currency translation unfavorably impacted divisional operating profit by $39 million.

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 in our Condensed Consolidated Summary of Results for further details.

Digital system sales includes all transactions where consumers at system restaurants utilize ordering interaction that is primarily facilitated by automated technology.

KFC DIVISION

• As of the beginning of the second quarter, we removed 1,112 units in Russia from our global KFC unit count, or 4% of units.
• KFC Division opened 485 gross new restaurants in 56 countries.
• KFC Division ex-China same-store sales grew 9%.
• As a result of our decision to exit the Russia business, third-quarter KFC Division system sales growth was negatively impacted by 4 percentage points, KFC International system sales growth was negatively impacted by 5 percentage points and KFC Division operating profit growth excluding foreign currency was negatively impacted by 5 percentage points.
• Foreign currency translation unfavorably impacted operating profit by $33 million.

TACO BELL DIVISION

• Taco Bell Division opened 98 gross new restaurants in 16 countries.
• Taco Bell U.S. system sales grew 8% and Taco Bell International system sales grew 26%.
• Taco Bell U.S. same-store sales grew 7% and Taco Bell International same-store sales grew 5%.
• Company-owned restaurant margins were approximately 24%, slightly above the third quarter last year.
• Foreign currency translation unfavorably impacted operating profit by $1 million.

PIZZA HUT DIVISION

• As of the beginning of the second quarter, we removed 53 units in Russia from our global Pizza Hut unit count.
• Pizza Hut Division opened 392 gross new restaurants in 47 countries.
• Foreign currency translation unfavorably impacted operating profit by $5 million.

HABIT BURGER GRILL DIVISION

• The Habit Burger Grill Division system sales grew 12%.
• The Habit Burger Grill Division opened 4 gross new restaurants in the U.S.
• The Habit Burger Grill Division same-store sales decreased 1%.

OTHER ITEMS

• Disclosures pertaining to outstanding debt in our Restricted Group capital structure will be provided at the time of the filing of the third-quarter Form 10-Q.
• Ex-special tax rate this quarter was just under 27%, largely due to adjustments recorded in the quarter associated with prior year taxes.

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 November 2, 2022. The number is 844/200-6205 for U.S. callers, 833/950-0062 for Canada callers, and 929/526-1599 for international callers, conference ID 294847.

The call will be available for playback beginning at 10:00 a.m. Eastern Time November 2, 2022 through November 9, 2022. To access the playback, dial 866/813-9403 in the U.S., 226/828-7578 in Canada, 0204/525-0658 for U.K. (local), and +44/204-525-0658 internationally, conference ID 923614.

The webcast and the playback can be accessed by visiting Yum! Brands' website, investors.yum.com/events-and-presentations and selecting "Q3 2022 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 in our Condensed Consolidated Summary of Results.

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; the macroeconomic and regional instability caused by the Russia conflict in Ukraine; our ability to protect the integrity and security of personal information of our customers and employees; our ability to successfully implement technology initiatives; our increasing dependence on multiple digital commerce platforms; 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 and retaining 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, including inflationary pressures; 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, and its subsidiaries franchise or operate a system of nearly 54,000 restaurants in more than 155 countries and territories under the company's concepts ? KFC, Taco Bell, Pizza Hut and the Habit Burger Grill. The Company's KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style food, and pizza categories, respectively. The Habit Burger Grill is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Yum! Brands was named to the 2021 Dow Jones Sustainability Index North America and was ranked on Newsweek's list of 2021 America's Most Responsible Companies. In 2022, Yum! Brands was named to 3BL Media's 100 Best Corporate Citizens.

Category: Earnings