Yum! 3Q16 Earnings Call Notes

Yum! Brands’ (YUM) CEO Greg Creed on Q3 2016 Results

Chinese boycott of Western countries thanks to South China Sea politics

“Now, let’s begin today with China. As we mentioned on our second quarter call, we were pleased with the results we saw through the first six weeks of Q3, as sales were ahead of our plan. However, tougher laps in the second-half of the third quarter, which we built into the forecast were compounded by an international court ruling regarding claims to sovereignty over the South China Sea. The ruling triggered a series of protests and boycotts intensified by social media against a few international companies with well-known Western brands. At its peak, the demonstrations significantly impacted store traffic in certain trade zones and this was during our busiest season. The impact to our sales was sudden and while difficult to pinpoint the exact magnitude of the impact on the quarter. Our best estimate is, there was a 400 to 500 basis point impact to the division’s same-store sales in the quarter.”

Confident in our ability to turn around Pizza Hut US

“Pizza Hut system sales in constant currency were flat and same-store sales declined 1% in the third quarter. The U.S. market was influenced by an unsuccessful promotion and the competitive environment. As we saw earlier this year, we know the brand can perform when the right product is combined with compelling value and the messaging is distinctive and disruptive. Now, I’m confident in our ability to turn around the Pizza Hut U.S. business. We believe the fundamentals are being put in place and now execution is the focus. ”

Been in China for 30 years now

“So 2016 marks the beginning of a massive transformation of the Yum!, a transformation that has been years in the making. The first step is the October 31 separation of the China business. This business began with the first KFC in Beijing, nearly 30 years ago and has grown to over 7,000 restaurants in over 1,100 cities. Today, it is one of China’s largest employers with over 400,000 employees, serving over 2 billion customers every year. In short, this business is a powerhouse with unrivaled growth opportunities in the world’s fastest growing major economy.”

Some people may be hunkering down ahead of the election

“Sorry. Look, it’s hard to say that. We’ve been doing a bunch of work just talking to different to millennials, Gen X, Gen Y, Boomers. I think where we’re what five weeks away from a general election, I think there’s just great uncertainty as to what’s going to happen in the U.S., in particular, as a result of the outcome of the election. It goes without saying that people are sort of trying to decide who to choose and what the impact will be on the economy. And I think people maybe just hunkering down a little bit.”

Micky Pant