01—Abstract
Summary
Summary of the 10-K filed February 25, 2008. Cited figures are marked; the original filing is the authoritative source.
YUM!
Brands, Inc. (YUM) reported fiscal 2007 results with total revenues of $10.42 billiona, up from $9.56 billion in 2006, and operating profit of $1.36 billion versus $1.26 billion. Net income rose to $909 million from $824 million, and diluted earnings per share were $1.68 compared with $1.46. Company sales were $9.10 billion, and franchise and license fees were $1.32 billion.
Cash provided by operating activities was $1.57 billionb, and the Company returned approximately $1.7 billion to shareholders through share repurchases and dividends during the year. Growth was driven by China and the International Division, which together now represent over half of operating profit. The China Division's operating profit was $375 million and the International Division's was $480 million, while the U.S. operating profit was $739 million and declined in the year.
U.S. Company same-store sales fell 3%c, with Taco Bell's Company same-store sales down 5% following the late-2006 E. coli outbreak and produce-sourcing issues. Management expects commodity inflation of approximately 5% in 2008 and plans to refranchise U.S. restaurants so that Company ownership falls potentially below 10% by the end of 2010.
Looking to 2008, the Company expects to return over $2 billiond to shareholders, including a reduction of approximately 8% in average diluted shares, and it expects to record an approximately $87 million pre-tax gain on the sale of its Japan unconsolidated affiliate in the first quarter. Total debt rose to $3.21 billion from $2.27 billion, reflecting $600 million of 6.25% notes due 2018 and $600 million of 6.875% notes due 2037 issued in October 2007.
02—Key points
Key Highlights
- Total revenues rose to $10.42 billion in 2007 from $9.56 billion in 2006, and diluted EPS increased to $1.68 from $1.46.
- Operating profit reached $1.36 billion, with China Division operating profit up 30% to $375 million and International Division operating profit up 18% to $480 million, while U.S. operating profit declined 3% to $739 million.
- U.S. Company same-store sales declined 3%, reflecting transaction declines, with Taco Bell's Company same-store sales down 5% for the full year after 2006 food-safety and produce-sourcing issues.
- Cash from operations was $1.57 billion, and the Company returned approximately $1.7 billion to shareholders via $1.41 billion of share repurchases and $273 million of dividends.
- Board authorized an additional $1.25 billion of share repurchases in January 2008, and management expects to return over $2 billion to shareholders in 2008 with average diluted shares down approximately 8%.
- Total debt increased to $3.21 billion from $2.27 billion after issuing $600 million of 6.25% Senior Notes due 2018 and $600 million of 6.875% Senior Notes due 2037 in October 2007.
- The Company plans to reduce U.S. Company restaurant ownership from 22% toward potentially below 10% by the end of 2010 through refranchising, and expects 2008 commodity inflation of approximately 5%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2008, Yum! Brands kept $0.09.
- Revenue$11.30B100.0%
- Cost of revenue−$8.46B74.9%
- Gross profit$2.84B25.1%
- Operating costs−$1.32B11.7%
- Operating income$1.52B13.4%
- Interest, other & tax−$553.0M4.9%
- Net income$964.0M8.5%
Where FY2008 revenue went
$11.30B- Cost of revenue: $8.46B, 75% of revenue
- Net income: $964.0M, 8.5% of revenue
- R&D: $34.0M, 0.3% of revenue
- Other operating costs: $1.29B, 11% of revenue
- Interest, other & tax: $553.0M, 4.9% of revenue
Kept 8.5% as net incomeNet income $964.0M · 8.5%R&D $34.0M · 0.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 25, 2008Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $11.30B$10.44B | +8.3% |
| Cost of Revenue | $8.46B$7.77B | +8.9% |
| Gross Profit | $2.84B$2.66B | +6.6% |
| R&D Expenses | $34.00M— | — |
| Operating Expenses | $9.79B$9.08B | +7.8% |
| Operating Income | $1.52B$1.36B | +11.8% |
| Interest Expense | $253.00M— | — |
| Net Income | $964.00M$909.00M | +6.1% |
| EPS (Basic) | $2.03$1.74 | +16.7% |
| EPS (Diluted) | $1.96$1.68 | +16.7% |
| Shares Outstanding (Basic) | 475— | — |
| Shares Outstanding (Diluted) | 491— | — |
05—Questions
Frequently Asked Questions
How did YUM! Brands perform in fiscal 2007?
Total revenues increased 9% to $10.42 billion, operating profit rose 8% to $1.36 billion, and net income grew 10% to $909 million. Diluted EPS was $1.68, up 15% from $1.46 in 2006.
Which segments drove growth and which lagged?
The China Division (operating profit up 30% to $375 million) and the International Division (up 18% to $480 million) drove growth. The U.S. was weaker, with operating profit down 3% to $739 million, due to higher restaurant operating costs, principally commodities and labor.
What are the main risks the filing highlights for 2008?
The filing cites commodity inflation expected at approximately 5% for 2008, with chicken costs in mainland China rising and high inflation expected to continue into the first half of 2008. It also notes higher self-insured property and casualty expenses expected in 2008, Mexico VAT changes reducing International Division Company sales by approximately $38 million, and the risks of operating in China, including currency fluctuations.
How much did YUM return to shareholders and what is the plan going forward?
In 2007 the Company returned approximately $1.7 billion through share repurchases and dividends. For 2008 it expects to return over $2 billion, and the October 2007 plan calls for up to $4 billion of buybacks over two years, with the Board authorizing an additional $1.25 billion in January 2008.
What one-time items will affect 2008 results?
The Company expects an approximately $87 million pre-tax gain from the December 2007 sale of its Japan unconsolidated affiliate, recorded in the first quarter of 2008, along with U.S. refranchising gains of $20 million to $50 million. These are expected to be partially offset by G&A productivity and realignment charges, with a net expected operating profit impact of approximately $50 million.
06—Continue