Yum! Brands (YUM) Misses Q4 EPS by 5c; China System Sales Fell 11%

Yum! Brands (NYSE: YUM) reported Q4 EPS of $0.61, $0.05 worse than the analyst estimate of $0.66. Revenue for the quarter came in at $4 billion versus the consensus estimate of $3.97 billion.

Worldwide system sales grew 3%. Worldwide restaurant margin decreased 0.5 percentage points to 14.5%. Worldwide operating profit increased 1%.

Maintains Full-Year Guidance of at least 10% EPS Growth in 2015.

Greg Creed, CEO, said “We are committed to restoring our track record of delivering at least 10% annual EPS growth year after year. I am confident we will do this in 2015 as our China business recovers and we sustain positive momentum across the rest of Yum!. Overall results in 2014 were disappointing as the Chinese supplier incident in July offset our strong first half of the year. Our top priority is to recover sales in China and capture the significant profit leverage we have in this business.

While the sales recovery in China continues to be slower than expected, we anticipate a strong second half of 2015 as the turnaround gains momentum, led by menu innovation across the year. We continue to firmly believe in the long-term potential of China and will open at least 700 new units in what remains the world’s fastest-growing economy.

Outside of China, we are pleased with the momentum we are seeing across the KFC and Taco Bell divisions. We expect KFC’s strong results to sustain into 2015 as robust international performance, coupled with an improving U.S. business, drive solid sales and profit growth. At Taco Bell, the 2014 launch of breakfast and mobile ordering, combined with even more breakthrough innovation in 2015, gives us confidence as we enter the new year. Finally, while the initial relaunch of the Pizza Hut brand in the U.S. did not deliver the sales lift we expected, consumers have responded positively to the new menu and we intend to leverage this more effectively going forward.

Across Yum! we expect to open over 2,100 new international restaurants this year, further strengthening our lead in emerging markets. We remain focused on the three keys to driving shareholder value: same-store sales growth, new-unit development and generating high returns on invested capital. I'm confident that this formula will produce consistent double-digit EPS growth over the long term as we continue to build three iconic global brands that people trust and champion.”

CHINA DIVISION

• China Division sales and profits were significantly impacted by adverse publicity in July surrounding improper food handling practices by a former supplier.
• System sales grew 1% for the year and declined 11% in the quarter, prior to foreign currency translation.
  • KFC same-store sales declined 4% for the year and 18% in the quarter.
  • Pizza Hut Casual Dining same-store sales declined 5% for the year and 9% in the quarter.
• China Division opened 737 new units during the year, including 385 units in the quarter. For the year, KFC opened 376 new units, Pizza Hut Casual Dining opened 271 new units and Pizza Hut Home Service opened 68 new units.

• Excluding Little Sheep restaurants, unit growth was 10% for the year.

• Restaurant margin decreased 0.6 percentage points to 14.8% for the year, driven by sales deleverage. Restaurant margin decreased 7.2 percentage points to 7.1% for the quarter.
  • Excluding Little Sheep, restaurant margin was 15.3% for the year.
• In the quarter, operating profit benefited $25 million from an insurance recovery related to the 2012 poultry supply incident. This was recorded in Other Income.
• Foreign currency translation negatively impacted operating profit by $1 million for the year and $2 million for the quarter.

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

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