01—Abstract
Summary
Summary of the 10-Q filed May 7, 2025. Cited figures are marked; the original filing is the authoritative source.
Yum!
Brands, Inc. reported first-quarter 2025 results (quarter ended March 31, 2025) with total revenues of $1,787 milliona, up from $1,598 million, and Net Income of $253 million, down from $314 million. Diluted EPS was $0.90 versus $1.10 a year earlier, but the company reported EPS excluding Special Items of $1.30 versus $1.15, up 13%. The decline in GAAP results was driven largely by a $92 million reserve related to a Mexican tax matter, which pushed the effective tax rate to 41.0% from 18.0%.
Operating Profit rose to $548 millionb from $520 million, and Core Operating Profit increased 8% to $586 million. System sales excluding FX grew 5%, with same-store sales up 3% company-wide. The Taco Bell Division led with same-store sales growth of 9% and Core Operating Profit growth of 16%, while the Pizza Hut Division's same-store sales declined 2%.
Net units declined by 460 for the quarter, primarily due to the termination of the Turkey franchise agreements and resulting closures of 283 KFC and 254 Pizza Hut restaurants. The company repurchased 1,556 thousand shares for $229 millionc and paid $198 million in dividends. Shareholders' deficit widened to $(7,804) million, and total debt outstanding was $11.4 billion principal, with a consolidated net leverage ratio of 3.9x EBITDA.
The company also disclosed an IRS Notice of Deficiency received in March 2025 asserting an underpayment of $2.1 billiond plus $418 million in penalties for fiscal 2014, with interest estimated at approximately $1.5 billion; the company disagrees and plans to file a petition in U.S. Tax Court in the second quarter of 2025. No reserve has been recorded for this matter, which management believes is more likely than not to be sustained, though an unfavorable resolution could have a material adverse impact.
02—Key points
Key Highlights
- Total revenues rose to $1,787 million from $1,598 million; Operating Profit increased to $548 million from $520 million.
- GAAP Net Income fell to $253 million from $314 million and GAAP diluted EPS to $0.90 from $1.10, largely due to a $92 million tax reserve tied to a Mexican subsidiary and a 41.0% effective tax rate.
- Diluted EPS excluding Special Items rose 13% to $1.30 from $1.15, and Core Operating Profit grew 8% to $586 million.
- System sales excluding FX grew 5%, with same-store sales up 3%; Taco Bell Division same-store sales rose 9%, while Pizza Hut Division same-store sales declined 2%.
- Gross unit openings were 751 for the quarter, but net units declined by 460, primarily from closures in Turkey after franchise agreements with IS Gida were terminated.
- The company repurchased $229 million of common stock and paid $198 million in dividends; $1.4 billion remains under the May 2024 repurchase authorization.
- IRS Notice of Deficiency received in March 2025 asserts a $2.1 billion underpayment plus $418 million in penalties; the company disputes it, plans a Tax Court petition in Q2 2025, and has recorded no reserve.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2025, Yum! Brands kept $0.14.
- Revenue$1.79B100.0%
- Cost of revenue−$520.0M29.1%
- Gross profit$1.27B70.9%
- Operating costs−$719.0M40.2%
- Operating income$548.0M30.7%
- Interest, other & tax−$295.0M16.5%
- Net income$253.0M14.2%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2025filed May 7, 2025Financial Statements
Q1 FY2025 against Q1 FY2024
| Line item | Q1 FY2025Q1 FY2024 | Change |
|---|---|---|
| Revenue | $1.79B$1.60B | +11.8% |
| Cost of Revenue | $520.00M$400.00M | +30.0% |
| Gross Profit | $1.27B$1.20B | +5.8% |
| Operating Expenses | $1.24B$1.08B | +14.9% |
| Operating Income | $548.00M$520.00M | +5.4% |
| Net Income | $253.00M$314.00M | −19.4% |
| EPS (Basic) | $0.91$1.11 | −18.0% |
| EPS (Diluted) | $0.90$1.10 | −18.2% |
| Shares Outstanding (Basic) | 280.00M282.00M | −0.7% |
| Shares Outstanding (Diluted) | 282.00M286.00M | −1.4% |
05—Questions
Frequently Asked Questions
Why did GAAP earnings decline while adjusted earnings increased?
GAAP diluted EPS fell to $0.90 from $1.10 mainly because of a $92 million reserve recorded for a Mexican subsidiary's ability to use certain losses to offset recapture gains from a 2009 tax deconsolidation. This pushed the effective tax rate to 41.0% from 18.0%. Excluding Special Items, diluted EPS rose 13% to $1.30 from $1.15.
How did the company's brands perform in the quarter?
The Taco Bell Division posted system sales growth of 11% and same-store sales growth of 9%, with Core Operating Profit up 16%. The KFC Division's system sales rose 3% reported (5% excluding FX) with same-store sales up 2%. The Pizza Hut Division's system sales declined 4% reported (3% excluding FX), with same-store sales down 2%.
What is the status of the IRS dispute?
The company received an IRS Notice of Deficiency in March 2025 following an audit of fiscal years 2013 through 2015. The IRS asserts a $2.1 billion underpayment plus $418 million in penalties for 2014, with interest estimated at about $1.5 billion through the first quarter of 2025. The company expects to file a Tax Court petition in the second quarter of 2025, believes its position is more likely than not to be sustained, and has recorded no reserve.
How is the company returning capital and managing its debt?
The company repurchased 1,556 thousand shares for $229 million in the quarter and paid $198 million in dividends. It stated it expects to maintain a consolidated net leverage ratio of approximately 4.0x EBITDA over the medium term and plans materially higher capital returns than in the past two years. The quarter-end net leverage ratio was 3.9x EBITDA, and about 82% of its roughly $11.0 billion of debt was fixed, rising to 96% after new swaps entered in April 2025.
Why did the number of restaurants decline?
Net units declined by 460 in the quarter, primarily driven by unit closures in Turkey. The company terminated its franchise agreements with IS Gida A.S. on January 8, 2025, resulting in the closure of 283 KFC and 254 Pizza Hut restaurants during the quarter, even though gross unit openings were 751.
06—Continue