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Yum! Brands reports full-year EPS decline of 9%,reaffirms full-year guidance of at least 20% EPS growth in 2014

RBR Staff Writer Published 04 February 2014

Yum! Brands today reported results for the fourth quarter ended December 28, 2013, including EPS growth of 4%, or $0.86, excluding Special Items. Reported EPS was $0.70 for the quarter and $2.36 for the year.

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%, prior to foreign currency translation, including 5% growth at Yum! Restaurants International (YRI) and 1% growth in the U.S. System sales declined 4% in China.
Same-store sales declined 13% in China. Same-store sales grew 1% at YRI and were flat in the U.S.
Total international development was 1,952 new restaurants; 82% of this development occurred in emerging markets.
Worldwide restaurant margin declined 1.6 percentage points to 15.0%, 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%, prior to foreign currency translation, including a decline of 26% in China. Operating profit grew 10% at YRI and 3% in the U.S.
Worldwide effective tax rate, prior to Special Items, increased to 28.0% from 25.8% 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.
The company 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%, prior to foreign currency translation, including 3% growth in China and 6% growth at YRI. System sales declined 1% in the U.S.
Same-store sales declined 4% in China and 2% in the U.S. Same-store sales grew 2% at YRI.
Worldwide restaurant margin declined 0.2 percentage points to 14.2%, 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%, prior to foreign currency translation, including 5% in China, 11% at YRI and 2% in the U.S.

David C. Novak, Chairman and CEO said, While 2013 was a challenging year, Im pleased to report continued progress as we enter 2014 with fourth-quarter EPS growth of 4%, 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.

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%, grew same-store sales by 4% and expanded breakfast into over 120 restaurants. 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, our franchise-led system opened over 1,200 new international restaurants, including more than 70% 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. 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.

Importantly, as of January 1, 2014, we combined our Yum! Restaurants International and U.S. divisions into three global brand divisions: KFC, Pizza Hut and Taco Bell. China and India will remain separate divisions given their strategic importance and enormous growth potential. This new structure is designed to drive greater brand focus and lead to even more aggressive global growth.

We are confident we have the people and resources to deliver at least 20% EPS growth in 2014 and re-establish our track record of double-digit EPS growth.

China Division sales and profits were significantly impacted by the effects of the December 2012 poultry supply incident, as well as subsequent news of avian flu.
System sales declined 4% for the year and grew 3% in the quarter, prior to foreign currency translation.

KFC same-store sales declined 15% for the year and 4% in the quarter.
Pizza Hut Casual Dining same-store sales grew 4% for the year and 5% in the quarter.

China Division opened 740 new units during the year, including 282 units in the quarter. For the year, KFC opened 428 new units, Pizza Hut Casual Dining opened 247 new units and Pizza Hut Home Service opened 49 new units.

YRI Division system sales increased 5% for the year and 6% for the quarter, prior to foreign currency translation. The system sales increases were driven by record new-unit development and same-store sales growth of 1% for the year and 2% for the quarter.

Emerging markets system sales grew 11% for the year, driven by 7% unit growth and 4% same-store sales growth. For the quarter, system sales grew 11%, driven by 7% unit growth and 3% same-store sales growth.
Developed markets system sales grew 1% for the year, including 1% unit growth. Same-store sales were even. For the quarter, system sales grew 3%, driven by 1% unit growth and 1% same-store sales growth.

YRI opened a record 1,055 new units in 78 countries. This included 488 new units in the fourth quarter.

For the year, 703 of these units were opened in emerging markets.
89% of all new units during the year were opened by franchisees.

Restaurant margin was even for the year. Restaurant margin declined 1.4 percentage points for the quarter, as a result of margin performance in KFC UK.
Operating profit growth was 10% for the year, prior to foreign currency translation. This included a benefit of 3 percentage points from refranchising the Pizza Hut UK Dine-In business in the fourth quarter of 2012.
Foreign currency translation negatively impacted operating profit by $25 million for the year and $14 million for the quarter.

U.S. Division same-store sales were flat for the year; including growth of 3% at Taco Bell, and declines of 2% at Pizza Hut and KFC. Same-store sales decreased 2% for the quarter, including declines of 4% at Pizza Hut and 5% at KFC. This was offset by 1% growth at Taco Bell, marking the eighth consecutive quarter of same-store sales growth.
Net unit growth was 77 for the full year. This was the second consecutive year of net unit growth in the U.S.
Operating profit growth was 3% for the year. Excluding the impact of refranchising, operating profit growth was 6%.

INDIA DIVISION

India Division system sales increased 20% for the year and 22% for the quarter, prior to foreign currency translation. The system sales increase was driven by unit growth of 24%, and offset by a 1% decline in same-store sales for the year and a 4% decline for the quarter.



Source: Company Press Release