Yum 3Q15 Earnings Call Notes

Greg Creed – Chief Executive Officer

Performance is anything but satisfactory

“Delivering 14% EPS growth in today’s environment would normally be considered a very good result. But these are not normal times and our performance is anything but satisfactory.”

Pizza Hut significantly lagging performance of competitors

“Pizza Hut was relatively flat, which we could argue was pretty much in line with expectations. But let’s be honest; we’re still significantly lagging the performance of our nearest competitors and we clearly have much urgent work to do for this brand to fulfill its potential”

We take full responsibility for our results in China, we should be performing better

“Let me start by being really clear. We all and I personally take full accountability for our results in China. And while there is clearly a macro softening going on including headwinds from unexpected foreign exchange pressures and yes, the online ordering aggregators who are delivering for mom and pops are in a death battle for supremacy with heavy discounting and the malls look more like fancy food courts than shopping centers, the simple facts are that the economy there is still growing and there is every reason and no excuses to why we should not perform better.”

In recent weeks we’ve seen companies cut back on parties dinners and entertaining in China

“In mid-August, we launched a premium-priced steak product, in hindsight, just as the macro started to weaken. Furthermore in recent weeks, we’ve seen companies cut back on parties, dinners and entertaining. So, while our weekend business is going okay, this has impacted our weekday dinner results significantly.”

A savage battle for supremacy among delivery aggregators going on in China currently

“there is definitely what we call a savage battle for supremacy going on about — around the aggregators who are obviously heavily discounting. We are actually putting our foot in the water and playing with them but it’s a very small part of our business. So, I think the answer is that we don’t believe that the economics will sustain all the people that are currently in the market playing at these discounted prices. And I think as we’ve seen these aggregators in other parts of the world because China is not the only place where this is occurring, what tends to happen is they are all fighting for market share dropping the prices but then eventually the prices have to go up. ”

The business will recover, we just don’t know when

“the one thing we are sure of is that the business is going to fully recover over time. We can’t be precise about the exact timing of that. It is very difficult to call and there’s no denying the fact that the shape of the recovery today is weaker than we had previously expected. ”

I still think there’s huge growth potential in China

“We do believe that the consuming class will go from about 300 million people to 600 million people by 2020. And whilst we can certainly look at the competitiveness of the China market compared to a few years ago, if I compare that to the competitiveness of the market in the United States, it’s not even close. So, I’m still bullish on China. I still believe it’s a place that we can get significant growth both for ourselves and for our shareholders. ”

Pat Grismer – Chief Financial Officer

Economic conditions weighing heavily on China

“extraordinary volatility in financial markets, the surprise currency devaluation and overall softer economic conditions are weighing more heavily on the higher ticket casual dining sector in China.”

The drivers behind the China decline emerged rapidly and without warning

“the deceleration in China sales was led by Pizza Hut and the drivers behind that decline emerged very rapidly and without much warning. In today’s volatile environment with the recent macro and competitive pressures we mentioned, it continues to be difficult to forecast sales in China for both brands.”