This summary is based on the third quarter fiscal 2008 earnings call conducted by YUM! Brands Inc. (YUM: chart) on October 8, 2008.

Management:

- Chairman of the Board, President, Chief Executive Officer: David C. Novak
- Chief Financial Officer: Richard T. Carucci
- Senior Vice President, Investor Relations: Tim Jerzyk

Key Investors Issues

- Revenue rose 11% to $2.84 billion from $2.56 billion in 2007.
- Earnings were up 5% to $282 million or 60 cents a share from $270 million or 52 cents a share in 2007.
- The company purchased 14 million shares at an average price of $35.17, or a total of $508 million.

Year to Date Highlights:

- Revenues were up 10% to $7.9 billion from $7.2 billion in 2007.
- Net income rose 12% to $760 million or $1.59 a share.

Third Quarter Highlights

The firm reported 11% revenue growth to $2.84 billion from $2.56 billion in 2007 in spite of all the bad news surrounding the financial markets and the economy.

- Earnings were up 5% to $282 million or 60 cents a share from $270 million or 52 cents a share in 2007, benefitting from a favorable tax rate and substantial share buy-backs, which more than offset weak profit performance in the United States.
- Mainland China system sales growth was 19% excluding for-ex driven largely by net unit growth of 21%.
- The firm developed a record 123 units in Mainland China alone, which was 48 more than last year in quarter three.

Same-store sales growth was a solid 5%, lapping a strong plus 11% a year ago though this was negatively affected by the devastating earthquake in May and the Olympics in August.

- Margins were 2.3 percentage points below last year, primarily due to continued high chicken costs.
- Yum! Restaurants International generated strong top line performance with 4% same-store sales growth and 4% net unit growth and profits were up 4% on a constant-currency basis.

U.S. profit results declined 60%, driven by continued commodity inflation and weak sales and profits at KFC.

- Company same-store sales growth of 4% was led by strong performance of plus 8% at Taco Bell and plus 6% for Pizza Hut, partially offset by a 4% decline at KFC.
- The company purchased 14 million shares at an average price of $35.17, or a total of $508 million.

Operational Insights:

- International expansion continues to be robust as Yum drives record new unit openings and profits in both China and Yum! Restaurants International.
- In the U.S., Taco Bell and Pizza Hut are both delivering solid same-store sales and profit growth performance for the full year.
- KFC U.S. business continues to lag the rest of the global portfolio and is the driver of the underperforming profit performance in the United States business, along with unprecedented commodity inflation.

The 2009 development pipeline is driven by the strength of both the KFC brand, now in nearly 500 cities, and Pizza Hut casual dining in nearly 100 cities, leveraging the nationwide distribution system and 600-person development team.

- The firm expects to meet or even exceed the current target of 500 stores this year, with well over 400 done year-to-date.
- The credit crunch has slowed down the timing to close these transactions but it has not halted them so it is currently meeting refranchising targets for this year.
- The international franchise development is driven primarily by large, well-capitalized franchisees who often self-fund growth or are better positioned to raise capital.

Update on U.S. refranchising:

- In December, the firm announced the expansion of the refranchising program, targeting U.S. ownership potentially below 10% by year-end 2010 and the year-to-date total now stands at 421 units.
- It remains in line to meet the target of refranchising at least 500 stores for the full year, given this year-to-date performance and the solid deal pipeline for the balance of the year.
- Credit market conditions have affected our refranchising efforts as lenders have increased their equity requirements for franchisees as well as intensifying the review process, which has added time to complete certain transactions.

Growth Prospects:

- In China, the firm is on track at 3,000 units in nearly 500 cities in this mega-market, about 50 more than the end of last year.
- KFC is moving into new proteins like fish and beef and is launching Szechuan Beef Wrap, a [slice to beef] take on Taco Bell''s crunchwrap.
- KFC is also just beginning to launch into home delivery, giving consumers more ways to access the great taste of KFC while driving the dinner business.

Pizza Hut casual dining hit its 400th unit this quarter and is well on its way to building at least 2,000 units.