China Division profits declined 41 percent
LOUISVILLE, Ky. (April 24, 2013) — Yum Brands Inc.’s earnings per share (EPS) dropped 8 percent in the first quarter of 2013, which ended March 23, the company reported Tuesday. EPS was 70 cents, excluding Special Items. Reported EPS was $0.72 for the quarter.
Yum’s worldwide operating profit declined 14 percent, prior to foreign currency translation, including a 41-percent decline in China. Operating profit grew 19 percent at Yum Brands International (YRI) and 5 percent in the U.S.
Intense media attention surrounding poultry supply in China significantly impacted KDF sales and profit, said Yum! CEO David Novak. The “negative media” has subsided, he said, and the company has taken steps to enhance its supply chain practices. It is now in the midst of an aggressive assurance marketing campaign.
“However, our sales recovery has been adversely affected by the recent news of Avian flu. This news surfaced during the first week of April and continues to negatively impact same-store sales,” Novak said. “We continue to remind consumers that properly cooked chicken is perfectly safe to eat. Historically, the sales impact of Avian flu publicity has initially been dramatic at KFC but relatively short-lived.”
Yum plans develop at least 700 new units in China this year.
“We have complete confidence in a full sales recovery,” Novak said.
Outside of China, he said, the company expects “solid, on-target performance.”
“Taco Bell continues to deliver strong results with its combination of great value, innovation and world-class operations. Additionally, our emerging market new-unit pipeline is stronger than ever at Yum! Restaurants International and in India,” Novak said.
Yum’s full-year outlook remains unchanged.
First quarter highlights
♦ China Division sales and profits were significantly impacted by adverse publicity from the poultry supply situation that occurred in late December 2012, Yum said.
♦ Worldwide system sales grew 1 percent, prior to foreign currency translation, including 4 percent at YRI and 2 percent in the U.S. System sales declined 9 percent in China.
♦ Same-store sales declined 20 percent in China. Same-store sales grew 1 percent at YRI and 2 percent in the U.S.
♦ Yum’s total international development was 380 new restaurants; 88 percent of this development occurred in emerging markets.
♦ Worldwide restaurant margin declined 2.7 percentage points to 15.9 percent, including a decline of 7.0 percentage points in China. Restaurant margin increased 1.4 percentage points at YRI and 2.4 percentage points in the U.S.
♦ Worldwide operating profit declined 14 percent, prior to foreign currency translation, including a 41 percent decline in China. Operating profit grew 19 percent at YRI and 5 percent in the U.S.
♦ Worldwide effective tax rate, prior to Special Items, decreased to 26.0 percent from 27.5 percent. The decrease in the tax rate positively impacted EPS growth by 2 percentage points.
Other highlights
♦ Yum’s U.S. Division same-store sales increased 2 percent, including growth of 6 percent at Taco Bell. Same-store sales declined 1 percent at Pizza Hut and 1 percent at KFC.
♦ U.S. Division restaurant margin increased 2.4 percentage points, driven primarily by refranchising and sales leverage at Taco Bell.
♦ India Division system sales increased 16 percent, prior to foreign currency translation. The system sales increase was driven by unit growth of 26 percent, partially offset by a 3 percent decline in same-store sales.
♦ In the U.S., Yum refranchised 85 Taco Bell units for proceeds of $81 million. We recorded pre-tax U.S. refranchising gains of $17 million in Special Items.
♦ Through April 22, 2013, Yum repurchased 1.7 million shares at an average price of $65 totaling $112 million.
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