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Yum! Brands (YUM) Misses Q3 EPS by 7c; Cuts FY15 EPS Growth Outlook

October 6, 2015 4:16 PM EDT

Yum! Brands (NYSE: YUM) reported Q3 EPS of $1.00, $0.07 worse than the analyst estimate of $1.07. Revenue for the quarter came in at $3.43 billion versus the consensus estimate of $3.68 billion.

Worldwide system sales grew 6%. Worldwide restaurant margin increased 3.3 percentage points to 18.2%, and worldwide operating profit increased 23%.

China comps rose 2.6 percent, versus 9.6 percent growth expected.

FULL-YEAR CHINA SALES AND EPS UPDATE

While it remains difficult to forecast China sales, we are now estimating full-year same-store sales to be low-single-digit negative. For the fourth quarter, this assumes mid-single-digit same-store sales growth for the Division, with positive same-store sales growth at KFC and negative same-store sales at Pizza Hut Casual Dining. Given a slower-than-expected recovery in China sales, particularly at Pizza Hut Casual Dining, as well as stronger foreign exchange headwinds, we now expect full-year EPS growth to be low-single-digit positive.

Third Quarter

Year-to-Date

2015

2014

% Change

2015

2014

% Change

EPS Excluding Special Items $1.00 $0.87 14% $2.50 $2.48 1%
Special Items Gain/(Loss)1 $(0.05) $0.02 NM $(0.21) $0.02 NM
EPS $0.95 $0.89 6% $2.29 $2.50 (9)%

1 See Reconciliation of Non-GAAP Measurements to GAAP Results for further detail of Special Items. Special Items in 2015 are primarily related to a non-cash charge associated with refranchising our Mexico business and payments related to the recent agreement with KFC U.S. franchisees, partially offset by U.S. refranchising gains.

GREG CREED COMMENTS

Greg Creed, CEO, said “Third-quarter EPS grew 14%. We’re pleased same-store sales turned positive and we achieved restaurant margins of nearly 20% in our China business. However, the pace of recovery in our China Division is below our expectations. Outside of China, our Taco Bell and KFC Divisions continued to sustain their positive sales momentum while Pizza Hut was relatively flat. Given our lower full-year expectations in China, combined with additional foreign exchange impact, we now expect 2015 EPS growth to be well below our target of at least 10%.

Our growth fundamentals in China, including new-unit development, remain intact. However, we’re experiencing unexpected headwinds, making the second half of the year more challenging than we anticipated. Our new China Division CEO, Micky Pant, and his leadership team are taking significant actions to get sales, traffic and profits back to historic levels. Outside of China, KFC continued its solid growth across both emerging and developed markets. Taco Bell’s same-store sales growth was boosted by insight-driven innovation coupled with industry-leading value. We remain confident in the actions underway at Pizza Hut to turn this business around longer term.

Our central goal remains building three iconic, global brands people trust and champion. We are focused on the three keys to driving shareholder value: new-unit development, same-store sales growth, and high returns on invested capital. I’m confident that this formula will produce strong, sustainable EPS growth over the long term. As evidence of this, we’re pleased to announce a 12% increase to our quarterly dividend, which marks the eleventh consecutive year we’ve raised our dividend at a double-digit percentage rate.”

For earnings history and earnings-related data on Yum! Brands (YUM) click here.



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