Yum! Brands Reports Encouraging Third-Quarter Results; Strong Recovery Driven by Record Digital Sales, Off-Premise Growth and Re…

GAAP Operating Profit Decline of (2)%; Core Operating Profit Growth of 7%; System Sales Growth of 1% with 2% Net Unit Growth Offset by a Same-Store Sales Decline of (2)%

Yum! Brands, Inc. (NYSE: YUM) today reported results for the third-quarter ended September 30, 2020. Worldwide system sales excluding foreign currency translation grew 1%, with 2% net-new unit growth and a (2)% same-store sales decline. Third-quarter GAAP EPS was $0.92, an increase of 14% over the prior year quarter. Third-quarter EPS excluding Special Items was $1.01, an increase of 27% over the prior year quarter.

DAVID GIBBS COMMENTS

David Gibbs, CEO, said “Third-quarter results were encouraging, demonstrating the resilience of the Yum! portfolio as Yum! generated year-over-year core operating profit growth, continued to reopen temporarily closed restaurants and achieved global same-store sales growth of approximately flat, in aggregate, for our open store base. For the second consecutive quarter, digital sales increased by more than $1 billion over the prior year and set a single quarter record of $4 billion. These results are a testament to the hard work and collaboration across our four brands, and I want to thank our entire global system for exceptional execution of our Recipe for Growth and Good strategy this quarter. Our employees, franchisees and restaurant team members continued to adapt to this year’s ever-changing environment while also accelerating progress on our digital and technology journey. Importantly, our balance sheet and liquidity position are strong and franchisee health improved. I’m confident that by continuing to leverage our unmatched scale and champion the technology-centric customer experience, we will drive global growth, enhance unit-level economics and maximize long-term value for all of our stakeholders.”

THIRD-QUARTER HIGHLIGHTS

  • Worldwide system sales excluding foreign currency translation grew 1%, with Taco Bell at 5%, offset by KFC at (1)% and Pizza Hut at (4)%.
  • We reported 2% net unit growth year-over-year and a unit decline of (267) during the quarter.
  • We recorded $8 million of pre-tax investment income related to the change in fair value of our investment in Grubhub, which resulted in a $0.02 benefit to EPS on the third-quarter. Our Grubhub investment favorably impacted year-over-year EPS growth by $0.17, as we lapped a $60 million of pre-tax investment expense in the third-quarter of 2019 for a ($0.15) impact to EPS. We disposed our Grubhub investment during the third-quarter for $206 million.
  • Foreign currency translation unfavorably impacted divisional operating profit by $2 million.
 

 

% Change

 

System Sales
Ex F/X

Same-Store Sales

Net-New Units

GAAP Operating
Profit

Core
Operating Profit2

KFC Division

(1)

(4)

+5

+3

+4

Pizza Hut Division

(4)

(3)

(4)

+3

+3

Taco Bell Division

+5

+3

+3

+16

+16

Worldwide1

+1

(2)

+2

(2)

+7

 

 

Third-Quarter

Year-to-Date

 

2020

2019

% Change

2020

2019

% Change

GAAP EPS

$0.92

$0.81

+14

$1.86

$2.57

(27)

Special Items EPS2

$(0.09)

$0.01

NM

$(0.61)

$0.02

NM

EPS Excluding Special Items

$1.01

$0.80

+27

$2.47

$2.55

(3)

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.

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

KFC DIVISION

 

 

Third-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2020

2019

Reported

Ex F/X

2020

2019

Reported

Ex F/X

Restaurants

24,602

23,435

+5

N/A

24,602

23,435

+5

N/A

System Sales ($MM)

6,909

6,968

(1)

(1)

18,484

20,163

(8)

(7)

Same-Store Sales Growth (%)

(4)

+3

NM

NM

(11)

+5

NM

NM

Franchise and Property Revenues ($MM)

340

344

(1)

(1)

906

999

(9)

(8)

Operating Profit ($MM)

278

270

+3

+4

655

767

(15)

(13)

Operating Margin (%)

47.2

44.3

2.9

2.9

41.9

43.6

(1.7)

(1.9)

 

 

Third-Quarter (% Change)

Year-to-Date (% Change)

 

International

U.S.

International

U.S.

System Sales Growth Ex F/X

(2)

+9

(9)

+6

Same-Store Sales Growth

(7)

+9

(14)

+5

 
  • KFC Division opened 358 gross new restaurants in 45 countries.
  • Operating margin increased 2.9 percentage points driven by International franchise bad debt recoveries.
  • Foreign currency translation unfavorably impacted operating profit by $2 million.

KFC Markets1

Percent of KFC
System Sales
2

System Sales Growth Ex F/X

Third-Quarter
(% Change)

Year-to-Date
(% Change)

China

27%

(1)

(7)

United States

16%

+9

+6

Asia

12%

(6)

(4)

Russia, Central & Eastern Europe

8%

(4)

(14)

Australia

7%

+7

+4

United Kingdom

6%

+16

(10)

Western Europe

6%

(13)

Latin America

5%

(19)

(19)

Africa

4%

+3

(15)

Middle East / Turkey / North Africa

4%

(8)

(17)

Canada

2%

+7

Thailand

2%

(8)

(6)

India

1%

(37)

(39)

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

2Reflects Full Year 2019.

PIZZA HUT DIVISION

 

 

Third-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2020

2019

Reported

Ex F/X

2020

2019

Reported

Ex F/X

Restaurants

17,842

18,532

(4)

N/A

17,842

18,532

(4)

N/A

System Sales ($MM)

2,994

3,092

(3)

(4)

8,548

9,321

(8)

(8)

Same-Store Sales Growth (%)

(3)

Even

NM

NM

(8)

+1

NM

NM

Franchise and Property Revenues ($MM)

134

143

(5)

(5)

393

431

(9)

(8)

Operating Profit ($MM)

89

86

+3

+3

252

279

(10)

(9)

Operating Margin (%)

36.7

36.0

0.7

0.8

35.4

38.2

(2.8)

(2.8)

 

 

Third-Quarter (% Change)

Year-to-Date (% Change)

 

International

U.S.

International

U.S.

System Sales Growth Ex F/X

(8)

+3

(13)

(1)

Same-Store Sales Growth

(9)

+6

(14)

+1

 
  • Pizza Hut Division opened 148 gross new restaurants in 32 countries.
  • Operating margin increased 0.7 percentage points driven by U.S. franchise bad debt recoveries, offset by International same-store sales declines.
  • Foreign currency translation had no material impact on operating profit.
  • Pizza Hut U.S. off-premise channel generated 21% same-store sales growth when excluding closed Express units, or 17% same-store sales growth when including closed Express units.
 

Pizza Hut Markets1

Percent of Pizza Hut
System Sales2

System Sales Growth Ex F/X

Third-Quarter
(% Change)

Year-to-Date
(% Change)

United States

42%

+3

(1)

China

17%

(6)

(19)

Asia

13%

+3

+6

Latin America / Spain / Portugal

11%

(23)

(22)

Europe (excluding Spain & Portugal)

9%

(10)

(16)

Middle East / Turkey / North Africa

4%

(15)

(22)

Canada

2%

+16

+13

India

1%

(33)

(36)

Africa

<1%

+1

(7)

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

 

 

Third-Quarter

Year-to-Date

 

 

 

%/ppts Change

 

 

%/ppts Change

 

2020

2019

Reported

Ex F/X

2020

2019

Reported

Ex F/X

Restaurants

7,400

7,191

+3

N/A

7,400

7,191

+3

N/A

System Sales ($MM)

2,914

2,772

+5

+5

8,074

8,005

+1

+1

Same-Store Sales Growth (%)

+3

+4

NM

NM

(2)

+5

NM

NM

Franchise and Property Revenues ($MM)

165

158

+4

+4

460

460

Even

Even

Operating Profit ($MM)

186

161

+16

+16

484

458

+6

+6

Operating Margin (%)

37.2

32.9

4.3

4.3

34.5

32.4

2.1

2.1

 
  • Taco Bell Division opened 45 gross new restaurants in 9 countries.
  • Operating margin increased 4.3 percentage points due to lower general and administrative expenses, same-store sales growth and higher company restaurant margins.

HABIT BURGER GRILL DIVISION

  • The Habit Burger Grill Division same-store sales declined 3% during the third-quarter.
  • The Habit Burger Grill Division opened 5 gross new restaurants in the U.S and China.

OTHER ITEMS

  • We refinanced our 5.00% coupon rate Senior Subsidiary Restricted Group Notes due in 2024 with newly issued 10.5-year Yum! Brands, Inc. holding company notes with a coupon rate of 3.625%.
  • 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.
 

YUM! Brands, Inc.

Condensed Consolidated Summary of Results

(amounts in millions, except per share amounts)

(unaudited)

 

 

Quarter ended

 

% Change

 

Year to date

 

% Change

 

9/30/20

 

9/30/19

 

B/(W)

 

9/30/20

 

9/30/19

 

B/(W)

Revenues

 

 

 

 

 

 

 

 

 

 

 

Company sales

$

486

 

 

$

364

 

 

34

 

$

1,244

 

 

$

1,056

 

 

18

Franchise and property revenues

639

 

 

645

 

 

(1)

 

1,760

 

 

1,890

 

 

(7)

Franchise contributions for advertising and other services

323

 

 

330

 

 

(2)

 

905

 

 

957

 

 

(6)

Total revenues

1,448

 

 

1,339

 

 

8

 

3,909

 

 

3,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Costs and Expenses, Net

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

399

 

 

292

 

 

(38)

 

1,046

 

 

850

 

 

(23)

General and administrative expenses

257

 

 

208

 

 

(24)

 

724

 

 

617

 

 

(17)

Franchise and property expenses

13

 

 

43

 

 

71

 

107

 

 

124

 

 

14

Franchise advertising and other services expense

313

 

 

325

 

 

4

 

887

 

 

941

 

 

6

Refranchising (gain) loss

(9

)

 

(8

)

 

17

 

(30

)

 

(18

)

 

70

Other (income) expense

4

 

 

(1

)

 

NM

 

154

 

 

5

 

 

NM

Total costs and expenses, net

977

 

 

859

 

 

(14)

 

2,888

 

 

2,519

 

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

Operating Profit

471

 

 

480

 

 

(2)

 

1,021

 

 

1,384

 

 

(26)

Investment (income) expense, net

(10

)

 

59

 

 

NM

 

(67

)

 

50

 

 

NM

Other pension (income) expense

4

 

 

1

 

 

NM

 

9

 

 

4

 

 

NM

Interest expense, net

161

 

 

120

 

 

(34)

 

411

 

 

354

 

 

(16)

Income before income taxes

316

 

 

300

 

 

6

 

668

 

 

976

 

 

(31)

Income tax provision

33

 

 

45

 

 

26

 

96

 

 

170

 

 

44

Net Income

$

283

 

 

$

255

 

 

11

 

$

572

 

 

$

806

 

 

(29)

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

 

 

 

 

 

 

 

 

 

 

EPS

$

0.94

 

 

$

0.83

 

 

12

 

$

1.89

 

 

$

2.63

 

 

(28)

Average shares outstanding

303

 

 

306

 

 

1

 

302

 

 

307

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

 

 

 

 

 

 

 

 

 

 

EPS

$

0.92

 

 

$

0.81

 

 

14

 

$

1.86

 

 

$

2.57

 

 

(27)

Average shares outstanding

307

 

 

313

 

 

2

 

307

 

 

314

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

$

0.47

 

 

$

0.42

 

 

 

 

$

1.41

 

 

$

1.26

 

 

 

 

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

 

9/30/20

 

9/30/19

 

B/(W)

 

9/30/20

 

9/30/19

 

B/(W)

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

$

130

 

 

$

135

 

 

(3)

 

$

346

 

 

$

395

 

 

(12)

Franchise and property revenues

340

 

 

344

 

 

(1)

 

906

 

 

999

 

 

(9)

Franchise contributions for advertising and other services

116

 

 

130

 

 

(11)

 

309

 

 

365

 

 

(15)

Total revenues

586

 

 

609

 

 

(4)

 

1,561

 

 

1,759

 

 

(11)

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

109

 

 

113

 

 

4

 

307

 

 

334

 

 

8

General and administrative expenses

81

 

 

80

 

 

(1)

 

224

 

 

233

 

 

4

Franchise and property expenses

7

 

 

23

 

 

66

 

69

 

 

70

 

 

1

Franchise advertising and other services expense

111

 

 

126

 

 

12

 

301

 

 

358

 

 

16

Other (income) expense

 

 

(3

)

 

NM

 

5

 

 

(3

)

 

NM

Total costs and expenses, net

308

 

 

339

 

 

9

 

906

 

 

992

 

 

9

Operating Profit

$

278

 

 

$

270

 

 

3

 

$

655

 

 

$

767

 

 

(15)

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant margin

16.3

%

 

16.1

%

 

0.2 ppts.

 

11.2

%

 

15.3

%

 

(4.1) ppts.

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

47.2

%

 

44.3

%

 

2.9 ppts.

 

41.9

%

 

43.6

%

 

(1.7) 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

 

9/30/20

 

9/30/19

 

B/(W)

 

9/30/20

 

9/30/19

 

B/(W)

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

$

20

 

 

$

13

 

 

54

 

$

57

 

 

$

35

 

 

62

Franchise and property revenues

134

 

 

143

 

 

(5)

 

393

 

 

431

 

 

(9)

Franchise contributions for advertising and other services

89

 

 

85

 

 

3

 

263

 

 

264

 

 

(1)

Total revenues

243

 

 

241

 

 

1

 

713

 

 

730

 

 

(2)

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

18

 

 

13

 

 

(47)

 

55

 

 

34

 

 

(61)

General and administrative expenses

51

 

 

47

 

 

(7)

 

141

 

 

138

 

 

(2)

Franchise and property expenses

(2

)

 

9

 

 

NM

 

11

 

 

23

 

 

52

Franchise advertising and other services expense

85

 

 

86

 

 

 

256

 

 

258

 

 

1

Other (income) expense

2

 

 

 

 

NM

 

(2

)

 

(2

)

 

NM

Total costs and expenses, net

154

 

 

155

 

 

 

461

 

 

451

 

 

(2)

Operating Profit

$

89

 

 

$

86

 

 

3

 

$

252

 

 

$

279

 

 

(10)

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant margin

8.2

%

 

4.0

%

 

4.2 ppts.

 

3.4

%

 

3.2

%

 

0.2 ppts.

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

36.7

%

 

36.0

%

 

0.7 ppts.

 

35.4

%

 

38.2

%

 

(2.8) 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

 

9/30/20

 

9/30/19

 

B/(W)

 

9/30/20

 

9/30/19

 

B/(W)

 

 

 

 

 

 

 

 

 

 

 

 

Company sales

$

218

 

 

$

216

 

 

1

 

$

610

 

 

$

626

 

 

(3)

Franchise and property revenues

165

 

 

158

 

 

4

 

460

 

 

460

 

 

Franchise contributions for advertising and other services

118

 

 

115

 

 

3

 

333

 

 

328

 

 

1

Total revenues

501

 

 

489

 

 

2

 

1,403

 

 

1,414

 

 

(1)

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

158

 

 

166

 

 

5

 

458

 

 

482

 

 

5

General and administrative expenses

33

 

 

40

 

 

16

 

108

 

 

124

 

 

13

Franchise and property expenses

8

 

 

9

 

 

19

 

24

 

 

26

 

 

10

Franchise advertising and other services expense

117

 

 

113

 

 

(3)

 

330

 

 

325

 

 

(2)

Other (income) expense

(1

)

 

 

 

NM

 

(1

)

 

(1

)

 

NM

Total costs and expenses, net

315

 

 

328

 

 

4

 

919

 

 

956

 

 

4

Operating Profit

$

186

 

 

$

161

 

 

16

 

$

484

 

 

$

458

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

Restaurant margin

27.8

%

 

23.6

%

 

4.2 ppts.

 

25.0

%

 

23.1

%

 

1.9 ppts.

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin

37.2

%

 

32.9

%

 

4.3 ppts.

 

34.5

%

 

32.4

%

 

2.1 ppts.

 

See accompanying notes.

Percentages may not recompute due to rounding.

 

YUM! Brands, Inc.

Condensed Consolidated Balance Sheets

(amounts in millions)

 

 

(unaudited)
9/30/20

 

12/31/19

ASSETS

 

 

 

Current Assets

 

 

 

Cash and cash equivalents

$

1,110

 

 

$

605

 

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

522

 

 

584

 

Prepaid expenses and other current assets

398

 

 

338

 

Total Current Assets

2,030

 

 

1,527

 

 

 

 

 

Property, plant and equipment, net of accumulated depreciation of $1,201 in 2020

 

 

 

and $1,136 in 2019

1,229

 

 

1,170

 

Goodwill

590

 

 

530

 

Intangible assets, net

339

 

 

244

 

Other assets

1,361

 

 

1,313

 

Deferred income taxes

512

 

 

447

 

Total Assets

$

6,061

 

 

$

5,231

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

 

 

Current Liabilities

 

 

 

Accounts payable and other current liabilities

$

1,100

 

 

$

960

 

Income taxes payable

9

 

 

150

 

Short-term borrowings

444

 

 

431

 

Total Current Liabilities

1,553

 

 

1,541

 

 

 

 

 

Long-term debt

10,647

 

 

10,131

 

Other liabilities and deferred credits

1,780

 

 

1,575

 

Total Liabilities

13,980

 

 

13,247

 

 

 

 

 

Shareholders’ Deficit

 

 

 

Common Stock, no par value, 750 shares authorized; 302 shares issued in 2020 and 300 issued in 2019

23

 

 

 

Accumulated deficit

(7,490

)

 

(7,628

)

Accumulated other comprehensive loss

(452

)

 

(388

)

Total Shareholders’ Deficit

(7,919

)

 

(8,016

)

Total Liabilities and Shareholders’ Deficit

$

6,061

 

 

$

5,231

 

See accompanying notes.

 

YUM! Brands, Inc.

Condensed Consolidated Statements of Cash Flows

(amounts in millions)

(unaudited)

 

 

Year to date

 

9/30/20

 

9/30/19

Cash Flows – Operating Activities

 

 

 

Net Income

$

572

 

 

$

806

 

Depreciation and amortization

100

 

 

84

 

Impairment and closure (income) expenses

156

 

 

 

Refranchising (gain) loss

(30

)

 

(18

)

Investment (income) expense, net

(67

)

 

50

 

Contributions to defined benefit pension plans

(2

)

 

(13

)

Deferred income taxes

(32

)

 

(10

)

Share-based compensation expense

44

 

 

45

 

Changes in accounts and notes receivable

46

 

 

(4

)

Changes in prepaid expenses and other current assets

11

 

 

(9

)

Changes in accounts payable and other current liabilities

105

 

 

(96

)

Changes in income taxes payable

(152

)

 

(64

)

Other, net

102

 

 

112

 

Net Cash Provided by Operating Activities

853

 

 

883

 

 

 

 

 

Cash Flows – Investing Activities

 

 

 

Capital spending

(99

)

 

(109

)

Acquisition of The Habit Restaurants, Inc.

(408

)

 

 

Proceeds from sale of investment in Grubhub, Inc. common stock

206

 

 

 

Proceeds from refranchising of restaurants

13

 

 

55

 

Other, net

19

 

 

 

Net Cash Used in Investing Activities

(269

)

 

(54

)

 

 

 

 

Cash Flows – Financing Activities

 

 

 

Proceeds from long-term debt

1,650

 

 

800

 

Repayments of long-term debt

(1,142

)

 

(311

)

Revolving credit facilities, three months or less, net

 

 

 

Short-term borrowings by original maturity

 

 

 

More than three months – proceeds

85

 

 

80

 

More than three months – payments

(90

)

 

(70

)

Three months or less, net

 

 

 

Repurchase shares of Common Stock

 

 

(472

)

Dividends paid on Common Stock

(425

)

 

(385

)

Debt issuance costs

(20

)

 

(9

)

Other, net

(34

)

 

(73

)

Net Cash Provided by (Used in) Financing Activities

24

 

 

(440

)

Effect of Exchange Rate on Cash and Cash Equivalents

(1

)

 

(27

)

Net Increase in Cash and Cash Equivalents, Restricted Cash and Restricted Cash Equivalents

607

 

 

362

 

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

$

1,375

 

 

$

836

 

 

 

 

 

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 (a) – (i) 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

 

 

9/30/20

 

9/30/19

 

9/30/20

 

9/30/19

Detail of Special Items

 

 

 

 

 

 

 

 

Refranchising gain (loss)(a)

 

$

2

 

 

$

8

 

 

$

8

 

 

$

18

 

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

 

 

 

 

 

(9

)

 

 

Impairment of Habit Burger Grill goodwill(c)

 

(5

)

 

 

 

(144

)

 

 

Unlocking Opportunity Initiative contribution(d)

 

 

 

 

 

(50

)

 

 

Charges associated with resource optimization(e)

 

(32

)

 

 

 

(32

)

 

 

Other Special Items Income (Expense)(f)

 

1

 

 

(3

)

 

(6

)

 

(14

)

Special Items Income (Expense) – Operating Profit

 

(34

)

 

5

 

 

(233

)

 

4

 

Charges associated with resource optimization – Other Pension Expense(e)

 

(1

)

 

 

 

(1

)

 

 

Interest expense, net(f)(g)

 

(34

)

 

 

 

(34

)

 

(2

)

Special Items Income (Expense) before Income Taxes

 

(69

)

 

5

 

 

(268

)

 

2

 

Tax Benefit on Special Items(h)

 

17

 

 

 

 

57

 

 

2

 

Tax Benefit – Intra-entity transfer of intellectual property(i)

 

25

 

 

 

 

25

 

 

 

Special Items Income (Expense), net of tax

 

$

(27

)

 

$

5

 

 

$

(186

)

 

$

4

 

Average diluted shares outstanding

 

307

 

 

313

 

 

307

 

 

314

 

Special Items diluted EPS

 

$

(0.09

)

 

$

0.01

 

 

$

(0.61

)

 

$

0.02

 

 

 

 

 

 

 

 

 

 

Reconciliation of GAAP Operating Profit to Core Operating Profit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

471

 

 

$

480

 

 

$

1,021

 

 

$

1,384

 

Special Items Income (Expense)

 

(34

)

 

5

 

 

(233

)

 

4

 

Foreign Currency Impact on Divisional Operating Profit

 

(2

)

 

N/A

 

 

(14

)

 

N/A

 

Core Operating Profit

 

$

507

 

 

$

475

 

 

$

1,268

 

 

$

1,380

 

 

 

 

 

 

 

 

 

 

KFC Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

278

 

 

$

270

 

 

$

655

 

 

$

767

 

Foreign Currency Impact on Divisional Operating Profit

 

(2

)

 

N/A

 

 

(13

)

 

N/A

 

Core Operating Profit

 

$

280

 

 

$

270

 

 

$

668

 

 

$

767

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

Quarter ended

 

Year to date

 

 

9/30/20

 

9/30/19

 

9/30/20

 

9/30/19

Pizza Hut Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

89

 

 

$

86

 

 

$

252

 

 

$

279

 

Foreign Currency Impact on Divisional Operating Profit

 

 

 

N/A

 

 

(1

)

 

N/A

 

Core Operating Profit

 

$

89

 

 

$

86

 

 

$

253

 

 

$

279

 

 

 

 

 

 

 

 

 

 

Taco Bell Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

186

 

 

$

161

 

 

$

484

 

 

$

458

 

Foreign Currency Impact on Divisional Operating Profit

 

 

 

N/A

 

 

 

 

N/A

 

Core Operating Profit

 

$

186

 

 

$

161

 

 

$

484

 

 

$

458

 

 

 

 

 

 

 

 

 

 

Habit Burger Grill Division

 

 

 

 

 

 

 

 

GAAP Operating Profit

 

$

(7

)

 

N/A

 

 

$

(15

)

 

N/A

 

Foreign Currency Impact on Divisional Operating Profit

 

 

 

N/A

 

 

 

 

N/A

 

Core Operating Profit

 

$

(7

)

 

N/A

 

 

$

(15

)

 

N/A

 

 

 

 

 

 

 

 

 

 

Reconciliation of Diluted EPS to Diluted EPS excluding Special Items

 

 

 

 

 

 

 

 

Diluted EPS

 

$

0.92

 

 

$

0.81

 

 

$

1.86

 

 

$

2.57

 

Special Items Diluted EPS

 

(0.09

)

 

0.01

 

 

(0.61

)

 

0.02

 

Diluted EPS excluding Special Items

 

$

1.01

 

 

$

0.80

 

 

$

2.47

 

 

$

2.55

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

GAAP Effective Tax Rate

 

10.5

%

 

15.1

%

 

14.4

%

 

17.4

%

Impact on Tax Rate as a result of Special Items

 

(8.8

)%

 

%

 

(4.6

)%

 

(0.2

)%

Effective Tax Rate excluding Special Items

 

19.3

%

 

15.1

%

 

19.0

%

 

17.6

%

 

YUM! Brands, Inc.

Segment Results

(amounts in millions)

(unaudited)

 

Quarter Ended 9/30/2020

KFC

 

Pizza Hut

 

Taco Bell

 

Habit Burger

 

Corporate
and
Unallocated

 

Consolidated

Total revenues

$

586

 

 

$

243

 

 

$

501

 

 

$

118

 

 

$

 

 

$

1,448

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

109

 

 

18

 

 

158

 

 

115

 

 

(1

)

 

399

 

General and administrative expenses

81

 

 

51

 

 

33

 

 

11

 

 

81

 

 

257

 

Franchise and property expenses

7

 

 

(2

)

 

8

 

 

 

 

 

 

13

 

Franchise advertising and other services expense

111

 

 

85

 

 

117

 

 

 

 

 

 

313

 

Refranchising (gain) loss

 

 

 

 

 

 

 

 

(9

)

 

(9

)

Other (income) expense

 

 

2

 

 

(1

)

 

(1

)

 

4

 

 

4

 

Total costs and expenses, net

308

 

 

154

 

 

315

 

 

125

 

 

75

 

 

977

 

Operating Profit (Loss)

$

278

 

 

$

89

 

 

$

186

 

 

$

(7

)

 

$

(75

)

 

$

471

 

 

Quarter Ended 9/30/2019

KFC

 

Pizza Hut

 

Taco Bell

 

Corporate
and
Unallocated

 

Consolidated

 

 

     

Total revenues

$

609

 

 

$

241

 

 

$

489

 

 

$

 

 

$

1,339

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

     

Company restaurant expenses

113

 

 

13

 

 

166

 

 

 

 

292

 

 

 

     

General and administrative expenses

80

 

 

47

 

 

40

 

 

41

 

 

208

 

 

 

     

Franchise and property expenses

23

 

 

9

 

 

9

 

 

2

 

 

43

 

 

 

     

Franchise advertising and other services expense

126

 

 

86

 

 

113

 

 

 

 

325

 

 

 

     

Refranchising (gain) loss

 

 

 

 

 

 

(8

)

 

(8

)

 

 

     

Other (income) expense

(3

)

 

 

 

 

 

2

 

 

(1

)

 

 

     

Total costs and expenses, net

339

 

 

155

 

 

328

 

 

37

 

 

859

 

 

 

     

Operating Profit (Loss)

$

270

 

 

$

86

 

 

$

161

 

 

$

(37

)

 

$

480

 

 

 

     

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 9/30/2020

KFC

 

Pizza Hut

 

Taco Bell

 

Habit Burger

 

Corporate
and
Unallocated

 

Consolidated

Total revenues

$

1,561

 

 

$

713

 

 

$

1,403

 

 

$

232

 

 

$

 

 

$

3,909

 

 

 

 

 

 

 

 

 

 

 

 

 

Company restaurant expenses

307

 

 

55

 

 

458

 

 

226

 

 

 

 

1,046

 

General and administrative expenses

224

 

 

141

 

 

108

 

 

22

 

 

229

 

 

724

 

Franchise and property expenses

69

 

 

11

 

 

24

 

 

 

 

3

 

 

107

 

Franchise advertising and other services expense

301

 

 

256

 

 

330

 

 

 

 

 

 

887

 

Refranchising (gain) loss

 

 

 

 

 

 

 

 

(30

)

 

(30

)

Other (income) expense

5

 

 

(2

)

 

(1

)

 

(1

)

 

153

 

 

154

 

Total costs and expenses, net

906

 

 

461

 

 

919

 

 

247

 

 

355

 

 

2,888

 

Operating Profit

$

655

 

 

$

252

 

 

$

484

 

 

$

(15

)

 

$

(355

)

 

$

1,021

 

     

Year to Date 9/30/2019

KFC

 

Pizza Hut

 

Taco Bell

 

Corporate
and
Unallocated

 

Consolidated

 

 

   

Total revenues

$

1,759

 

 

$

730

 

 

$

1,414

 

 

$

 

 

$

3,903

 

 

 

   

 

 

 

 

 

 

 

 

 

 

 

 

   

Company restaurant expenses

334

 

 

34

 

 

482

 

 

 

 

850

 

 

 

   

General and administrative expenses

233

 

 

138

 

 

124

 

 

122

 

 

617

 

 

 

   

Franchise and property expenses

70

 

 

23

 

 

26

 

 

5

 

 

124

 

 

 

   

Franchise advertising and other services expense

358

 

 

258

 

 

325

 

 

 

 

941

 

 

 

   

Refranchising (gain) loss

 

 

 

 

 

 

(18

)

 

(18

)

 

 

   

Other (income) expense

(3

)

 

(2

)

 

(1

)

 

11

 

 

5

 

 

 

   

Total costs and expenses, net

992

 

 

451

 

 

956

 

 

120

 

 

2,519

 

 

 

   

Operating Profit

$

767

 

 

$

279

 

 

$

458

 

 

$

(120

)

 

$

1,384

 

 

 

   

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)

 

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

 

 

(a)

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 September 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 September 30, 2020 and 2019, we recorded net refranchising gains of $2 million and $8 million, respectively, that have been reflected as Special Items. During the years to date ended September 30, 2020 and 2019, we recorded net refranchising gains of $8 million and $18 million, respectively, that have been reflected as Special Items.

 

Additionally, during the quarter and year to date ended September 30, 2020 we recorded refranchising gains of $7 million and $22 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.

 

 

(b)

During the year to date ended September 30, 2020, we recorded Special Item charges of $9 million related to the acquisition and integration of The Habit Restaurants, Inc. (“Habit”).

 

 

(c)

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, during the quarter ended March 31, 2020 we recorded a goodwill impairment charge of $139 million to Other (income) expense. As we continued to refine our preliminary purchase price allocation for Habit in the quarter ended September 30, 2020 the impairment charge was adjusted upward by $5 million. These impairment charges have been reflected as Special Items. We have also reflected the tax benefit of these impairment charges, which were $1 million and $33 million for the quarter and year to date ended September 30, 2020, respectively, as Special Items.

 

 

(d)

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! Brands Foundation, Inc. as part of these efforts and investment.

 

 

(e)

During the quarter ended September 30, 2020, we recorded charges of $32 million and $1 million to General and administrative expenses and Other pension (income) expense, respectively, associated with a voluntary early retirement program offered to our U.S. based employees and a worldwide severance program. These programs were part of our efforts to optimize our resources, reallocating them toward critical areas of the business that will drive future growth. These critical areas include accelerating our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. These charges have been reflected as Special Items.

 

 

(f)

During the second quarter of 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 2013 acquisition of the KFC Turkey and Pizza Hut Turkey businesses. Consistent with prior adjustments to the recorded contingent consideration we have reflected this as a Special Item.

 

 

(g)

During the quarter ended September 30, 2020, KFC Holding Co., Pizza Hut Holdings, LLC and Taco Bell of America, LLC, each of which a wholly-owned subsidiary of the Company, issued a notice of redemption for $1,050 million aggregate principal amount of 5.00% Subsidiary Senior Unsecured Notes due in 2024 (the “2024 Notes”). The redemption amount included a $26 million call premium plus accrued and unpaid interest to the date of redemption of October 9, 2020. We recorded the call premium, $6 million of unamortized debt issuance costs associated with the 2024 Notes and $2 million of accrued and unpaid interest associated with the period of time from prepayment of the 2024 Notes with the Trustee on September 25, 2020 to their redemption date within Interest expense, net and reflected the charges as Special Items.

 

 

(h)

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.

 

 

(i)

In the fourth quarter of 2019, we completed an intercompany restructuring that resulted in the transfer of certain intellectual property rights held by wholly owned foreign subsidiaries to the United Kingdom (UK). As a result of the transfer of certain of these rights, we received a step-up in the tax basis to fair market value for UK tax purposes. To the extent this step-up in tax basis will be amortizable against future taxable income, we recognized a one-time deferred tax benefit of $220 million as a Special Item in the quarter ended December 31, 2019. During the quarter ended September 30, 2020, the UK Finance Act 2020 was enacted resulting in an increase in the UK corporate tax rate from 17% to 19%. As a result, in the quarter ended September 30, 2020, we remeasured the related deferred tax asset originally recorded in the fourth quarter of 2019 and recognized an additional $25 million deferred tax benefit as a Special Item.