01—Abstract
Summary
Summary of the 10-Q filed August 8, 2024. Cited figures are marked; the original filing is the authoritative source.
Yum!
Brands, Inc. reported second-quarter 2024 total revenues of $1.76 billiona, up from $1.69 billion a year earlier, and operating profit of $607 million versus $573 million. Net income fell to $367 million from $418 million, and diluted EPS was $1.28 compared with $1.46. The filing attributes the decline partly to a higher effective tax rate of 24.7% versus 12.6%, and the company's non-GAAP diluted EPS excluding Special Items was $1.35 versus $1.41.
Core Operating Profit rose 10% to $645 millionb, and system sales excluding FX were up 3% for the quarter. Same-store sales declined 1% for the quarter and 2% year to date, with the KFC Division down 3% and Pizza Hut down 3%, while Taco Bell grew 5%. The quarter included the April 2024 acquisition of 216 KFC restaurants in the U.K. and Ireland for a purchase price of $171 million, and the sale of its approximate 5% stake in Devyani International for $104 million in pre-tax proceeds.
The company is also disclosing an ongoing Middle East conflict that management describes as a low single-digit headwind to same-store sales growth. Total debt was about $11 billionc, with approximately 96% fixed-rate at an effective interest rate of roughly 4.5%, and the company ended the quarter with a net leverage ratio of 4.1x EBITDA. Shareholders' deficit remained at $(7.63) billion.
The filing also details an unreserved IRS proposed adjustment of $2.1 billiond in tax plus $418 million in penalties for fiscal 2014, with interest estimated at about $1.2 billion through the second quarter of 2024. The company disagrees with the IRS position and believes it is more likely than not to be sustained, so no reserve is recorded.
Management says an unfavorable outcome could have a material adverse impact on future financial statements. In May 2024, the board authorized a new $2 billion share repurchase program running through December 31, 2026.
02—Key points
Key Highlights
- Total revenues rose to $1.76 billion in Q2 2024 from $1.69 billion, and operating profit increased to $607 million from $573 million.
- Net income declined to $367 million from $418 million, and diluted EPS fell to $1.28 from $1.46, with the effective tax rate rising to 24.7% from 12.6%.
- Core Operating Profit grew 10% for the quarter to $645 million, while same-store sales declined 1% for the quarter and 2% year to date.
- The Taco Bell Division posted same-store sales growth of 5% for the quarter, while the KFC and Pizza Hut Divisions each declined 3%.
- The company acquired 216 KFC restaurants in the U.K. and Ireland for a $171 million purchase price and sold its Devyani investment for $104 million in pre-tax proceeds.
- Total debt was about $11 billion, with approximately 96% fixed-rate at an effective rate of about 4.5%, and the net leverage ratio was 4.1x EBITDA.
- An IRS proposed adjustment of $2.1 billion in tax plus $418 million in penalties remains under appeal, with no reserve recorded because management believes the position is more likely than not to be sustained.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Yum! Brands kept $0.21.
- Revenue$1.76B100.0%
- Cost of revenue−$470.0M26.7%
- Gross profit$1.29B73.3%
- Operating costs−$686.0M38.9%
- Operating income$607.0M34.4%
- Interest, other & tax−$240.0M13.6%
- Net income$367.0M20.8%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 8, 2024Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.76B$1.69B | +4.5% |
| Cost of Revenue | $470.00M$415.00M | +13.3% |
| Gross Profit | $1.29B$1.27B | +1.7% |
| Operating Expenses | $1.16B$1.11B | +3.8% |
| Operating Income | $607.00M$573.00M | +5.9% |
| Net Income | $367.00M$418.00M | −12.2% |
| EPS (Basic) | $1.30$1.49 | −12.8% |
| EPS (Diluted) | $1.28$1.46 | −12.3% |
| Shares Outstanding (Basic) | 282.00M281.00M | +0.4% |
| Shares Outstanding (Diluted) | 286.00M286.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did net income and diluted EPS decline despite higher revenue and operating profit?
The filing shows the income tax provision rose to $120 million from $60 million, lifting the effective tax rate to 24.7% from 12.6%. The filing attributes the higher rate mainly to lapping favorable foreign tax benefits recorded in the prior-year quarter. Investment income also swung to zero from $29 million a year earlier.
How did the company's same-store sales perform by division?
For the quarter, Taco Bell same-store sales grew 5%, while KFC and Pizza Hut declined 3% each, and the consolidated figure was down 1%. The filing cites Middle East conflict impacts in Middle East, Malaysia and Indonesia as a low single-digit headwind to same-store sales growth.
What is the status of the IRS proposed adjustment?
The IRS asserted an underpayment of $2.1 billion plus $418 million in penalties for fiscal 2014, with interest estimated at about $1.2 billion through the second quarter of 2024. The company filed a protest, the matter is with the IRS Office of Appeals, and management does not expect resolution within twelve months.
What changes to the debt structure occurred in the quarter?
In April 2024, the company refinanced $713 million of Term Loan A and $1.25 billion of revolving capacity into a new $500 million Term Loan A and a $1.5 billion Revolving Facility, with the Revolving Facility carrying $180 million outstanding at June 30, 2024. The filing states the transaction added no net new debt.
What share repurchase activity occurred?
The company repurchased 366 thousand shares for $50 million in the year to date. The September 2022 $2 billion authorization expired June 30, 2024, and a new $2 billion authorization approved in May 2024 runs through December 31, 2026, effective July 1, 2024.
06—Continue