01—Abstract
Summary
Summary of the 10-K filed February 23, 2022. Cited figures are marked; the original filing is the authoritative source.
Yum!
Brands, Inc. (YUM) reported strong 2021 results, with GAAP diluted EPS rising 77% to $5.21a and diluted EPS excluding Special Items rising 23% to $4.46. Worldwide system sales ex-FX grew 13%, same-store sales grew 10%, and the company opened 4,180 gross units for 3,057 net new units. Total revenues increased 16% to $6.58 billion, and operating profit rose 42% to $2.14 billion.
Growth was driven by a recovery from COVID-19 disruption in 2020, with drive-thru, carryout and delivery formats benefiting, and the company reported digital sales of $22 billionb in 2021. The company operates over 53,000 restaurants in 157 countries, 98% of which are franchised. Its franchise-heavy, asset-light model generated operating cash flow of $1.71 billion in 2021, up from $1.31 billion in 2020.
The company returned capital through $1.58 billionc of share repurchases and $594 million of dividends declared, and it raised its quarterly dividend to $0.57 per share in February 2022. Total debt was $11.3 billion, with about 93% effectively fixed-rate, and the company carried a shareholders' deficit of $8.37 billion.
Key risks include an IRS Notice of Proposed Adjustment tied to 2014 reorganizations involving alleged taxable distributions of approximately $6.0 billiond; the filing says the resulting additional tax is expected to be material, and no reserve has been recorded. Dependence on Yum China, which pays a 3% royalty, along with an Indian regulatory penalty order of approximately $150 million that is stayed, and COVID-19 uncertainty in Asia also weigh on the outlook.
02—Key points
Key Highlights
- GAAP diluted EPS increased 77% to $5.21; diluted EPS excluding Special Items increased 23% to $4.46.
- Worldwide system sales ex-FX grew 13%, with same-store sales up 10% and 3,057 net new units added in 2021.
- Total revenues rose 16% to $6.58 billion; operating profit rose 42% to $2.14 billion.
- Operating cash flow was $1.71 billion in 2021, versus $1.31 billion in 2020.
- The company repurchased 13 million shares for $1.58 billion and declared $594 million in dividends; the February 2022 quarterly dividend was raised to $0.57 per share, a 14% increase.
- Total debt was $11.3 billion, with approximately 93% effectively fixed-rate at an effective overall interest rate of about 4.2%.
- The IRS issued a Notice of Proposed Adjustment for 2014 reorganizations asserting taxable distributions of about $6.0 billion; the filing states the resulting tax is expected to be material and no reserve has been recorded.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, Yum! Brands kept $0.24.
- Revenue$6.58B100.0%
- Cost of revenue−$1.73B26.2%
- Gross profit$4.86B73.8%
- Operating costs−$2.72B41.3%
- Operating income$2.14B32.5%
- Interest, other & tax−$564.0M8.6%
- Net income$1.57B23.9%
Where FY2021 revenue went
$6.58B- Operating costs: $2.72B, 41% of revenue
- Cost of revenue: $1.73B, 26% of revenue
- Net income: $1.57B, 24% of revenue
- Interest, other & tax: $564.0M, 8.6% of revenue
Kept 24% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 23, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $6.58B$5.65B | +16.5% |
| Cost of Revenue | $1.73B$1.51B | +14.5% |
| Gross Profit | $4.86B$4.15B | +17.2% |
| Operating Expenses | $4.45B$4.15B | +7.1% |
| Operating Income | $2.14B$1.50B | +42.3% |
| Interest Expense | $551.00M$558.00M | −1.3% |
| Net Income | $1.57B$904.00M | +74.2% |
| EPS (Basic) | $5.30$2.99 | +77.3% |
| EPS (Diluted) | $5.21$2.94 | +77.2% |
| Shares Outstanding (Basic) | 297.00M302.00M | −1.7% |
| Shares Outstanding (Diluted) | 302.00M307.00M | −1.6% |
05—Questions
Frequently Asked Questions
How did YUM perform in 2021 compared with 2020?
Total revenues rose 16% to $6.58 billion and operating profit rose 42% to $2.14 billion. GAAP diluted EPS was $5.21 versus $2.94 in 2020, and diluted EPS excluding Special Items was $4.46, up 23%. Worldwide same-store sales grew 10%, recovering from a 6% decline in 2020.
What is the main risk flagged for investors?
The IRS issued a Notice of Proposed Adjustment on October 13, 2021 for the 2014 fiscal year, relating to reorganizations the filing says involved taxable distributions of approximately $6.0 billion. The company expects the Revenue Agent's Report in early 2022, says the additional tax is expected to be material, disagrees with the position, and intends to contest it vigorously.
How much of the system is franchised and how does that affect cash flow?
At December 31, 2021, 98% of restaurants were operated by franchisees. Franchisees typically pay continuing fees of 4% to 6% of sales, and the company says its franchise model requires limited YUM investment, supporting operating cash flows above $1.3 billion in each of the past three years.
How is YUM returning capital to shareholders?
In 2021, YUM repurchased $1.58 billion of common stock and paid four quarterly dividends of $0.50 per share. The Board authorized up to $2 billion of share repurchases from July 1, 2021 through December 31, 2022, with $950 million remaining at year end, and raised the quarterly dividend to $0.57 per share in February 2022.
What is the company's debt position?
Total outstanding short-term borrowings and long-term debt were $11.3 billion at December 31, 2021, with about 93% effectively fixed-rate after interest rate swaps. The company targets consolidated leverage of about 5.0x EBITDA and reports a $1.25 billion revolving facility that was undrawn at year end.
06—Continue