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”

Leave a Reply

Your email address will not be published. Required fields are marked *