Home » Yum! Brands reports 8 percent operating profit for Q2; expects at least 12 percent growth for year

Yum! Brands reports 8 percent operating profit for Q2; expects at least 12 percent growth for year

Photo from the Yum! Brands website.

LOUISVILLE, Ky. (July 18, 2012)  — Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter. Based on first-half results and current solid sales trends, Yum! reconfirms full-year earning per share growth (EPS) forecast of at least 12 percent, or at least $3.22, excluding special items.

The second quarter EPS was $0.67, excluding special items. Reported EPS for the quarter was $0.69.

For the year, Yum! also raises new-unit forecast to a record 1,700 new international units for the year, including at least 700 new units in China.

Second quarter highlights

• Worldwide operating profit grew 7 percent, prior to foreign currency translation, including 26 percent in the U.S. and 6 percent at Yum! Restaurants International (YRI). Operating profit declined 4 percent in China. Worldwide operating profit increased 8 percent, after foreign currency translation.

• Worldwide restaurant margin declined 0.6 percentage points to 15.2 percent, including declines of 4.1 percentage points in China and 1.1 percentage points at YRI. Restaurant margin increased 5.8 percentage points in the U.S.

• Worldwide system sales grew 8 percent, prior to foreign currency translation, including 27 percent in China, 7 percent at YRI and 1 percent in the U.S.

• Excluding the acquisition of Little Sheep and the 2011 divestiture of Long John Silver’s and A&W All-American Restaurants, worldwide system sales growth was 10 percent, including 23 percent in China, 8 percent at YRI and 7 percent in the U.S.

• Same-store sales grew 10 percent in China, 4 percent at YRI and 7 percent in the U.S.

• Strong international development continued with 342 new restaurants opened, including 160 new units in China and 172 new units at YRI; 81 percent of this development occurred in emerging markets.

• Worldwide effective tax rate, prior to special items, increased to 23.9 percent from 16.7 percent. The increase in the tax rate negatively impacted EPS growth by 10 percentage points.

• The resolution of a California employment lawsuit at Taco Bell resulted in a pre-tax charge of $17 million to the U.S. division for the quarter, or $0.02 of EPS.

“I’m pleased to report we generated strong system sales growth in each of our divisions in the second quarter, with robust new-unit development and exceptional same-store sales growth. Operating profit increased 8 percent while EPS growth of 1 percent was negatively impacted, as expected, by a higher tax rate versus last year,” said David C. Novak, Chairman and CEO. “Our U.S. business increased operating profit 26 percent in the second quarter and drove our overall operating profit growth. We expect China and Yum! Restaurants International (YRI) to drive our second-half profit growth. Based on our first-half results and current solid sales trends, we reconfirm our full-year guidance of at least 12 percent EPS growth, excluding special items”

Yum! China, the largest profit-contributing division, reported strong system sales growth of 27 percent, prior to foreign currency translation, Novak said. However, operating profit declined 4 percent, prior to foreign currency translation, as high inflation drove restaurant margins down 4 percentage points versus last year.

“We expect this to be short-lived, returning to double-digit profit growth in the second half of the year. Our outstanding China team now expects to open a record of at least 700 new units this year,” he said.

System sales grew 7 percent at YRI and operating profit grew 6 percent, both prior to foreign currency translation. Samestore sales in YRI’s emerging markets grew 9 percent, driving overall same-store sales growth of 4 percent at YRI. System sales grew 32 percent in the India division. The YRI and India divisions combined will also set a new-unit development record this year with more than 1,000 new restaurants. Over 65 percent of the new units are expected to open in high-growth emerging markets.

“Most importantly, I’m confident we’re making our brands even more vibrant around the world,” Novak said. “Our long-term growth prospects have never been brighter as we continue to deliver consistently strong annual results. We expect this year to be our eleventh consecutive year of double-digit EPS growth, prior to special items.”

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