This summary is based on the fourth quarter fiscal 2007 earnings call as conducted by Yum! Brands. (YUM) on February 5, 2008.
Management
- Chairman of the Board, President, Chief Executive Officer: David Novak
- Senior Vice President, Investor Relations/Treasurer: Tim Jerzyk
- Chief Financial Officer: Richard T. Carucci
Key Investor Issues
- Revenues grew 8% to $3.3 billion
- Net income was unchanged at $231 million or 45 cents a share.
- The firm paid out $1.7 billion to shareholders through share buybacks and dividends
Full Year Highlights:
- Total revenues rose 9% to $10.4 billion.
- Net income was up 10% to $909 million or $1.74 a share.
- Cash and cash equivalents amounted to $739 million.
Fourth Quarter Highlights
Revenues increased 8% to $3.3 billion from $3 billion in the prior year as worldwide system-sales growth was driven by record new-unit growth in mainland China and Yum! Restaurants International (YRI).
- Net income remained flat at $231 million or 45 cents a share following growth in interest expenses as favorable foreign currency conversion impacted EPS by 6 cents.
- Operating-profit growth from international divisions, China over 30% and YRI over 18%, offset a 3% decline in the U.S.
- The firm paid out $1.7 billion to shareholders through share buybacks and dividends, with buybacks reducing diluted share count by 4% at a cost of $33.66 per share
- Capital expenditure was closer to $740 million, the extra capital largely went towards higher return on investments for new restaurants in China.
Segment Highlights:
- China Division revenues were up 39% to $749 million from $538 million in the prior year and now with over 350 restaurants and growing rapidly leadership position remains and the firm continues to build for Pizza Hut casual dining.
- The firm expects to open about 85 new casual dining Pizza Huts in 2008, while expanding tea time offering and innovating with a range of new and exciting products.
- As a result, the China division will be the lead growth business, delivering 20% growth in annual operating profit.
Net income was $99 million, up 44% from the prior year though restaurant margin percentage decreased by 4% as record same-store-sales growth largely offset unusually high food-cost inflation.
- High food-cost inflation is expected to continue into the first half of 2008 and moderate later in the year.
- Foreign currency conversion continued to provide benefit in both fourth-quarter and full-year operating profit, $6 million and $19 million, respectively.
- YRI Division reported operating profit growth of 18%, driven by 15% growth in system sales.
- YRI is now one of the world’s most profitable restaurant companies as a standalone entity, with operating profit of nearly $500 million.
- The firm opened a record 852 new restaurants last year and for the eighth consecutive year opened at least 700 new units, with 94%of these units developed by franchisees.
- YRI is focusted to have at least 5% growth in system sales on a local currency basis and 10% operating profit.
- It remains a high-growth business, having the greatest potential of divisions, given the size of the worldwide market yet to be penetrated.
- U.S. Business reported a 5% drop in revenues to $1.56 billion and operating profits were down 3% from $763million in the prior year to $739 million.
- The number three growth strategy was to improve U.S. brand positions, consistency, and returns, and disappointing U.S. results in 2007 have strengthened this resolve to take bold steps.
- Strategic initiatives to turn around the U.S. business include providing more balanced menu options, moving in to multiple day parts, offering multiple proteins and product layers, including aggressively pursuing beverages, everyday value menus and continually contemporizing assets.
2% to 3% same-store sales growth and 5% operating growth in the U.S. businesses is expected.
– Future vision for Taco Bell is ultimately 24-hour operations and this brand is expect to achieve very good results in 2008 as we build a platform to support even stronger growth ahead.
- New unit growth forecasted to ramp up Taco Bell, achieving 2% net new unit growth in 2008.
The Ongoing Earnings Growth Model
- China Division operating-profit growth of 20% is driven largely by new-unit development in mainland China.
- The key metric for mainland China is system-sales growth with an annual target of +20% driven by at least 425 new-restaurant openings.
- YRI Division operating-profit growth of 10%, driven mainly by new-unit development, measured by system-sales growth of at least 5% (3% to 4% unit growth and 2% to 3% same-store-sales growth) including 750 new-restaurant openings.
-U.S. operating-profit growth of 5% with same-store-sales growth of 2% to 3% and leverage of the G&A infrastructure.
-EPS growth of at least 10%, assumes operating profit performance from the three lines of business with additional benefit from reduction in shares outstanding due to substantial share buybacks.
Key questions and answers from the fourth quarter fiscal 2007 earnings call as presented by Yum! Brands on February 5, 2008.
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