Yum! Brands Profits Fall on Weak Chinese Sales

24 Apr 2013 --- Yum! Brands, Inc. has reported results for the first quarter ended March 23, 2013 including EPS of $0.70, excluding Special Items. Reported EPS was $0.72 for the quarter. China Division sales and profits were significantly impacted by adverse publicity from the poultry supply situation that occurred in late December 2012.

Worldwide system sales grew 1%, prior to foreign currency translation, including 4% at Yum! Restaurants International (YRI) and 2% in the U.S. System sales declined 9% in China. Same-store sales declined 20% in China. Same-store sales grew 1% at YRI and 2% in the U.S. Total international development was 380 new restaurants; 88% of this development occurred in emerging markets. Worldwide restaurant margin declined 2.7 percentage points to 15.9%, 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%, prior to foreign currency translation, including a 41% decline in China. Operating profit grew 19% at YRI and 5% in the U.S. Worldwide effective tax rate, prior to Special Items, decreased to 26.0% from 27.5%. The decrease in the tax rate positively impacted EPS growth by 2 percentage points.

Estimated mid-single-digit full-year EPS decline versus prior year, excluding Special Items, remains unchanged.

David C. Novak, Chairman and CEO, said, “While better than expected, the first quarter was extremely difficult for Yum! Brands. As anticipated, intense media attention surrounding poultry supply in China significantly impacted KFC sales and profit. Earnings per share declined 8% versus prior year, as our China Division operating profit fell 41%. Operating profit increased 19% at Yum! Restaurants International and 5% in our U.S. business.

The negative media surrounding poultry supply in China has subsided. We have taken steps to enhance our industry-leading supply chain practices, and we're now in the midst of an aggressive quality 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. 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. We will stay the course with our plans to develop at least 700 new units in China this year to lay the foundation for future growth. We have complete confidence in a full sales recovery.

Outside of China, we expect solid, on-target performance for Yum! Brands. 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.

There is no doubt 2013 will be a challenging year for our company. With news of Avian flu, there will obviously be more volatility with our China sales recovery. However, given better-than-expected first-quarter performance, our estimated mid-single-digit full-year EPS decline versus prior year remains unchanged. I'm confident we will end the year with momentum and restore our track record of consistently delivering double-digit EPS growth in 2014 and beyond.”