Yum! Brands Reports Full-Year EPS Growth of 4%, or $3.09 Per Share, Excluding Special Items; Maintains Full-Year Guidance of at least 10% EPS Growth in 2015

Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 27, 2014. EPS excluding Special Items was $0.61, a decline of 29%. A non-cash, Special Items net charge of $361 million related to the write-down of Little Sheep assets was recorded in the fourth quarter. This charge impacted reported EPS by $0.80 for the full year. Reported EPS was $(0.20) for the quarter and $2.32 for the year.

FULL-YEAR HIGHLIGHTS

• Worldwide system sales grew 3%. Worldwide restaurant margin decreased 0.5 percentage points to 14.5%. Worldwide operating profit increased 1%.
• New international restaurants totaled a record 2,034, including 737 in China, 666 at KFC, 465 at Pizza Hut and 156 in India; 80% of this development occurred in emerging markets.
• China Division system sales increased 1%, driven by 8% unit growth and offset by a 5% same-store sales decline. Restaurant margin decreased 0.6 percentage points to 14.8%. Operating profit decreased 8%.
• KFC Division system sales increased 6%, driven by 2% unit growth and 3% same-store sales growth. Restaurant margin increased 0.7 percentage points to 13.3%. Operating profit increased 13%.
• Pizza Hut Division system sales increased 1%, driven by 2% unit growth and offset by a 1% same-store sales decline. Restaurant margin decreased 3.5 percentage points to 8.2%. Operating profit decreased 13%.
• Taco Bell Division system sales increased 4%, driven by 2% unit growth and 3% same-store sales growth. Restaurant margin decreased 0.6 percentage points to 18.9%. Operating profit increased 5%.
• India Division system sales increased 14%, driven by 18% unit growth and offset by a 5% same-store sales decline.
• Foreign currency translation negatively impacted operating profit by $27 million.

FOURTH-QUARTER HIGHLIGHTS

• Worldwide system sales grew 3%. Worldwide restaurant margin decreased 4.0 percentage points to 10.2%. Worldwide operating profit decreased 24%.
• China Division system sales decreased 11%, as 8% unit growth was offset by a 16% same-store sales decline. Restaurant margin decreased 7.2 percentage points to 7.1%. Operating profit decreased 84%.
• KFC Division system sales increased 7%, driven by 2% unit growth and 4% same-store sales growth. Restaurant margin increased 1.4 percentage points to 13.8%. Operating profit increased 19%.
• Pizza Hut Division system sales increased 2%, driven by 2% unit growth. Same-store sales were even. Restaurant margin decreased 2.7 percentage points to 6.4%. Operating profit decreased 11%.
• Taco Bell Division system sales increased 9%, driven by 2% unit growth and 6% same-store sales growth. Restaurant margin increased 0.3 percentage points to 20.6%. Operating profit increased 20%.
• India Division system sales increased 6%, driven by 18% unit growth and offset by a 10% same-store sales decline.
• Foreign currency translation negatively impacted operating profit by $11 million.

Note: All comparisons are versus the same period a year ago and exclude Special Items unless noted. System sales and operating profit figures on this page exclude foreign currency translation.

SUMMARY FINANCIAL TABLE

GREG CREED COMMENTS

Greg Creed, CEO, said “We are committed to restoring our track record of delivering at least 10% annual EPS growth year after year. I am confident we will do this in 2015 as our China business recovers and we sustain positive momentum across the rest of Yum!. Overall results in 2014 were disappointing as the Chinese supplier incident in July offset our strong first half of the year. Our top priority is to recover sales in China and capture the significant profit leverage we have in this business.

While the sales recovery in China continues to be slower than expected, we anticipate a strong second half of 2015 as the turnaround gains momentum, led by menu innovation across the year. We continue to firmly believe in the long-term potential of China and will open at least 700 new units in what remains the world’s fastest-growing economy.

Outside of China, we are pleased with the momentum we are seeing across the KFC and Taco Bell divisions. We expect KFC’s strong results to sustain into 2015 as robust international performance, coupled with an improving U.S. business, drive solid sales and profit growth. At Taco Bell, the 2014 launch of breakfast and mobile ordering, combined with even more breakthrough innovation in 2015, gives us confidence as we enter the new year. Finally, while the initial relaunch of the Pizza Hut brand in the U.S. did not deliver the sales lift we expected, consumers have responded positively to the new menu and we intend to leverage this more effectively going forward.

Across Yum! we expect to open over 2,100 new international restaurants this year, further strengthening our lead in emerging markets. We remain focused on the three keys to driving shareholder value: same-store sales growth, new-unit development and generating high returns on invested capital. I'm confident that this formula will produce consistent double-digit EPS growth over the long term as we continue to build three iconic global brands that people trust and champion.”

CHINA DIVISION

• China Division sales and profits were significantly impacted by adverse publicity in July surrounding improper food handling practices by a former supplier.
• System sales grew 1% for the year and declined 11% in the quarter, prior to foreign currency translation.
  • KFC same-store sales declined 4% for the year and 18% in the quarter.
  • Pizza Hut Casual Dining same-store sales declined 5% for the year and 9% in the quarter.
• China Division opened 737 new units during the year, including 385 units in the quarter. For the year, KFC opened 376 new units, Pizza Hut Casual Dining opened 271 new units and Pizza Hut Home Service opened 68 new units.

• Excluding Little Sheep restaurants, unit growth was 10% for the year.

• Restaurant margin decreased 0.6 percentage points to 14.8% for the year, driven by sales deleverage. Restaurant margin decreased 7.2 percentage points to 7.1% for the quarter.
  • Excluding Little Sheep, restaurant margin was 15.3% for the year.
• In the quarter, operating profit benefited $25 million from an insurance recovery related to the 2012 poultry supply incident. This was recorded in Other Income.
• Foreign currency translation negatively impacted operating profit by $1 million for the year and $2 million for the quarter.

KFC DIVISION

• KFC Division system sales increased 6% for the year and 7% for the quarter, prior to foreign currency translation.
  • For the year, international system sales grew 12% in emerging markets and 5% in developed markets; U.S. system sales declined 1%. For the quarter, international system sales grew 12% in emerging markets and 5% in developed markets; U.S. system sales grew 4%.
  • For the year, international same-store sales grew 4% in emerging markets and 3% in developed markets; U.S. same-store sales grew 1%. For the quarter, international same-store sales grew 4% in emerging markets and 3% in developed markets; U.S. same-store sales grew 6%.
• KFC Division opened 666 new international restaurants in 77 countries, including 481 units in emerging markets. For the quarter, KFC Division opened 335 new international units.
  • 82% of these new units were opened by franchisees for the year.
• Operating profit growth was 19% for the quarter, prior to foreign currency translation. This included a benefit of 3 percentage points from the favorable resolution of a pension issue in the U.K.
• Operating margin increased 0.9 percentage points for the year and 2.0 percentage points for the quarter, prior to foreign currency translation, driven by same-store sales growth.
• Foreign currency translation negatively impacted operating profit by $24 million for the year and $8 million for the quarter.

PIZZA HUT DIVISION

• Pizza Hut Division system sales increased 1% for the year and 2% for the quarter, prior to foreign currency translation.
  • For the year, international system sales grew 6% in emerging markets and 1% in developed markets; U.S. system sales declined 1%. For the quarter, international system sales grew 5% in emerging markets and 1% in developed markets; U.S. system sales grew 2%.
  • For the year, international same-store sales grew 1% in emerging markets and were even in developed markets; U.S. same-store sales declined 3%. For the quarter, international same-store sales were even for both emerging and developed markets; U.S. same-store sales were even.
• Pizza Hut Division opened 465 new international units in 51 countries, including 247 units in emerging markets. For the quarter, Pizza Hut Division opened 257 new international units.
  • 89% of these new units were opened by franchisees for the year.
• Operating margin declined 3.9 percentage points for the year and 3.2 percentage points for the quarter, driven by sales deleverage and strategic investments in international G&A.
• Foreign currency translation negatively impacted operating profit by $2 million for the year and $1 million for the quarter.

TACO BELL DIVISION

• Taco Bell Division system sales increased 4% for the year and 9% for the quarter.
  • U.S. same-store sales grew 3% for the year and 7% for the quarter, driven by breakfast sales.
• Taco Bell Division opened 236 new restaurants for the year; 89% of these new units were opened by franchisees. This included 130 new units in the fourth quarter.
• Operating margin increased 1.4 percentage points during the year and 2.8 percentage points during the quarter, driven by same-store sales growth.

INDIA DIVISION

• India Division system sales increased 14% for the year and 6% for the quarter, prior to foreign currency translation.
  • Same-store sales declined 5% for the year and 10% for the quarter.
• India Division opened 156 new restaurants for the year. This included 106 in the fourth quarter.
• Operating loss was $9 million for the year.
• Effective the beginning of 2014, results from our 28 franchised stores in Mauritius are no longer included in the India Division and are included in the KFC and Pizza Hut Divisions, as applicable. India unit and system sales growth as shown here exclude Mauritius from the prior year amounts to enhance comparability.

SPECIAL ITEMS / TAX / SHARE REPURCHASE UPDATE

• As previously communicated, our Little Sheep business has performed below expectations since being acquired in February 2012. As a result of our annual impairment tests, in the fourth quarter of 2014 we recorded net impairments of $361 million, primarily related to the Little Sheep trademark and goodwill. We previously recorded net impairments of $258 million in the third quarter of 2013. The remaining carrying value of the Little Sheep business is approximately $100 million.
• Worldwide effective tax rate, prior to Special Items, decreased to 25.5% from 28.0% for the year. Last year’s tax rate included higher tax reserve adjustments related to a dispute with the IRS regarding the valuation of intangible assets. This issue was resolved in 2014.
• For the year, we repurchased 11.2 million shares totaling $820 million at an average price of $73. For the quarter, we repurchased 4.4 million shares totaling $310 million at an average price of $71.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 9:15 a.m. Eastern Time Thursday, February 5, 2015. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at 12:45 p.m. Eastern Time Thursday, February 5, through midnight Thursday, March 5, 2015.To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback pass code is 65641562.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website, www.yum.com/investors and selecting “Q4 2014 Earnings Conference Call” under “Investment Events.” A podcast will be available within 24 hours.

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant-count details and definitions of terms are available online at www.yum.com under “Investors.”

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: food safety and food borne-illness issues; changes in economic conditions, consumer preferences, tax rates and laws and the regulatory environment, as well as increased competition and other risks in China, where a significant and growing portion of our restaurants are located; changes in economic and political conditions in the other countries outside the U.S. where we operate; the impact or threat of any widespread illness or outbreaks of viruses or other diseases; our ability to protect the integrity and security of individually identifiable data of our customers and employees; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our international development strategy; commodity, labor and other operating costs; the continued viability and success of our franchise and license operators; consumer preferences and perceptions of our brands; the impact of social media; a potential suspension of the Chinese affiliate of our independent auditor; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations; tax matters, including disagreements with taxing authorities; significant changes in global economic conditions, including consumer spending, consumer confidence and unemployment; and competition within the retail food industry, including with respect to price and quality of food products, new product development, advertising levels and promotional initiatives, customer service, reputation, restaurant location, and attractiveness and maintenance of properties. 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, has over 41,000 restaurants in more than 120 countries and territories. Yum! is ranked #216 on the Fortune 500 List with revenues of over $13 billion and in 2014 was named among the top 100 Corporate Citizens by Corporate Responsibility Magazine. The Company's restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Outside the United States, the Yum! Brands system opened over five new restaurants per day, making it a leader in international retail development.

The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.

The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of Non-GAAP Measurements to GAAP Results.

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