01—Abstract
Summary
Summary of the 10-K filed February 20, 2020. Cited figures are marked; the original filing is the authoritative source.
Yum!
Brands, Inc. (YUM) reported fiscal 2019 results in its 10-K filed February 20, 2020. The company operates over 50,000 restaurants in more than 150 countries under the KFC, Pizza Hut and Taco Bell concepts, with 98% of units operated by franchisees. Total revenues were $5.60 billiona in 2019 versus $5.69 billion in 2018, while GAAP operating profit fell to $1.93 billion from $2.30 billion, and GAAP diluted EPS was $4.14 versus $4.69.
Excluding Special Items, diluted EPS was $3.55b, and the filing states this increased 12%. Net income was $1.29 billion, and cash from operations was $1.32 billion. The filing highlights several risks.
The company states that the coronavirus outbreak has significantly impacted its largest master franchisee, Yum China, with widespread store closures and sales declines, and it expects results for the quarter ending March 31, 2020 to be significantly impacted. Pizza Hut U.S. franchisee financial stress led to $22 millionc in bad debt expense in 2019. Total debt was approximately $10.6 billion, and the company returned $6.5 billion to shareholders from 2017 through 2019.
It also disclosed a pending $375 milliond acquisition of The Habit Restaurants, Inc. and a Indian enforcement order imposing a penalty of about $156 million, which it is contesting. For investors, the 2019 story is a smaller reported top line and lower GAAP profit, offset by strong same-store sales and core operating profit growth of 12%.
Results were shaped by lower refranchising gains and a sizable Grubhub mark-to-market loss, with the effective tax rate at 5.7%. The main near-term uncertainty is the coronavirus impact on China royalties and the financial health of certain U.S. Pizza Hut franchisees.
02—Key points
Key Highlights
- System sales of $52.58 billion in 2019, with system sales growth of 9% excluding FX and the 53rd week, and worldwide same-store sales growth of 3%.
- GAAP diluted EPS fell to $4.14 from $4.69, while diluted EPS excluding Special Items rose to $3.55 from $3.17.
- Core Operating Profit increased 12% in 2019, driven by KFC (+14%), Pizza Hut (+8%) and Taco Bell (+8%).
- Coronavirus outbreak has caused widespread store closures and sales declines at Yum China, and the company expects its March 31, 2020 quarter to be significantly impacted.
- Total debt of approximately $10.6 billion, with about 92% effectively fixed-rate at an effective rate of approximately 4.7%, and credit ratings of BB (S&P) and Ba2 (Moody's).
- Returned $6.5 billion to shareholders from 2017 through 2019, and the Board authorized up to $2 billion in share repurchases through June 2021.
- Pending acquisition of The Habit Restaurants, Inc. for $14 per share in cash, or approximately $375 million, expected to close by the end of Q1 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, Yum! Brands kept $0.23.
- Revenue$5.60B100.0%
- Cost of revenue−$1.24B22.1%
- Gross profit$4.36B77.9%
- Operating costs−$2.43B43.5%
- Operating income$1.93B34.5%
- Interest, other & tax−$636.0M11.4%
- Net income$1.29B23.1%
Where FY2019 revenue went
$5.60B- Operating costs: $2.43B, 43% of revenue
- Net income: $1.29B, 23% of revenue
- Cost of revenue: $1.24B, 22% of revenue
- Interest, other & tax: $636.0M, 11% of revenue
Kept 23% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 20, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $5.60B$5.69B | −1.6% |
| Cost of Revenue | $1.24B$1.63B | −24.4% |
| Gross Profit | $4.36B$4.05B | +7.6% |
| Operating Expenses | $3.67B$3.39B | +8.1% |
| Operating Income | $1.93B$2.30B | −15.9% |
| Interest Expense | $519.00M$496.00M | +4.6% |
| Net Income | $1.29B$1.54B | −16.1% |
| EPS (Basic) | $4.23$4.80 | −11.9% |
| EPS (Diluted) | $4.14$4.69 | −11.7% |
| Shares Outstanding (Basic) | 306.00M322.00M | −5.0% |
| Shares Outstanding (Diluted) | 313.00M329.00M | −4.9% |
05—Questions
Frequently Asked Questions
How did Yum! Brands perform financially in 2019?
Total revenues were $5.60 billion, down from $5.69 billion in 2018. Operating profit was $1.93 billion versus $2.30 billion, and net income was $1.29 billion versus $1.54 billion. GAAP diluted EPS was $4.14, while EPS excluding Special Items was $3.55.
What is the main near-term risk identified in the filing?
The coronavirus outbreak in mainland China has closed many Yum China restaurants and reduced sales. The company expects its results for the quarter ending March 31, 2020 to be significantly impacted, with potential continuing adverse effects beyond that date.
How much debt does the company carry and how is it managed?
Total debt was approximately $10.6 billion at December 31, 2019, with about 92% effectively fixed-rate. The company targets a capital structure of about 5.0x EBITDA leverage and held a $1 billion undrawn revolving facility at year end.
What is the company doing with shareholder capital?
The company repurchased shares totaling $810 million in 2019 and paid $511 million in dividends. Dividends declared were $1.68 per share, and the Board authorized up to $2 billion of additional share repurchases through June 2021.
What legal and franchisee issues did the filing disclose?
An Indian enforcement order on January 29, 2020 imposed a penalty of about $156 million, which the company denies and plans to appeal, with no reserve recorded. Pizza Hut U.S. franchisee financial challenges led to $22 million of bad debt expense in 2019.
06—Continue