YUM Brands 2Q15 Earnings Call Notes

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China SSS down 10%, but improvement from last Q

“Let’s start today’s discussion with China. Same store sales continue to show steady but slower than expected progress. This quarter’s 10% decline marks an improvement from the 12% decline last quarter despite a more difficult overlap.”

Taco Bell doing best

“We are making continued progress in China. Taco Bell is going from strength to strength. KFC continues to build on its momentum and Pizza Hut is in turnaround mode.”

EPS decreased 5%

“Earnings per share excluding special items decreased 5%. This was substantially better than the decline we had originally estimated.”

GAAP EPS -28%

“Reported EPS declined 28% in the quarter. This includes a $68 million non-cash special item charge related to our decision to sell Mexico real-estate, negatively impacting reported EPS by $0.13 in the quarter.”

Two safety issues in China

“remember we’ve had two safety issues, which we’ve never had before alright, so we’ve never been able to model two safety issues and there’s obviously some slowness in recovering that. ”

We need big growth to meet our 2nd half estimates

“EPS is down 7% and as I said in my prepared remarks earlier, to achieve full year growth of at least 10%, EPS needs to grow nearly 30% in the second half of the year and I don’t think of that as an overly conservative number.

Obviously its heavily dependent on the results of our China division where profits were down about 30% in the first half of the year, and in order for China to deliver on its expected share of second half EPS growth, second half profits there need to be more than double of what they were last year. But we’re confident China can deliver this result, but with 60% of their profits being generated in the second half, I don’t think it’s prudent to adopt a more aggressive stance and lean in on this.”

We think we can get there despite strong EPS headwinds

“Additionally as I mentioned, foreign exchange headwinds are much stronger than we had originally estimated, but this is factored into our overall EPS guidance. So I just want to make it very clear, we expect to have a strong second half based on continued progress in China and we fully expect to deliver at least 10% EPS growth for the year.”

I think China is growing at slower pace but it’s still the fastest growing in the world

“I mean I think that generally the economy is growing at a slower pace. So it’s fair to say that and that that is putting pressure on retail generally. I think we also need to bear in mind that with GDP growing this year at around 7%, it remains the fastest growing large economy in the world.”

Tier 1 China cities less phased by safety issues

“we are seeing stronger performance in our Tier I cities at both brands. It seems that the Tier I consumers are less phased by the supplier publicity this time around and I would say that that’s especially encouraging, because that’s where we have a higher concentration of stores and also face the strongest competition. So I think that’s further evidence of our brands ongoing recovery and resilience.”

We haven’t seen much change in consumer perception on account of the Modi government

“I think that we did expect – I think with the Modi government change that there might be a sort of perceptible change in consumer perception and I guess that probably hasn’t had, we haven’t seen that.”

Almost everyone asked about China

“Yes, Karen, thank you for asking a non-China question.”