Yum reports full-year EPS decline of 9 percent, or $2.97 per share

Reaffirms full-year guidance of at least 20 percent EPS growth in 2014

LOUISVILLE, Ky. (Feb. 4, 2014) — Yum Brands Inc. on Monday reported results for the fourth quarter ended Dec. 28, 2013, including EPS growth of 4 percent, or $0.86, excluding Special Items. Reported EPS was $0.70 for the quarter and $2.36 for the year.

“While 2013 was a challenging year, I’m pleased to report continued progress as we enter 2014 with fourth-quarter EPS growth of 4 percent, excluding Special Items. More importantly, with the decisive actions we’ve taken to strengthen our company across the board, we are well positioned to deliver double-digit EPS growth in 2014 and the years ahead,” said David C. Novak, Yum chairman and CEO.

Full-year highlights

♦ KFC China sales and profits were significantly impacted by the effects of the December 2012 poultry supply incident, as well as subsequent news of avian flu.

♦ Worldwide system sales grew 2 percent, prior to foreign currency translation, including 5 percent growth at Yum Restaurants International (YRI) and 1 percent growth in the U.S. System sales declined 4 percent in China.

♦ Same-store sales declined 13 percent in China. Same-store sales grew 1 percent at YRI and were flat in the U.S.

♦ Total international development was 1,952 new restaurants; 82 percent of this development occurred in emerging markets.

♦ Worldwide restaurant margin declined 1.6 percentage points to 15.0 percent, including a decline of 2.7 percentage points in China. Restaurant margin was even at YRI and increased 0.6 percentage points in the U.S.

♦ Worldwide operating profit declined 10 percent, prior to foreign currency translation, including a decline of 26 percent in China. Operating profit grew 10 percent at YRI and 3 percent in the U.S.

♦ Worldwide effective tax rate, prior to Special Items, increased to 28.0 percent from 25.8 percent driven primarily by a tax reserve adjustment in the third quarter. This charge impacted reported EPS by 2 percentage points for the full year.

♦ A non-cash, Special Items net charge of $258 million related to the write-down of Little Sheep intangible assets was recorded in the third quarter. This charge impacted reported EPS by 16 percentage points for the full year.

♦ Yum Brands repurchased $550 million of outstanding debt in the fourth quarter and recorded a Special Items net charge of approximately $75 million, primarily due to premiums paid related to this transaction. This impacted reported EPS by 22 percentage points for the quarter and 5 percentage points for the full year.

Fourth-quarter highlights

♦ Worldwide system sales grew 3 percent, prior to foreign currency translation, including 3 percent growth in China and 6 percent growth at YRI. System sales declined 1 percent in the U.S.

♦ Same-store sales declined 4 percent in China and 2 percent in the U.S. Same-store sales grew 2 percent at Yum Restaurants International.

♦ Worldwide restaurant margin declined 0.2 percentage points to 14.2 percent, including declines of 1.4 percentage points at YRI and 0.3 percentage points in the U.S. China restaurant margin increased 0.4 percentage points.

♦ Worldwide operating profit grew 2 percent, prior to foreign currency translation, including 5 percent in China, 11 percent at YRI and 2 percent in the U.S.

“In China, we strengthened our poultry supply chain, made significant progress rebuilding consumer trust in the KFC brand and made substantial gains in restaurant productivity. At Pizza Hut Casual Dining, we increased our asset base by 28 percent, grew same-store sales by 4 percent and expanded breakfast into over 120 restaurants,” Novak said. “We also achieved solid unit economics at Pizza Hut Home Service, and intend to scale this business over time. Overall, we opened 740 new restaurants in China, further strengthening our category-leading positions.”

Outside of China, Yum’s franchise-led system opened over 1,200 new international restaurants, including more than 70 percent in high-growth emerging markets.

“Additionally, we continued to make investments ahead of the growth curve in India as we opened over 150 new units,” Novak said. “In the U.S., Taco Bell delivered its eighth consecutive quarter of same-store sales growth and we are enthusiastic about our upcoming national breakfast launch. We are also excited about our plans at Pizza Hut to nationally advertise WingStreet and its award-winning chicken wings for the first time.”