Yum! Brands Conference Call Highlights

Yum! Brands YUM reported its Q3 earnings on Wednesday. Shares of the company are up 1%. Below are some key highlights and takeaways from its conference call: Operations and Growth: • Despite the recent supplier incident in China which has impacted China sales and reduced our full-year EPS outlook. • I'm absolutely confident in Yum! Brands ability to deliver strong sustainable growth in the years ahead. • We fully expect China to fully recover. KFC global is having a strong year and building momentum. • Taco Bell has successfully and profitably introduced breakfast and is now expanding in the United States with new unit growth. • Pizza Hut global should have a strong 2015 led by an expected U.S. turnaround which is in its early stages. • For the third quarter, earnings per share increased 3% excluding special items. • We clearly had unexpected negative sales in China and continued soft performance at our Pizza Hut Division. • We delivered solid results at our KFC and Taco Bell divisions and had the benefit of overlapping a higher tax rate in the prior year. • Importantly, our China sales are on the path to recovery and we expect a strong back bounce back in 2015. • First half EPS growth of 27% was driven by particularly strong results in China where system sales grew 19% and we delivered restaurant margins of nearly 20%. • As a result, we're now estimating full-year EPS growth of 6% to 10% prior to special items. • Today, we have nearly 1,200 restaurants in over 300 cities in China for Pizza Hut. • Looking at Pizza Hut Casual Dining, our average unit volumes have dipped slightly below $1.6 billion, and we have restaurant margins of about 19%. • KFC, we have restaurant margins of about 15% on depressed average unit volumes of 1.4 million. • Depressed average unit volumes of 1.4 million. China: • On July 20, an undercover investigation was televised in China depicting alleged illegal actions by employees of Chinese foodservice supplier. • However, given our size and category leading positions in China, our sales were disproportionately impacted because we were mentioned with the same media weight as our major competitor. • We also began taking unprecedented measures to further strengthen our supply chain practices in China to prevent and identify fraudulent and deceptive behavior by suppliers going forward. • We're now requiring standards for suppliers in China to install closed-circuit televisions and implementation is underway. • It's extremely difficult to prevent a company from deceiving us if they resort to illegal activities. • We will learn from this incident and are committed to developing even better quality assurance processes as we move ahead. • At KFC China, we have over 4,600 restaurants in nearly 1,000 cities across the country, which is more than twice our nearest competitor. Guidance: • We firmly believe we're building momentum behind major initiatives around the world that will drive strong, sustainable growth in 2015 and beyond. • Finally, we're investing for the long term and developing great brands in India, which will drive substantial future growth for Yum!. • KFC will be bigger in units than McDonald's by the end of the year. • Pizza Hut sales and delivery unit economics are getting stronger and more competitive with Domino's. • Taco Bell, early results are encouraging with plans are accelerating the pace of development. • Now, to sum things up, in spite of our short-term issue in China, the fundamentals of Yum!'s growth model remains extremely compelling. • Furthermore, we have over 40,000 restaurants around the world that have significant capacity to grow.