Yum 4Q15 Earnings Call Notes

Yum! Brands’ (YUM) CEO Greg Creed on Q4 2015 Results

Spinning off China division

“2016 will be a transformational year for Yum!, as we complete the spinoff of our China division, ultimately creating two powerful independent focus growth companies. The fundamental goal of Yum! however is unchanged. We are 100% dedicated to building and strengthening KFC, Pizza Hut and Taco Bell all around the world as strong brand critical to delivering the same growth and creating shareholder value over the long-term.”

Macro environment has impacted casual dining segment in China

“The macroeconomic environment and volatile stock market has impacted the Casual Dining segment and we know we have to generate more exciting news and value to counter this headwind. ”

We are encouraged by what we’re seeing in China in January

“I want to give you a quick update on January sales in China. We are encouraged by what we are seeing at KFC, but Pizza Hut sales remain soft. It’s difficult to gauge exactly where the first quarter will finish, especially given the earlier timing of Chinese New Year. But at this point we expect same-store sales growth to be up low-single digits for the division which sets us up well for the balance of the year.”

The macro in China has gotten worse since December

“Well I think first of all, obviously the macros which have got worse since December, since we were all together in December and I think we all know that macros impact casual dining more than they impact QSR. So, I think there’s definitely that issue. I would agree with you that we’ve not had enough value in use to overcome this backdrop.”

There’s been a big value push in the market

“Just let me talk to about whole question about value, I think the great thing is that Taco Bell is incredibly well positioned, it remains the value leader. But look, we’ve all seen what’s been happening in the marketplace in the early year: five for $4, four for $4, two for $2, so let’s not kid ourselves. So, there’s been a fair amount of value initially out there.”

For pizza hut in China, the macro affects casual dining more than QSR

“we’ve seen this not just in China, but outside that casual dining is impacted by macros. It’s just what happens. And it always has a bigger impact on casual dining when macros are volatile and changing than it does on the QSR business. So if I were to say what are the four factors, I would say macros.”

Customers in lower tier cities have been more significantly impacted

“So first on China same-store sales, similar to recent quarters, performance was stronger in Tier 1 cities at both brands. Our view is that customers in lower tier cities have been more significantly impacted by the softening economy, particularly around the industrial cities, which have been more heavily affected by China’s slowing export trade.”

You can’t just water the new plants

“The way I look at it, look the new plants that you — trees that you plant and the ones that are growing both need water. You just can’t throw water on the new plants. You got to throw water on the big strong trees to make sure they continue to be big, strong, and keep going.”

Pat Grismer

Planning to maintain 5x EBITDA leverage

“I’m also happy to report that we’re on schedule to complete our recapitalization in the first half of the year, issuing incremental debt of approximately $5.2 billion and plan to maintain roughly 5 times EBITDA leverage going forward.”