Yum Brands : Reports Fourth-Quarter GAAP Operating Profit Growth of 14%; Delivers Fourth-Quarter Core Operating Profit Growth of 27%; On Track with Strategic Transformation to Accelerate Growth

Yum! Brands, Inc. (NYSE: YUM) today reported results for the fourth quarter ended December 31, 2016. Fourth-quarter GAAP EPS from Continuing Operations was $0.76, an increase of 15%. Full-year GAAP EPS from Continuing Operations was $2.48, an increase of 18%. Fourth-quarter EPS from Continuing Operations excluding Special Items was $0.79, an increase of 19%. Full-year EPS from Continuing Operations excluding Special Items was $2.45, an increase of 5%.

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GREG CREED & DAVID GIBBS COMMENTS

“2016 was a landmark year for Yum! Brands,” said Greg Creed, CEO. “Not only did we complete the spin-off of Yum China as an independent and powerful growth company, but we also launched a new multi-year strategic transformation of Yum! Brands. By being more focused, more franchised and more efficient, we will strengthen and grow our KFC, Pizza Hut and Taco Bell brands around the world, creating significant long-term value for all our stakeholders. I’m encouraged by strong fourth-quarter results and early progress on unlocking growth through our four key drivers: Distinctive, Relevant Brands; Unmatched Franchise Operating Capability; Bold Restaurant Development; and Unrivaled Culture and Talent.”

David Gibbs, President and CFO, continued “I am pleased with our fourth quarter core operating profit growth of 27%, which was a solid end to an extraordinary year. As a testament to the power of our brands, KFC and Taco Bell had relatively strong performance in December, despite difficult U.S. industry conditions. This momentum has continued into the new year. As we look forward, we are confident in our three-year plans and there is no change to our long-term guidance.”

SUMMARY FINANCIAL TABLE

All comparisons are versus the same period a year ago. Effective January 2016, the three restaurant brands of our India business were integrated into our global KFC, Pizza Hut and Taco Bell Divisions. Prior year figures have been restated to present comparable results.

Historical GAAP information attributable to our China operations prior to the separation is included in Discontinued Operations. Historical KFC and Pizza Hut segment results have been adjusted to reflect a 3% license fee between Yum! Brands, Inc. and Yum China Holdings, Inc. that was previously eliminated within our consolidated financial statements. A corresponding 3% license expense is included in Discontinued Operations such that there is no impact on previously reported net income.

Unless otherwise noted, all results include a 53rd week in 2016.

System Sales growth figures exclude foreign currency translation ("F/X") and Core Operating Profit growth figures exclude F/X and Special Items. Special Items are not allocated to any segment and therefore only impact worldwide GAAP results. See reconciliation of GAAP results to non-GAAP measurements within this release for further details.

FOURTH-QUARTER HIGHLIGHTS

• Completed the separation of Yum China Holdings, Inc. on October 31, 2016.
• GAAP EPS from Continuing Operations of $0.76, reflecting 15% growth.  EPS from Continuing Operations excluding Special Items of $0.79, reflecting 19% growth.
• Total restaurant openings of 1,188.
• Foreign currency translation negatively impacted operating profit by $11 million.

FULL-YEAR HIGHLIGHTS

• Worldwide system sales growth of 5%, excluding foreign currency translation.
• During the year, we returned over $6 billion in capital through quarterly dividends and through repurchasing approximately 68 million shares.
• Total restaurant openings of 2,316; Net-unit growth of 3%.
• Foreign currency translation negatively impacted operating profit by $55 million.

KFC DIVISION

• KFC Division system sales increased 8% for the quarter and 7% for the year, excluding foreign currency translation.

• KFC Division opened 593 new international restaurants during the quarter.
  • For the year, KFC Division opened 1,086 new international restaurants in 81 countries, including 885 units in emerging markets.
• Operating margin increased 1.9 percentage points for the quarter and 1.4 percentage points for the year driven by franchise net-unit development and same-store sales growth.
• The 53rd week provided a benefit of 2 percentage points to system sales growth and 4 percentage points to core operating profit growth for the quarter.  For the year, the 53rd week provided a benefit of 1 percentage point to both system sales growth and core operating profit growth.
• Foreign currency translation negatively impacted operating profit by $8 million for the quarter and $48 million for the year.

PIZZA HUT DIVISION

• Pizza Hut Division system sales increased 3% for the quarter and 2% for the year, excluding foreign currency translation.

• Pizza Hut Division opened 379 new international restaurants during the quarter.
  • For the year, Pizza Hut Division opened 745 new international restaurants in 74 countries, including 551 units in emerging markets.
• Operating margin increased 9.0 percentage points for the quarter and 4.8 percentage points for the year driven by decreased G&A as a result of lower litigation costs and refranchising.
• The 53rd week provided a benefit of 3 percentage points to system sales growth and 5 percentage points to core operating profit growth for the quarter.  For the year, the 53rd week provided a benefit of 1 percentage point to system sales growth and 2 percentage points to core operating profit growth.
• Foreign currency translation negatively impacted operating profit by $2 million for the quarter and $7 million for the year.

TACO BELL DIVISION

• Taco Bell Division system sales increased 12% for the quarter and 6% for the year.
• Taco Bell Division opened 134 new restaurants in the fourth quarter.  For the year, Taco Bell Division opened 294 new restaurants.
• Operating margin increased 4.5 percentage points for the quarter and 2.4 percentage points for the year driven by same-store sales growth, decreased G&A and franchise net-unit development.
• The 53rd week provided a benefit of 6 percentage points to system sales growth and 8 percentage points to core operating profit growth for the quarter.  For the year, the 53rd week provided a benefit of 2 percentage points to both system sales growth and core operating profit growth.

SPECIAL ITEMS / REFRANCHISING / OTHER

• Beginning in 2017, we removed the reporting lags from our international subsidiary fiscal calendars.  To accommodate these changes, Yum! Brands will now report on a monthly calendar basis though certain subsidiaries, including our U.S. subsidiaries, will continue to be included in our consolidated results on a periodic basis with 3, 3, 3 & 4 periods in each quarter, respectively.  Refer to the 8-K filed January 31, 2017 for details.  2017 quarter-end dates can be found on our website at www.yum.com/investors.  We will provide restated comparable 2016 quarterly results by the beginning of April.
• During the quarter, we refranchised 232 restaurants, including 120 KFC, 83 Pizza Hut and 29 Taco Bell units, for proceeds of $200 million.  We recorded refranchising gains of $64 million in Special Items.  As of year end, our franchise ownership mix was 93%.
• During the quarter, we incurred $39 million in Special Items related to the strategic transformation of Yum! Brands, the biggest component of which were severance costs.  In addition, we recorded a non-cash charge of $30 million in Special Items related to share-based compensation award modifications related to the separation of Yum China Holdings, Inc.  Additionally, a Special Items charge of $24 million was incurred during the quarter related to settlement charges associated with payouts from a deferred vested pension payout program.

SHARE REPURCHASES

As of December 31, 2016, there was $1.9 billion remaining in share repurchase authorization through year end 2017.

CONFERENCE CALL

Yum! Brands, Inc. will host a conference call to review the company's financial performance and strategies at 8:15 a.m. Eastern Time Thursday, February 9, 2017. The number is 877/815-2029 for U.S. callers and 706/645-9271 for international callers.

The call will be available for playback beginning at 11:30 a.m. Eastern Time Thursday, February 9, 2017 through midnight Wednesday, March 8, 2017.To access the playback, dial 855/859-2056 in the United States and 404/537-3406 internationally. The playback passcode is 24322927.

The webcast and the playback can be accessed via the internet by visiting Yum! Brands' website at www.yum.com/investors and selecting “Q4 2016 Earnings Conference Call” under “Events & Presentations.”

ADDITIONAL INFORMATION ONLINE

Quarter end dates for each division, restaurant count details and definitions of terms are available at www.yum.com/investors. Reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures are included on our website at www.yum.com/investors.

This announcement may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend all forward-looking statements to be covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the fact that they do not relate strictly to historical or current facts and by the use of forward-looking words such as “expect,” “expectation,” “believe,” “anticipate,” “may,” “could,” “intend,” “belief,” “plan,” “estimate,” “target,” “predict,” “likely,” “seek,” “project,” “model,” “ongoing,” “will,” “should,” “forecast,” “outlook” or similar terminology. These statements are based on and reflect our current expectations, estimates, assumptions and/or projections as well as our perception of historical trends and current conditions, as well as other factors that we believe are appropriate and reasonable under the circumstances. Forward-looking statements are neither predictions nor guarantees of future events, circumstances or performance and are inherently subject to known and unknown risks, uncertainties and assumptions that could cause our actual results to differ materially from those indicated by those statements. There can be no assurance that our expectations, estimates, assumptions and/or projections, including with respect to the future earnings and performance or capital structure of Yum! Brands, will prove to be correct or that any of our expectations, estimates or projections will be achieved.

Numerous factors could cause our actual results and events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: food safety and food borne-illness issues; health concerns arising from outbreaks of viruses or other diseases; changes in economic and political conditions in countries and territories outside of the U.S. where we operate; our ability to protect the integrity and security of individually identifiable data of our customers and employees; the impact of social media; our ability to secure and maintain distribution and adequate supply to our restaurants; the success of our development strategy in emerging markets; changes in commodity, labor and other operating costs; the success of our franchisees and licensees; pending or future litigation and legal claims or proceedings; changes in or noncompliance with government regulations, including labor standards and anti-bribery or anti-corruption laws; tax matters, including disagreements with taxing authorities; consumer preferences and perceptions of our brands; changes in consumer discretionary spending and general economic conditions; competition within the retail food industry; and risks relating to our significant amount of indebtedness. In addition, other risks and uncertainties not presently known to us or that we currently believe to be immaterial could affect the accuracy of any such forward-looking statements. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

The forward-looking statements included in this announcement are only made as of the date of this announcement and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions “Risk Factors” and “Forward-Looking Statements” in our most recently filed Annual Report on Form 10-K and Quarterly Report on Form 10-Q) for additional detail about factors that could affect our financial and other results.

Yum! Brands, Inc., based in Louisville, Kentucky, has over 43,500 restaurants in more than 135 countries and territories and is one of the Aon Hewitt Top Companies for Leaders in North America. The company's restaurant brands - KFC, Pizza Hut and Taco Bell - are the global leaders of the chicken, pizza and Mexican-style food categories. Worldwide, the Yum! Brands system opens over six new restaurants per day on average, making it a leader in international retail development.

Reconciliation of GAAP Results to Non-GAAP Measurements
(amounts in millions, except per share amounts)
(unaudited)

In addition to the results provided in accordance with U.S. Generally Accepted Accounting Principles ("GAAP") throughout this document, the Company has provided non-GAAP measurements which present operating results from Continuing Operations in 2016 and 2015 on a basis before Special Items. These Special Items are described in (b), (c), (d), (e), and (f) in the accompanying notes.

The Company uses earnings before Special Items as a key performance measure of results of the operations for the purpose of evaluating performance internally and Special Items are not included in any of our segment results. This non-GAAP measurement is not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of earnings from Continuing Operations before Special Items provides additional information to investors to facilitate the comparison of past and present operations, excluding items in the quarters and years ended December 31, 2016 and December 26, 2015 that the Company does not believe are indicative of our ongoing operations due to their size and/or nature.

The above tables reconcile segment information, which is based on management responsibility, with our Consolidated Summary of Results. Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.

The Corporate and Unallocated column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See Reconciliation of GAAP Results to Non-GAAP Measurements.