Yum Brands 2Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

China growth strong

“Our China Division delivered system sales growth of 21% in the quarter as we opened 104 new units and grew same store sales 15%. It’s great to see such a strong top line growth. And fortunately this top line growth flow through nicely to the bottom line as operating profit grew an impressive 188%. The China team deserved the lot of credit for doing an excellent job driving restaurant margins of almost 17% during the quarter and over 19% in the first half.”

two restaurants per million people in EM vs 58 per million in US

“We have only two restaurants per million people in emerging market compared to 58 per million people in the United States today. ”

Cash payback times for new restaurantsPleased with Taco Bell performance in breakfast

“Remember, I took that thing for McDonald eight years to make money in breakfast. We are already at above breakeven. So we feel good about get $70,000 to $120,000 in sales per unit on annual basis. So this is a great vehicle for us. And I think this category is very tough. You got to have constant innovation and to be able to innovate across all the important day parts to drive the same store sales versus just the traditional lunch and dinner day part. I think it gives an opportunity to even bring more consumer news, more excitement to the Taco Bell brand as we go forward. And regardless of what we market and how we market it, if you look at what we are doing it all drives the Taco Bell brand forward. “

Yum! 3Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“we are very disappointed with our overall third quarter results, and the fact we now believe China same-store sales will unlikely be positive for the fourth quarter. Frankly, these results are well below the high expectations we have for our business.”

“Our number one priority at KFC China is to build and reinforce positive consumer perceptions around the safety of our food, and while our key brand attributes have improved significantly from where they were in the first few months following the December incident, the fact is that they remain below 2012 levels.”

“We are also leveraging our massive network of employees and suppliers through social media.”

“Today, we have nearly 4,500 KFC restaurants in over 900 cities in China. That’s more than twice the size of our nearest competitor in the QSR category. Additionally, we serve about 60 million customers at KFC every week or so, which is almost the entire population of the U.K.”

“Pizza Hut casual dining units, and now have over 950 units in 242 cities, compared to the over 900 cities where KFC currently operates.”

“Make no mistake, we love our overall position in China. We have complete confidence in a full recovery and long term impressive growth at KFC.”

“Outside of China, we expect generally on-target performance for Yum! Brands this year”

“So, to sum things up, in spite of our short term sales issue with KFC in China, the fundamentals of the Yum! growth model remain extremely compelling”

“As you know better than I, there are three keys to driving shareholder value in retail: new unit development, same-store sales growth, and high returns.”

“We have three iconic brands, and while we have 58 restaurants per million people in the United States today, we only have two restaurants per million in the emerging markets.”

“Remember, Pizza Hut has continued to deliver outstanding results in China,”

“thoughts on 2014.: we expect our YRI and U.S. divisions to continue to grow operating profit generally in line with our ongoing growth model, or 10% and 5% respectively.”

“One of the ways that they’ve been able to be more efficient is that they’ve improved the way that they’ve forecasted sales in their labor requirements at the store level. They’ve become increasingly sophisticated in this area, and they’re developing new tools and techniques to deliver optimal service levels with relatively low labor. So we remain confident they’re going to be able to sustain these results into next year”

“And what we see is that the biggest issues we have from a perception standpoint lie in the area of the safety, reliability, trust. And so I think that’s what we see as the biggest problem we have.”

“And also, I think what we think we need is we need more innovation. We need more innovation.”

“We consider our best operators in the world to be in China, and as you would expect, they remain very much focused on customer service metrics, and they do not do things with their labor scheduling that would in any way compromise the customer experience. We don’t see that as at all related to sales performance.”

“I think if there’s one characteristic that I would give the Chinese team the most kudos for, if we have one group that thinks more long term than them, I don’t know what group it is. We do things on behalf of the customer, we think about the brand for the long term. ”

“as I talked about, the food cost inflation changing from what we saw in Q3, it’s a moderate change. We saw basically flat commodity costs in Q3, and we expect modestly positive in Q4. It’s not a dramatic swing.”

“There’s no doubt that labor inflation has been much lower in China that we had anticipated. You’ll recall that we had guided mid-teens labor inflation, and what we now expect for 2013 is high single digits. Now, that has come through a favorable mix shift in our restaurant level employees, and some restaurant level wage control.

But I do want to stress that we don’t necessarily see that continuing into next year. The fact is that wage growth had moderated across China, but the central government’s objective remains to double disposable per capita income by 2020.”

“If you look at the consumer research, that’s what our take is. This is not a precise science, you know? I can’t tell you 100% for sure, but when we look at what do we have to target at KFC, what do we need to do at KFC to really get the business moving forward, we think it’s continuing to make progress on regaining the trust.”

“Well, we launched the beef burger, which is a product innovation that we had some high hopes for. And while we had good success rate in the sense that the mix was good, we didn’t get the incrementality”

“We never have blamed the macros for anything. We don’t talk about macros, or weather, or anything like that. We just don’t. We just don’t believe in it.”

” think what we really have here is a country wide issue of trust. And it’s in tier four, five, six cities, tiers one, two, three cities. That’s what we really think we have to address. That’s what our marketing folks have determined by listening to our customers, and that’s what we’re getting after. So I think that’s the issue that we’re really trying to deal with.”

“We believe that one of the strengths of our business is that we are as heavily franchised as we are, which drives extraordinary return on invested capital for us. So we’re not moving away from that strategy”

YUM! Brands 2Q13 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. The quotes are generally pieces of information that I find interesting or helpful to understanding the company, industry or economy and are not meant to provide summaries of the full content of the call. Other posts in this series can be found by clicking here. Full transcripts can be found at Seeking Alpha.

“Beginning in April, KFC sales in China were significantly impacted by the intense media surrounding avian flu…Fortunately, the extensive media surrounding avian flu in China has subsided, and same-store sales at KFC are on the road to recovery. In fact, our KFC same-store sales decline in June was 13% versus the 26% decline we just reported for the second quarter.”

“Speaking of power brands in China, I couldn’t be more pleased with the very strong performance of Pizza Hut casual dining, which delivered solid same-store sales growth in the quarter, up 7%”

“Pizza Hut casual dining is unquestionably the leading Western casual dining concept in China, with over 900 units in 228 cities. Importantly, we continue to have less than three year cash paybacks on new units and the business is on track to deliver another strong year in 2013.”

” We like how we’re positioned in a country with over 1 billion people, and even though the economy is slowing, it’s still the world’s fastest growing economy, and is expected to grow about 7% this year.”

“In the 10-year period from 2002 to 2012, our franchise units almost doubled, from 7,000 to 13,000.”

“Let me now spend a minute talking about how diversified this global portfolio is. Let’s first look at the regional balance. We have a large and growing presence in Asia, which accounts for 28% of our franchise fees. The Americas account for 22% of our fees. Europe also accounts for 22% of YRI fees. To round out the world, 60% of our franchise fees come from the Middle East and Africa, and 12% from Australia and New Zealand.”

“our franchise fees reflect our dominant presence in high-growth emerging markets. Emerging markets currently account for about 45% of our revenue stream,”

[US Business] “In terms of our franchise ownership, a decade ago 28% of our units were company-owned, while 72% were franchise. Through our franchising efforts, we are now 90% franchised. This should help deliver more consistency going forward since there is less profit volatility associated with a franchise business.”

“As we have said before, our U.S. business has become more weighted towards Taco Bell performance. Taco Bell currently contributes about 50% of our U.S. operating profit, and our ownership structure reflects this. We now have 5% ownership of KFC and about 8% ownership of Pizza Hut. However, we are targeting our Taco Bell ownership at about 15%.”

“I think the biggest thing we see going on in China continues to go on, and that’s that the consuming class continues to grow. You know, it’s 300 million today, it’s expected to be 600 million people by 2020…There’s a bit of a slowdown, but their slowdown is, I think, a pretty rapid rate when you compare it to what’s going on everywhere else in the world.”

“When you have powerful brands, you innovate, you provide everyday affordable value, you operate your business well with good service, you can win.”

“we had estimated for the China division for the full year was about 3% food cost inflation…we’re now expecting food inflation to be about flat on the year. What we’ve seen year to date is deflation.”

“It’s pretty nice when you have products that nobody will ever have but us…I think the big thing about Doritos Locos Tacos is no one else has it.”

“As we’ve indicated before, we are shifting our new unit openings increasingly to lower-tier cities for KFC and more broadly to Pizza Hut casual dining”