How did YUM! Brands perform financially in fiscal 2006?

Total revenues rose to $9.56 billion from $9.35 billion, operating profit increased to $1.26 billion from $1.15 billion, and net income grew to $824 million from $762 million. Diluted earnings per share increased 14% to $2.92.

Which segments drove growth in 2006?

The China Division was the strongest performer, with operating profit up 37% to $290 million and mainland China restaurant growth of 18%. The International Division's operating profit was $407 million, up 9% reported and 11% excluding currency translation and the 53rd week in 2005, while U.S. operating profit was $763 million, essentially flat.

How much did YUM return to shareholders and what are the plans going forward?

The company repurchased 20.2 million shares for $983 million and paid $144 million in dividends during 2006. Its Board approved a $0.15 dividend payable February 2, 2007 and a $0.30 dividend payable March 30, 2007. For 2007, management expects capital spending of about $650 million, refranchising proceeds of about $200 million, and a 3% to 4% reduction in diluted share count.

What operational risks did the filing highlight?

The most prominent issue was the Taco Bell produce-sourcing problem tied to an E. coli 0157:H7 outbreak in the northeast in November and December 2006, which hurt sales at company and franchise stores. Management said recovery could take until mid-2007 or longer. The filing also cited commodity cost exposure, avian flu, food safety, and reliance on franchisees.

What pending litigation could affect future results?

The Cole Arbitration against Long John Silver's seeks class treatment of wage and hour claims, and the Fourth Circuit heard oral argument on January 31, 2007. A Taco Bell disability access class action in California is at an early stage, and the company says the cost of compliance and potential damages cannot be reasonably estimated. Several lawsuits from the Taco Bell E. coli outbreak have also been filed, and the company has provided reserves but states that losses could exceed them.

YUM 10-K Filed Feb 28, 2007

01—Abstract

Summary

Summary of the 10-K filed February 28, 2007. Cited figures are marked; the original filing is the authoritative source.

YUM!

Brands, Inc. reported fiscal 2006 total revenues of $9.56 billion^a (up 2% from $9.35 billion in 2005) and operating profit of $1.26 billion, with net income of $824 million and diluted earnings per share of $2.92, up 14%. The company is the world's largest quick service restaurant company by system units, with more than 34,000 units in over 100 countries. Growth was led by the China Division, where operating profit rose 37% to $290 million on system sales growth of 26% reported, and the International Division, which generated $407 million in operating profit and opened 785 new restaurants.

U.S. same store sales were flat in 2006, and Taco Bell faced an E. coli outbreak in the northeast in late 2006 that the company estimated reduced operating profit by $20 million^b in the fourth quarter. Capital returns were a major focus. The company repurchased 20.2 million shares for $983 million and paid $144 million in dividends, extending a second consecutive year of over $1.1 billion returned to shareholders.

Management said the quarterly dividend would double in the second quarter of 2007 and that it expects an approximate 2% dividend yield. For 2007 it estimates capital spending of about $650 million^c and targets a 3% to 4% reduction in its diluted share count. Long-term debt rose to $2.05 billion from $1.65 billion, and cash from operations was $1.30 billion.

The filing also details ongoing legal exposure. The Long John Silver's Cole Arbitration seeks class treatment of wage and hour claims, with a Fourth Circuit oral argument held January 31, 2007, and the Taco Bell disability access lawsuit in California remains at an early stage with costs not estimable. The company has provided reserves for the Taco Bell E. coli litigation but states that losses could exceed those reserves.

02—Key points

Key Highlights

Total revenues of $9.56 billion in 2006, up 2% from $9.35 billion in 2005; Company sales were $8.37 billion and franchise and license fees were $1.20 billion.
Diluted earnings per share rose to $2.92 from $2.55, and net income reached $824 million versus $762 million.
China Division operating profit grew 37% to $290 million, and China Division system sales grew 26% on a reported basis.
International Division operating profit was $407 million, and the division opened 785 new restaurants in 2006.
Shareholder returns totaled over $1.1 billion for the second consecutive year, including $983 million in share repurchases and $144 million in dividends paid.
The quarterly dividend is set to double for the second quarter of 2007, which management expects to produce an approximate 2% dividend yield.
Taco Bell's northeast E. coli issue reduced fourth-quarter 2006 operating profit by an estimated $20 million, and Taco Bell U.S. same store sales were down 5% in that quarter.

03—Questions

Frequently Asked Questions

How did YUM! Brands perform financially in fiscal 2006?
Total revenues rose to $9.56 billion from $9.35 billion, operating profit increased to $1.26 billion from $1.15 billion, and net income grew to $824 million from $762 million. Diluted earnings per share increased 14% to $2.92.
Which segments drove growth in 2006?
The China Division was the strongest performer, with operating profit up 37% to $290 million and mainland China restaurant growth of 18%. The International Division's operating profit was $407 million, up 9% reported and 11% excluding currency translation and the 53rd week in 2005, while U.S. operating profit was $763 million, essentially flat.
How much did YUM return to shareholders and what are the plans going forward?
The company repurchased 20.2 million shares for $983 million and paid $144 million in dividends during 2006. Its Board approved a $0.15 dividend payable February 2, 2007 and a $0.30 dividend payable March 30, 2007. For 2007, management expects capital spending of about $650 million, refranchising proceeds of about $200 million, and a 3% to 4% reduction in diluted share count.
What operational risks did the filing highlight?
The most prominent issue was the Taco Bell produce-sourcing problem tied to an E. coli 0157:H7 outbreak in the northeast in November and December 2006, which hurt sales at company and franchise stores. Management said recovery could take until mid-2007 or longer. The filing also cited commodity cost exposure, avian flu, food safety, and reliance on franchisees.
What pending litigation could affect future results?
The Cole Arbitration against Long John Silver's seeks class treatment of wage and hour claims, and the Fourth Circuit heard oral argument on January 31, 2007. A Taco Bell disability access class action in California is at an early stage, and the company says the cost of compliance and potential damages cannot be reasonably estimated. Several lawsuits from the Taco Bell E. coli outbreak have also been filed, and the company has provided reserves but states that losses could exceed them.

04—Continue

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