Yum Brands Q2 2014 Earnings Call Highlights

July 20, 2014

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Yum Brands (NYSE: YUM) released its Q2 2014 earnings call consisting of outstanding growth in China division and solid growth in Taco bell Division.

Before the call, Yum reported EPS for Q2 of $0.73 compared to analyst expectations of $0.72. Revenues for the quarter came out to 3.2 billion, coming short of analyst expectations of $3.23 billion.

Highlights from the conference Call:

China Division system sales increased 21 percent, due to seven percent unit growth in the geographic division, and 15 percent same-store sales growth.Sales in China continue to be challenging to predicts, diluted performance in China for the quarter of 0.6 percentage points. China division profit grew 180 percent in quarter.
Restaurant margin increased by 6.2 percentage to 16.8 percent. Operating profit increased by 188 percent.
Yum reported dividend yield just under two percent during the quarter. After dividend payments all additional capital will be paid out to shareholders.
Franchise licensing currently generating on average of a 3 year cash payback in Pizza Hut and two-year cash payback in KFC.
Foreign currency translation decreased operating profit by $7 million.
India expects 150 new units new restaurant locations from its currently 700. India geographic system sales increased by 18 percent, unit growth of 25 percent, and a same-store sales decline of two percent.
KFC Division system sales increased by five percent, due to a one percent unit growth and 2 percent same-store sales growth. Restaurant margin for KFC increased by 0.3 points for the second quarter to 12.9 percent. Operating profit increased 12 percent. Its KFC division expects 650 new units outside of US.
Expects Pizza Hut to fall short of its growth, plan to launch new advertising, new Hershey desert cookie at Pizza Hut. Expect to open 450 new units for Pizza Hut internationally Pizza Hut Division system sales decreased by one percent, unit growth reported a two percent, and same-store sales decreasing by three percent. Restaurant margins for Pizza Hut declined by 6.4 percentage to 7.2 percent total, and operating profit for the restaurant decreased by 22 percent.
Taco bell restaurant margin increased by two percent, but profits were down slightly for Taco bell for the quarter. YUM expects strong results in Taco Bell in the second half of 2014 Mix of breakfast brand with seven percent growth. SSS increased by only two percent for the quarter, due to Doritos Cool Ranch flavor coming under expectations in comparison to Nacho Cheese flavor. Pricing offset operating margins, new Quesarito and breakfast growth.
In the past, fast food breakfast leader McDonald’s (NYSE: MCD) has generated $1 million in sales each morning, before Taco Bell entered breakfast market. Yum announced the launch of Power Cantina menu, releasing today. The Power Cantina menu high in protein due to customer demand.

Guidance Given In The Call:

Management is confident it will meet its goal to open at least 800 Taco Bell restaurants in the US.
Expects 700 new restaurants in china this year.
China 40 percent operating growth, driven by sales and restaurant markets. Yum’s management was pleased with continued margin growth in china, expecting at least 18 percent, three points higher than its Q2 2013 result.
Taco Bell anticipates a much stronger second half, expecting full year EPS growth of at least 20 percent.
Yum Brands expects $3 billion in operating EBITDA.
Management announces margins will benefit from higher mix in Pizza Hut and lower mix of KFC restaurants.