01—Abstract
Summary
Summary of the 10-K filed February 27, 2023. Cited figures are marked; the original filing is the authoritative source.
Yum!
Brands, Inc. (YUM) reported 2022 total revenues of $6.84 billiona, up from $6.58 billion in 2021, and GAAP diluted EPS of $4.57, down from $5.21, while diluted EPS excluding Special Items rose to $4.51 from $4.46. The system has 55,361 units across more than 155 countries and territories, and 98% of units are operated by franchisees. Worldwide system sales were $59.28 billion, and same-store sales growth was 4%.
Operating profit was $2.19 billionb, up from $2.14 billion. Net income was $1.33 billion, down from $1.58 billion, reflecting a higher income tax provision of $337 million versus $99 million in 2021, which the filing attributes in part to Special Items and the exit from Russia. The company's most significant near-term risk is an IRS Revenue Agent's Report asserting an underpayment of $2.1 billion plus $418 million in penalties for fiscal 2014, with estimated interest of about $780 million through December 31, 2022.
YUM disputes the position, has filed a protest, and states that it believes the tax position is more likely than not to be sustained, so no reserve is recorded. Total debt was approximately $11.9 billionc, and the company ended 2022 with a consolidated net leverage ratio of 5.0x EBITDA. Cash from operations was $1.43 billion, and the company repurchased $1.2 billion of shares and paid $649 million in dividends.
In February 2023, the board declared a quarterly dividend of $0.605d per share, a 6% increase. The filing also discloses a January 18, 2023 ransomware attack that closed fewer than 300 restaurants in one market for one day and resulted in data being taken from the network.
The company exited Russia by transferring Pizza Hut Russia and agreeing in October 2022 to sell KFC Russia, and it removed 1,165 Russia units from its unit count. Management does not expect the ransomware incident to have a material adverse effect.
02—Key points
Key Highlights
- Total revenues rose to $6.84 billion in 2022 from $6.58 billion in 2021, and operating profit rose to $2.19 billion from $2.14 billion.
- GAAP diluted EPS fell to $4.57 from $5.21, while diluted EPS excluding Special Items increased to $4.51 from $4.46.
- Worldwide system sales were $59.28 billion, same-store sales grew 4%, and the system had 55,361 units, up from 53,424 a year earlier.
- Taco Bell Division same-store sales grew 8% and Core Operating Profit grew 12%, while KFC Division GAAP Operating Profit declined 3%.
- The IRS asserts a $2.1 billion underpayment plus $418 million in penalties for fiscal 2014; YUM is contesting it and records no reserve.
- Total debt was about $11.9 billion, the consolidated net leverage ratio was 5.0x EBITDA, and the quarterly dividend was raised 6% to $0.605 per share.
- A January 2023 ransomware attack closed fewer than 300 restaurants in one market for one day and resulted in data being taken from the network.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2022, Yum! Brands kept $0.19.
- Revenue$6.84B100.0%
- Cost of revenue−$1.75B25.5%
- Gross profit$5.10B74.5%
- Operating costs−$2.91B42.5%
- Operating income$2.19B32.0%
- Interest, other & tax−$862.0M12.6%
- Net income$1.32B19.4%
Where FY2022 revenue went
$6.84B- Operating costs: $2.91B, 43% of revenue
- Cost of revenue: $1.75B, 26% of revenue
- Net income: $1.32B, 19% of revenue
- Interest, other & tax: $862.0M, 13% of revenue
Kept 19% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 27, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $6.84B$6.58B | +3.9% |
| Cost of Revenue | $1.75B$1.73B | +1.2% |
| Gross Profit | $5.10B$4.86B | +4.9% |
| Operating Expenses | $4.66B$4.45B | +4.7% |
| Operating Income | $2.19B$2.14B | +2.2% |
| Interest Expense | $558.00M$551.00M | +1.3% |
| Net Income | $1.32B$1.57B | −15.9% |
| EPS (Basic) | $4.63$5.30 | −12.6% |
| EPS (Diluted) | $4.57$5.21 | −12.3% |
| Shares Outstanding (Basic) | 286.00M297.00M | −3.7% |
| Shares Outstanding (Diluted) | 290.00M302.00M | −4.0% |
05—Questions
Frequently Asked Questions
How did YUM perform financially in 2022?
Total revenues increased to $6.84 billion from $6.58 billion, and operating profit increased to $2.19 billion from $2.14 billion. Net income declined to $1.33 billion from $1.58 billion, mainly because the income tax provision rose to $337 million from $99 million. GAAP diluted EPS was $4.57 versus $5.21, and diluted EPS excluding Special Items was $4.51 versus $4.46.
What is the IRS matter and how exposed is YUM?
In August 2022 YUM received a Revenue Agent's Report asserting an underpayment of $2.1 billion plus $418 million in penalties for 2014, with interest estimated at about $780 million through December 31, 2022. The proposed underpayment relates to 2014 reorganizations along brand lines. YUM disagrees, filed a protest in September 2022, and believes its position is more likely than not to be sustained, so no reserve is recorded. The filing states that an unfavorable resolution could have a material adverse impact on future financial statements.
How is the business structured and what drives growth?
YUM operates four divisions: KFC, Taco Bell, Pizza Hut and The Habit Burger Grill. About 98% of its units are operated by franchisees, which supports an asset-light model with continuing fees typically between 4% and 6% of sales. Growth comes from same-store sales and new unit development, with 4,560 gross unit openings and 3,076 net new units in 2022.
What did the Russia exit mean for YUM?
After Russia's invasion of Ukraine, YUM suspended investment and operations in Russia. It transferred Pizza Hut Russia to a local operator in the second quarter of 2022 and agreed in October 2022 to sell KFC Russia to Smart Service Ltd. YUM removed 1,165 Russia units from its unit count. The filing says Russia had historically been about 3% of total Operating Profit and 2% of total system sales.
Are there recent operational or cybersecurity disruptions?
On January 18, 2023, YUM announced a ransomware attack that affected certain IT systems, closed fewer than 300 restaurants in one market for one day and resulted in data being taken from its network. YUM has incurred expenses related to the incident and states there is no evidence that customer databases were accessed. The company does not believe the incident will have a material adverse effect on its business, results of operations or financial condition.
06—Continue