Yum! Brands Inc. Reports Second Quarter 2009 EPS of $0.63; $0.50 Per Share or 10% Growth Excluding Special Items; Maintains Guidance for Full Year 2009 EPS Growth of 10%, Excluding Special Items

Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter ended June 13, 2009.

Second-quarter Earnings Per Share (EPS) of $0.63 represents 40% growth and included the benefit of a one-time gain of $68 million recognized upon our acquisition of additional ownership in the operating entity that owns the KFC business in Shanghai, China, this quarter. Excluding special items, EPS was $0.50, representing 10% growth, which the company believes is a better indication of the underlying performance. Highlights below are based on this performance.

SECOND QUARTER HIGHLIGHTS

• International development continued at a robust pace with 328 new restaurants including 118 new units in mainland China and 193 in Yum! Restaurants International (YRI).
• Worldwide system sales growth prior to foreign currency translation of +3% including +8% in mainland China, +6% in YRI, and a 1% decline in the U.S.; after foreign currency translation, worldwide system sales declined 4%.
• Worldwide restaurant margin improved 1.7 percentage points driven by the combination of prior year pricing, flat commodity costs and refranchising; all three divisions improved margins.
• Worldwide operating profit growth of 11%, excluding foreign currency translation, driven by new unit development, improved restaurant margins, and proactive cost management. Each of our divisions generated profit growth: +11% in China, +8% in the U.S. and +6% for YRI. Including foreign currency translation, worldwide growth was +4%, China increased +14% and YRI declined 15%.
• EPS growth was negatively impacted by foreign currency translation of approximately $0.03 per share partially offset by the benefit from last year’s substantial share repurchases which reduced average shares outstanding by 3%.

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted.

David C. Novak, Chairman and CEO, said, “I’m pleased to report second quarter EPS growth of 10%, before special items. Our global portfolio delivered solid performance with system sales growth of 3% and operating profit growth of 11%, prior to foreign currency translation. EPS growth was fueled by operating profit growth in each of our divisions and exceeded our expectations due to a much lower-than-anticipated tax rate. Our industry leading international new unit development continues to be a major driver of operating performance in both China and Yum! Restaurants International. This capability is unique to the industry and helps us consistently achieve our growth targets. I’m proud of the way our teams around the world are executing our growth strategies while capturing productivity opportunities and proactively reducing costs.

“Our China business continued to drive solid growth in system sales and operating profit while lapping its very strong year ago performance. Yum! Restaurants International also had solid, broad-based system sales and profit growth. In our U.S. business, while we achieved 8% operating profit growth, there is no question that the consumer is under pressure making it difficult to drive sales growth. Nevertheless, we were particularly pleased by KFC’s dramatic results from the Kentucky Grilled Chicken launch which broadened the appeal of the brand and led to a substantial positive turnaround in KFC same-store-sales performance from a decline of 7% in the first quarter. Pizza Hut is our biggest challenge in the U.S. as it competes in a more discretionary, higher guest-check, dinner category. We remain confident in our strategy of transforming Pizza Hut to include a broader line of home meal replacement options including pasta and chicken along with our world famous pizza.

“Going forward, we expect to deliver 10% EPS growth for the year in spite of a challenging global economic environment and build on our seven year track record of double-digit EPS growth. We expect to enter 2010 with even stronger brands and competitive positions everywhere we do business. Longer term, the fundamental opportunities for our global portfolio remain intact and give us the unique ability to generate unparalleled international growth, significant free cash flow, and an industry-leading return on invested capital.”

CHINA DIVISION

• China Division system sales growth of 7% excluding foreign currency translation driven by strong unit development partially offset by an expected same-store-sales decline in the second quarter.

• Mainland China opened 118 new restaurants in the second quarter further strengthening the company’s leadership position.

• Mainland China second quarter same-store-sales decreased by 4%, lapping exceptional growth of 14% in 2008.
• China Division’s system sales growth was negatively impacted by weak system sales performance in Thailand and Taiwan (+2% and a decline of 15%, respectively, excluding foreign currency translation).

• Restaurant margin increased 0.8 percentage points driven by a combination of the benefit of prior year pricing and commodity deflation of $4 million in the second quarter.
• Foreign currency conversion benefited operating profit by $3 million.
• Operating profit growth of 14% overlapped outstanding growth of 38% in the second quarter of 2008.
• In the second quarter, we acquired an additional interest in the entity that operates KFC units in Shanghai that resulted in an increase in our ownership from 51% to 58%. This led to a one-time gain of $68 million and did not significantly impact China Division’s reported results in the second quarter. See detailed footnote in the financial statements.

YUM! RESTAURANTS INTERNATIONAL (YRI) DIVISION

• Solid system sales growth of 6%, excluding foreign currency translation driven primarily by new unit development. The table below provides further insight into key YRI markets.
• Same-store-sales growth of +1%, which was negatively impacted by calendar shifts versus last year (approximately 2 points).
• The opening of 193 new restaurants in more than 50 countries.
• Foreign currency translation negatively impacted operating profit by $24 million and operating profit growth by 21 points.
• Operating margin continues to improve as our high return franchise business continues to grow.

U.S. DIVISION

• Same-store-sales declined 1% due to an 8% decline at Pizza Hut partially offset by positive growth at Taco Bell and KFC following the successful launch of Kentucky Grilled Chicken.
• Restaurant margin improved by 2.3 points this quarter due to the benefit from prior year pricing and commodity deflation, as well as refranchising and productivity initiatives. Commodity deflation was $4 million in the second quarter.
• Second quarter operating profit growth of 8% and operating profit margin improvement of 2.6 points were driven by an $18 million decline in our U.S. G&A cost structure from actions initiated in the fourth quarter of 2008. For the full year, we anticipate cost savings of at least $60 million.

U.S. REFRANCHISING UPDATE

In the second quarter, 79 company-owned U.S. restaurants were sold to franchisees bringing our year-to-date total to 188 units. We continue to expect to refranchise 500 units in 2009. Full year proceeds from U.S. refranchising are now expected to be about $175 million.

FULL YEAR GUIDANCE UPDATE

The Company maintains its expectation for full year EPS of $2.10, or 10% growth, excluding special items. A detailed update to our guidance can be found on our website at www.yum.com/investors.

Overall, the update to our original guidance coming into 2009 is the result of a constrained consumer spending environment, which is driving both sluggish sales and very favorable commodity costs. As a result, we have reduced our expectations for same-store-sales growth around the world while at the same time significantly raising our restaurant margin expectations due to deflation in commodity costs. In terms of our growth by division, this impacts only our U.S. profit growth expectations which have been reduced. Finally, we have reduced our full year effective tax rate forecast to account for the year-to-date favorability in rates compared to our prior expectations and have assumed some lessening in the large negative impact to operating profits from foreign currency translation based on current currency trends. These changes result in no change to our full year EPS guidance of $2.10 per share.

DEFINITIONS OF KEY MARKETS

The following list of definitions provides the significant countries and territories with at least 25 restaurants that are included in key markets that generally follow Yum! business management units for internal reporting purposes. For a complete list of countries and territories please see our detailed store count information available on our website.

China Division includes mainland China, Thailand (KFC and Pizza Hut), and Taiwan (KFC).

YRI Division

Asia (ex China Division) includes Thailand (A&W), Japan, Indonesia, Malaysia, Philippines, Hawaii, Korea (KFC), Singapore, Taiwan (Pizza Hut and Long John Silver’s), Hong Kong, and Vietnam.

Australia includes Australia and New Zealand.

Continental Europe includes Belgium, Spain, Portugal, Cyprus, Germany (Pizza Hut), Greece, Italy, Israel, Romania, Poland, and the Czech Republic.

Latin America includes Brazil, El Salvador, Guatemala, Honduras, Costa Rica, Dominican Republic, Jamaica, Panama, Trinidad & Tobago, Chile, Ecuador, Peru, and Puerto Rico.

Middle East includes Bahrain, United Arab Emirates, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Morocco, Turkey, and Pakistan.

New Growth Markets include France, Russia, and India.

UK includes Great Britain, Ireland, and Northern Ireland.

U.S. Division includes the continental United States and Alaska.

CONFERENCE CALL

Yum! Brands Inc. will host a conference call to review the company’s financial performance and strategies at 9:15 a.m. ET Wednesday, July 15, 2009.

For U.S. callers, the number is 877/815-2029. For international callers, the number is 706/645-9271.

The call will be available for playback beginning at noon Eastern Time Wednesday, July 15, through midnight July 29, 2009. To access the playback, dial 800/642-1687 in the United States and 706/645-9291 internationally. The playback pass code is 15982763.

The webcast and the playback can be accessed via the Internet by visiting Yum! Brands’ Web site, www.yum.com/investors and selecting “Q2 2009 Earnings Call”.

For your added convenience . . . A podcast will be available within 24 hours of the end of the call at www.yum.com/investors.

ADDITIONAL INFORMATION ONLINE

Second quarter restaurant-count details, definitions of terms, segment-results reconciliation and updated full year 2009 guidance are available online at http://investors.yum.com/phoenix.zhtml?c=117941&p=irol-newsEarnings.

This announcement, any related announcements and the related webcast may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. Our forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ materially from those projected. Factors that can cause our actual results to differ materially include, but are not limited to: economic and political conditions in the countries where we operate; currency exchange and interest rates; commodity, labor and other operating costs; competition, consumer preferences or perceptions; the impact of any widespread illness or food borne illness; the effectiveness of our operating initiatives and marketing; new-product and concept development by us and our competitors; the success of our strategies for refranchising and international development; the continued viability of our franchise and license operators; our ability to secure and maintain distribution and adequate supply to our restaurants; publicity that may impact our business and/or industry; pending or future legal claims; our effective tax rates; our actuarially determined casualty loss estimates; government regulations; and accounting policies and practices. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results. Forward-looking statements are based on current expectations and assumptions and currently available data and are neither predictions nor guarantees of future events or performance. You should not place undue reliance on forward-looking statements, which speak only as of the date hereof. We are not undertaking to update any of these statements.

Yum! Brands, Inc., based in Louisville, Kentucky, is the world’s largest restaurant company in terms of system restaurants, with more than 36,000 restaurants in over 110 countries and territories. The company is ranked #239 on the Fortune 500 List, with revenues in excess of $11 billion in 2008. Four of the company’s restaurant brands – KFC, Pizza Hut, Taco Bell and Long John Silver’s – are the global leaders of the chicken, pizza, Mexican–style food and quick–service seafood categories, respectively. Outside the United States, the Yum! Brands system opened more than four new restaurants each day of the year, making it a leader in international retail development. The company has consistently been recognized for its reward and recognition culture, diversity leadership, community giving, and consistent shareholder returns. For the second year, the company launched the world’s largest private sector hunger relief effort in partnership with the United Nations World Food Programme and other hunger relief agencies. To date, this effort is helping to save approximately 4 million people in remote corners of the world, where hunger is most prevalent.

See accompanying notes.

The effective tax rate for the quarter and year to date ended June 13, 2009 was lower due to no related income tax expense recorded on a $68 million gain recognized upon our acquisition of additional ownership in, and consolidation of, the operating entity that owns the KFC business in Shanghai, China.

See accompanying notes.

China Division includes mainland China, Thailand and KFC Taiwan.

As discussed in (d) in the accompanying notes, we began consolidating the operating entity that owns the KFC business in Shanghai, China, with 236 units, during the second quarter of 2009. This entity was previously accounted for as an unconsolidated affiliate.

See accompanying notes.

See accompanying notes.

See accompanying notes.

See accompanying notes.

The above table reconciles segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise reductions in franchise and license fees and income, general and administrative expenses, refranchising (gains) and losses and other (income) expense that are not allocated to segments for performance reporting purposes.

The above table reconciles segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise reductions in franchise and license fees and income, general and administrative expenses, refranchising (gains) and losses and other (income) expense that are not allocated to segments for performance reporting purposes.

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