01—Abstract
Summary
Summary of the 10-K filed February 17, 2010. Cited figures are marked; the original filing is the authoritative source.
YUM!
Brands, Inc. reported fiscal 2009 total revenues of $10.84 billiona, down from $11.30 billion in 2008, and Operating Profit of $1.59 billion, up from $1.52 billion. Diluted EPS was $2.22 (2008: $1.96), and diluted EPS before Special Items was $2.17 (2008: $1.91). Net Income attributable to YUM!
Brands was $1.07 billionb. Results were shaped by foreign currency translation, refranchising of U.S. stores, and the consolidation of a former unconsolidated affiliate in Shanghai, China, which produced a $68 million gain. Net cash provided by operating activities was $1.40 billion, and capital spending was $797 million.
The company operates more than 37,000 units in over 110 countries through the KFC, Pizza Hut, Taco Bell, Long John Silver's and A&W concepts, with about 21%c company-operated and 73% franchisee- or affiliate-operated. The China Division and International Division represented more than 60% of operating profit. U.S. same store sales declined 5% and worldwide system sales growth was 1% before foreign currency translation.
The company is pursuing a refranchising program that would reduce company ownership in the U.S. from about 16% to potentially below 10% by the end of 2011, and it expects to refranchise about 500 U.S. restaurants in 2010. Capital returns were limited in 2009: no shares were repurchased, and dividends paid totaled $362 milliond.
The company made a $280 million contribution to its pension plans, and it resumed share repurchases after year end under a $300 million authorization expiring in September 2010. The company targets a dividend payout ratio of 35% to 40% of net income and holds investment-grade ratings of BBB- from S&P and Baa3 from Moody's.
02—Key points
Key Highlights
- Total revenues fell to $10.84 billion in 2009 from $11.30 billion in 2008, with Company sales at $9.41 billion versus $9.84 billion.
- Operating Profit rose to $1.59 billion from $1.52 billion; diluted EPS was $2.22, up from $1.96, and diluted EPS before Special Items was $2.17, up from $1.91.
- China Division Operating Profit was $602 million, up 25% year over year, and the China Division plus International Division represent more than 60% of operating profit.
- U.S. same store sales declined 5% in 2009, and U.S. Operating Profit increased 1% to $647 million.
- A $68 million gain was recorded on consolidating a former unconsolidated affiliate in Shanghai, China, and a $26 million goodwill impairment was taken on LJS/A&W U.S.
- Net cash provided by operating activities was $1.40 billion; capital spending was $797 million, and 2010 capital spending is estimated at about $1 billion.
- No shares were repurchased in 2009 and dividends paid totaled $362 million; a $300 million repurchase authorization was in place, and repurchases resumed after year end.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2009, Yum! Brands kept $0.10.
- Revenue$10.84B100.0%
- Cost of revenue−$7.93B73.2%
- Gross profit$2.90B26.8%
- Operating costs−$1.31B12.1%
- Operating income$1.59B14.7%
- Interest, other & tax−$519.0M4.8%
- Net income$1.07B9.9%
Where FY2009 revenue went
$10.84B- Cost of revenue: $7.93B, 73% of revenue
- Net income: $1.07B, 9.9% of revenue
- R&D: $31.0M, 0.3% of revenue
- Other operating costs: $1.28B, 12% of revenue
- Interest, other & tax: $519.0M, 4.8% of revenue
Kept 9.9% as net incomeNet income $1.07B · 9.9%R&D $31.0M · 0.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2009filed February 17, 2010Financial Statements
FY2009 against FY2008
| Line item | FY2009FY2008 | Change |
|---|---|---|
| Revenue | $10.84B$11.30B | −4.1% |
| Cost of Revenue | $7.93B$8.46B | −6.3% |
| Gross Profit | $2.90B$2.84B | +2.2% |
| R&D Expenses | $31.00M$34.00M | −8.8% |
| Operating Expenses | $9.25B$9.79B | −5.5% |
| Operating Income | $1.59B$1.52B | +4.8% |
| Interest Expense | $212.00M$253.00M | −16.2% |
| Net Income | $1.07B$964.00M | +11.1% |
| EPS (Basic) | $2.28$2.03 | +12.3% |
| EPS (Diluted) | $2.22$1.96 | +13.3% |
| Shares Outstanding (Basic) | 471.00M475 | +99157794.7% |
| Shares Outstanding (Diluted) | 483.00M491 | +98370572.1% |
05—Questions
Frequently Asked Questions
How did YUM! Brands perform financially in 2009?
Total revenues declined 4% to $10.84 billion, driven by foreign currency translation and refranchising. Operating Profit increased to $1.59 billion, and diluted EPS rose to $2.22 from $1.96. Excluding Special Items, diluted EPS was $2.17, up from $1.91.
Which segments drove profit growth?
The China Division's Operating Profit increased to $602 million from $480 million, and the U.S. segment's rose 1% to $647 million. The International Division's Operating Profit fell to $491 million from $522 million, including an 11% unfavorable foreign currency impact.
What is the refranchising strategy and what does it mean for investors?
The company is reducing its company-operated share of U.S. restaurants from about 16% at the end of 2009 to potentially below 10% by the end of 2011, and expects to refranchise about 500 U.S. restaurants in 2010. Refranchising reduces reported revenues and restaurant profit, and gains are recognized only when sales close, which can create earnings volatility.
How is YUM! Brands returning capital to shareholders?
No shares were repurchased in 2009, and dividends declared were $0.80 per share, with the company targeting a payout ratio of 35% to 40% of net income. A $300 million repurchase authorization, expiring in September 2010, was available, and the company resumed repurchases after year end.
What are the main risks highlighted in the filing?
Key risks include food safety and food-borne illness, significant and growing exposure to China and other foreign markets, currency fluctuations, commodity and labor cost increases, franchisee financial health, litigation including wage-and-hour class actions, and regulatory changes. The company also notes that large Cole Arbitration and Taco Bell wage-and-hour matters could result in losses that cannot currently be estimated.
06—Continue