LOUISVILLE, KY (OCTOBER 11, 2000) - Tricon Global Restaurants, Inc. (NYSE:YUM) reported third quarter ongoing operating earnings of $115 million, or $0.77 per share, an 11 percent increase for the quarter ended September 2, 2000. Year-to-date ongoing operating earnings increased 21 percent to $2.17 per share. Additionally, Tricon took an unusual charge of $92 million of which $87 million related to the AmeriServe bankruptcy. This charge is in-line with previously announced guidance.
Financial Highlights
Ongoing Operations
($MM Except Per Diluted Share Amounts)
% Change vs. % Change vs.
Q3 Prior Year Q3 YTD Prior Year
System Sales 5,225 3 15,165 2
Revenues(a) 1,658 (8) 4,911 (11)
Operating Profit 221 (5) 646 1
Operating Earnings 115 2 324 12
===========================================================================================
Operating EPS(b) .77 11 2.17 21
===========================================================================================
Net Facility Actions .02 (96) .45 (60)
Unusual items (.39) NM (.71) NM
Reported EPS (c) .40 (67) 1.91 (36)
David C. Novak, Chief Executive Officer said,"We are pleased we were able to exceed our third quarter earnings target with an 11 percent increase - our ninth consecutive quarter of double-digit growth. During the quarter, we experienced continued strength at Pizza Hut and in our international business, and we achieved measured progress at Taco Bell and KFC.
"Our international business continues to make outstanding progress expanding our system globally, opening over 200 restaurants outside of the U.S. in the quarter. As a result of this accelerated expansion, we now expect to open 800 new international restaurants this year, instead of 700 as previously planned.
"Pizza Hut delivered solid results once again this quarter, continuing a three-year trend of same store sales growth. Pizza Hut's leadership in pizza variety, innovation and great taste gives the brand a unique competitive edge and is driving these results.
"We achieved better than expected sales results at Taco Bell by refocusing on our value leadership and unique tasting Mexican products. However, we're not satisfied with the current results. Taco Bell's new management team is developing a strategic plan to regain momentum and consistently drive same store sales growth.
"For the first time during a quarter, KFC promoted all three categories within the chicken segment on-the-bone, strips and sandwiches - resulting in improved same store sales. KFC's new advertising campaign, launched at the beginning of the fourth quarter, should add new vitality to the brand and broaden our consumer base over time. We remain confident in KFC's long-term strategy.
"Based on this positive performance in the third quarter and our balance of year outlook, we are confident of achieving full year ongoing operating EPS of at least $2.95, which exceeds the $2.90 floor in previous guidance. This will result in at least 14 percent growth over 1999."
3rd QUARTER GLOBAL RESULTSTricon's international business continues to deliver excellent growth with system sales up 7% for the quarter after a negative 3% impact from foreign currency translation. Leading this growth was continued global unit expansion. For the most recent twelve months, 741 new restaurants were opened outside the U.S., including 439 KFCs, 280 Pizza Huts and 22 Taco Bells. For the quarter, major Company markets: Australia, Canada, China, Korea, Mexico, and the U.K. achieved positive same store sales growth. Our business in China was particularly strong with same store sales up 16%. Overall, ongoing international operating profit increased 4% for the quarter on top of 39% growth last year. Strong sales and system unit development more than offset the negative impact of foreign currency translation and increased costs. These costs included start-up costs associated with the acceleration of new unit openings and spending on growth initiatives. Year-to-date ongoing operating profit was up 17%. Our forecast for the fourth quarter and full year continues to reflect high-teens growth in ongoing operating profit. For the year, international system sales are expected to be up about 7%.
U.S. BusinessIn the U.S., blended company same store sales were flat for the quarter, which exceeded our previous guidance. Pizza Hut's same store sales grew by over 1% for the quarter. In the fourth quarter, we expect Pizza Hut's same store sales to grow 4% to 6%.
Taco Bell's same store sales were down 2%, which was significantly better than expected. Despite sales improvement in the third quarter and the first four weeks of the fourth quarter, we continue to hold to our prior fourth quarter guidance which is a decline of 5% to 7% in same store sales. The remainder of the fourth quarter, periods 11 through 13, remains a significant challenge as we lap the very successful launch of Chalupas.
KFC's same store sales were slightly positive, which exceeded our expectations. Now that the launch of chicken sandwiches has been completed, KFC is focusing on growth within each of the key categories of the chicken segment. KFC brought product news to its chicken-on-the-bone business by promoting a family value meal during the summer holiday season. This is important for KFC as it dominates this category. In the fastest growing chicken segment - chicken strips - KFC generated sales increases by adding a new flavor with Honey BBQ Strips. Finally, we continue to be encouraged by consumer response to our new line of high quality chicken sandwiches, the third key category. The KFC brand has demonstrated in countries around the world that high quality products, value and innovation will drive long-term success in this key growth category. For the fourth quarter, our expectations are for a 1% to 3% decline in same store sales as KFC laps the launch of its sandwich line last year, with aggressive trial discounting behind the Twister sandwich.
Overall, our expectation for the fourth quarter is unchanged with U.S. blended company same store sales flat to down 1.5%.
Global ExpansionTricon continued to make progress in its global expansion, with 354 new system restaurant openings for the quarter and 1,300 over the past year. Both the Company and our franchise partners continue to increase the number of new restaurant openings. This global growth has been fueled by significant openings in China, Japan, Korea, Mexico, the U.K. and the U.S. We now have almost 5,800 KFC restaurants and over 4,000 Pizza Hut restaurants outside the U.S. in the Tricon system. In the U.S., multibranding growth is accelerating and we anticipate having about 1,000 multibranded restaurants in our worldwide system by year-end.
Franchise Fee GrowthGlobal franchise fees again showed strong growth: up 9% for the quarter to $188 million, driven by the acquisition of over 700 Company restaurants by franchisees during the past year and the opening of over 850 new franchise restaurants around the world over the past year. Another positive factor impacting franchise fees was same store sales growth experienced by KFC's U.S. franchise partners. Year to date, global franchise fees increased 10% to $536 million. For the full year, we expect franchise fee growth of about 11% to roughly $800 million from our three brands worldwide.
Operating and Financial ProgressOngoing operating EPS increased by 11% in the quarter and 21% year to date. We believe this measure best reflects our operating progress and includes all the ongoing effects of refranchising.
While International ongoing operating profit was up 4%, the effect of refranchising company restaurants in the U.S. and lower U.S. restaurant margin resulted in a 5% decline in ongoing operating profit for the quarter. Year-to-date ongoing operating profit increased by 1%.
Tricon continued to make progress executing its financial strategies, refranchising 48 restaurants in the quarter for a year-to-date total of 479 restaurants generating cash proceeds of about $160 million net of tax and working capital impacts.
Dave Deno, Chief Financial Officer, said, "We are pleased with the continued execution of our financial strategies, and are ensuring our cash is invested in high return opportunities. Consequently, we have increased the full year forecast for our refranchising program to a range of 600 to 700 units, delivering up to $225 million in net cash proceeds. We expect our return on invested capital to improve again this year. For 2000, our returns should exceed 18%, which we believe is the highest in the QSR industry. Finally, we continue to realize savings by reducing our ongoing general and administrative expenses, which were down $6 million for the quarter and over $65 million year to date. For the fourth quarter, we expect these costs to be about flat.
"Importantly, the AmeriServe situation is being resolved in a very positive manner for Tricon. We expect the proposed acquisition of AmeriServe by McLane Company Inc. (a subsidiary of Wal-Mart Stores, Inc.) to close sometime during the fourth quarter and we look forward to a strong long-term relationship with McLane."
AmeriServeAs previously disclosed, Tricon has been advancing funds to AmeriServe, our principal distribution company in the U.S., during its bankruptcy proceedings under a debtor-in-possession credit facility. In connection with the AmeriServe credit facility and other costs and obligations related to the AmeriServe bankruptcy (including the collateral guarantee obligations to secured lenders of AmeriServe), Tricon has recorded an $87 million unusual charge in the third quarter. We will continue to monitor the situation as the transaction closes in the fourth quarter, but based on the best information currently available, we expect to be within our previous guidance of the total exposure related to the AmeriServe bankruptcy.
Ongoing Results* U.S. Blended Same Store Sales
- ----------------------------------------------------------------------------------
Quarter 4 Full Year
Quarter 1 Quarter 2 Quarter 3 Forecast Forecast
- ----------------------------------------------------------------------------------
-2% -3% Flat Flat to -1.5% Down 1% to 2%
- ----------------------------------------------------------------------------------
Note: Quarter 4 and Full Year represent our forecast.
*These results should be read in conjunction with the attached financial summary.
Financial Summary
Third Quarter 2000
(MMs Except Per Share Amounts)
Quarter % Year-To-Date %
---------------------- Change ----------------------- Change
2000 1999 B/(W) 2000 1999 B/(W)
---------- ---------- ------- ---------- ----------- ------
System sales(a) $ 5,225 $ 5,086 3 $ 15,165 $ 14,894 2
Company revenues(b) $ 1,658 $ 1,812 (8) $ 4,911 $ 5,511 (11)
Ongoing operating profit(c) $ 221 $ 231 (5) $ 646 $ 637 1
Interest expense 39 42 10 121 145 17
Income tax provision 67 77 12 201 202 -
---------- ---------- ---------- -----------
Ongoing operating earnings(c) $ 115 $ 112 2 $ 324 $ 290 12
========== ========== ========== ===========
Earnings per diluted share
components:
Ongoing operating earnings $ 0.77 $ 0.70 11 $ 2.17 $ 1.80 21
Accounting changes(d) - 0.02 NM - 0.08 NM
Facility actions net gain 0.02 0.52 (96) 0.45 1.14 (60)
Unusual items(e) (0.39) (0.01) NM (0.71) (0.03) NM
---------- ---------- ---------- -----------
Total $ 0.40 $ 1.23 (67) $ 1.91 $ 2.99 (36)
========== ========== ========== ===========
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These "forward-looking" statements reflect management's expectations and are based upon currently available data; however, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in these statements. Factors that can cause actual results to differ materially include economic and political conditions in the countries and territories where Tricon operates, the impact of such conditions on consumer spending and currency exchange rates, pricing pressures resulting from competitive discounting, new product and concept development by Tricon and other food industry competitors, the success of our refranchising strategy, fluctuations in commodity prices, supplier contracts, ongoing business viability of our key distributor, the ability to secure alternative distribution to our restaurants at competitive rates, and actuarially determined casualty loss estimates. Further information on factors that could affect Tricon's financial and other results are included in the Company's Forms 10-Q and 10-K, filed with the Securities and Exchange Commission.
Tricon Global Restaurants will hold a conference call to review its operating and financial performance at 8:30 a.m. EDT on Thursday, October 12, 2000. For U.S. callers the number is 877-224-2660. For international callers the number is 952-361-0954. The call will be available for playback by dialing 800-615-3210 in the U.S. and 703-326-3020 internationally beginning Thursday, October 12 at 11:00 a.m. EDT through Sunday, October 15 at 12:00 midnight EDT. The access code for the playback is 4650019.
Analysts are invited to contact:
Tim Jerzyk, Vice President Business Planning at 502-874-8617
Larry Gathof, Director Investor Relations at 502-874-8918
Members of the media are invited to contact:
Amy Sherwood, Vice President Public Relations at 502-874-8200
Individual shareholders are invited to contact:
Larry Gathof, Director Investor Relations at 502-874-8918
TRICON Global Restaurants, Inc.
Condensed Consolidated Statement Of Income
(tabular amounts in millions, except per share amounts)
(unaudited)
% %
% Pro Forma % Pro Forma
12 Weeks Ended Change Change 36 Weeks Ended Change Change
----------------- B/(W) B/(W) ----------------- B/(W) B/(W)
9/02/00 9/04/99 (a) (a)(b) 9/02/00 9/04/99 (a) (a)(b)
-------- -------- ------ --------- -------- -------- ------ ---------
Revenues
Company sales $ 1,470 $ 1,639 (10) (10) $ 4,375 $ 5,024 (13) (13)
Franchise and license fees 188 173 9 9 536 487 10 10
-------- -------- -------- --------
1,658 1,812 (8) (8) 4,911 5,511 (11) (11)
-------- -------- -------- --------
Costs and expenses, net
Company restaurants
Food and paper 455 513 11 11 1,345 1,575 15 15
Payroll and employee
benefits 395 447 12 12 1,212 1,391 13 13
Occupancy and other
operating expenses 393 419 6 6 1,153 1,268 9 9
-------- -------- -------- --------
1,243 1,379 10 10 3,710 4,234 12 13
General and administrative
expenses(c) 200 202 1 3 576 630 9 10
Other (income) expense(d) (6) (5) 13 13 (21) (11) 85 85
Facility actions net gain(e) (3) (144) (98) (98) (116) (311) (63) (63)
Unusual items(f) 92 3 NM NM 168 7 NM NM
-------- -------- -------- --------
Total costs and expenses,
net(c)(g) 1,526 1,435 (6) (6) 4,317 4,549 5 6
-------- -------- -------- --------
Operating profit 132 377 (65) (65) 594 962 (38) (37)
Interest expense, net 39 42 10 10 121 145 17 17
-------- -------- -------- --------
Income before income taxes 93 335 (72) (72) 473 817 (42) (41)
Income tax provision(h) 34 138 76 75 188 335 44 42
-------- -------- -------- --------
Net income $ 59 $ 197 (70) (69) $ 285 $ 482 (41) (39)
======== ======== ======== ========
Basic EPS Data
EPS $ 0.41 $ 1.28 (68) (68) $ 1.94 $ 3.14 (38) (37)
======== ======== ======== ========
Average shares outstanding 146 154 5 5 147 154 4 4
======== ======== ======== ========
Diluted EPS Data
EPS $ 0.40 $ 1.23 (67) (67) $ 1.91 $ 2.99 (36) (34)
======== ======== ======== ========
Average shares outstanding 147 160 8 8 149 161 7 7
======== ======== ======== ========
See accompanying notes.
TRICON Global Restaurants, Inc.
Supplemental Schedule of Reportable Operating Segments'
Revenues and Operating Profit
(in millions)
(unaudited)
% %
12 Weeks Ended Change 36 Weeks Ended Change
----------------- B/(W) ------------------- B/(W)
9/02/00 9/04/99 (a) 9/02/00 9/04/99 (a)
-------- -------- ---------- --------- --------- ----------
System Sales
United States $ 3,441 $ 3,419 1 $ 9,917 $ 10,028 (1)
International 1,784 1,667 7 5,248 4,866 8
-------- -------- --------- ---------
Worldwide $ 5,225 $ 5,086 3 $ 15,165 $ 14,894 2
======== ======== ========= =========
Revenues
United States
Company sales $ 1,039 $ 1,199 (13) $ 3,140 $ 3,745 (16)
Franchise and
license fees 127 119 7 361 334 8
-------- -------- --------- ---------
Total United States 1,166 1,318 (12) 3,501 4,079 (14)
-------- -------- --------- ---------
International
Company sales 431 440 (2) 1,235 1,279 (3)
Franchise and
license fees 61 54 12 175 153 14
-------- -------- --------- ---------
Total International 492 494 - 1,410 1,432 (2)
-------- -------- --------- ---------
Worldwide $ 1,658 $ 1,812 (8) $ 4,911 $ 5,511 (11)
======== ======== ========= =========
% %
% Proforma % Proforma
12 Weeks Ended Change Change 36 Weeks Ended Change Change
----------------- B/(W) B/(W) ------------------- B/(W) B/(W)
9/02/00 9/04/99 (a) (a)(b) 9/02/00 9/04/99 (a) (a)(b)
-------- -------- ---------- ---------- --------- --------- ---------- ----------
Restaurant Margin
United States(c)(g) $ 162 $ 193 (16) (16) $ 478 $ 605 (21) (20)
International(c) 65 67 (2) (3) 187 185 1 1
-------- -------- --------- ---------
Worldwide $ 227 $ 260 (13) (13) $ 665 $ 790 (16) (15)
======== ======== ========= =========
Restaurant Margin As A Percent Of Company Sales
United States(c)(g) 15.5% 16.1% (0.6)ppts. (0.6)ppts. 15.2% 16.2% (1.0)ppts. (0.7)ppts.
International(c) 15.2% 15.3% (0.1)ppts. (0.3)ppts. 15.2% 14.5% 0.7 ppts. 0.6 ppts.
Worldwide 15.4% 15.9% (0.5)ppts. (0.5)ppts. 15.2% 15.7% (0.5)ppts. (0.4)ppts.
Operating Profit
United States
ongoing operating
profit(g) $ 191 $ 207 (8) $ 537 $ 586 (8)
International
ongoing operating
profit 76 73 4 219 187 17
Ongoing unallocated
and corporate
expenses (45) (50) 8 (110) (134) 17
Foreign exchange
gain (loss) (1) 1 NM - (2) NM
-------- -------- --------- ---------
Worldwide ongoing
operating profit 221 231 (5) 646 637 1
Accounting changes(c) - 5 NM - 21 NM
Facility actions net
gain(e) 3 144 (98) 116 311 (63)
Unusual items(f) (92) (3) NM (168) (7) NM
-------- -------- --------- ---------
Reported operating
profit(c)(g) $ 132 $ 377 (65) $ 594 $ 962 (38)
======== ======== ========= =========
See accompanying notes.
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AND SUPPLEMENTAL SCHEDULE OF REPORTABLE OPERATING SEGMENTS' REVENUES AND OPERATING PROFIT:
(tabular dollar amounts in millions, except per share amounts)
12 Weeks Ended 9/04/99 36 Weeks Ended 9/04/99
-------------------------------- ---------------------------------
Restaurant Restaurant
Margin G&A Total Margin G&A Total
---------- --------- --------- ---------- ---------- ---------
U.S. $ - $ - $ - $ 8 $ 4 $ 12
International - 1 1 - (1) (1)
Unallocated - 4 4 - 10 10
---------- --------- --------- ---------- ---------- ---------
Total $ - $ 5 $ 5 $ 8 $ 13 $ 21
========== ========= ========= ========== ========== =========
12 Weeks Ended 36 Weeks Ended
------------------- ------------------
9/02/00 9/04/99 9/02/00 9/04/99
--------- -------- -------- --------
Equity income from investments in
unconsolidated affiliates $ (7) $ (4) $ (21) $ (13)
Foreign exchange net (gain) loss 1 (1) - 2
--------- -------- -------- --------
Total other (income) expense $ (6) $ (5) $ (21) $ (11)
========= ======== ======== ========
12 Weeks Ended 36 Weeks Ended
------------------- ------------------
9/02/00 9/04/99 9/02/00 9/04/99
--------- -------- -------- --------
Refranchising net gains $ 5 $ 154 $ 126 $ 332
Store closure net costs (1) (2) (4) (2)
Impairment charges for stores that
will continue to be used in the
business - (3) (4) (10)
Impairment charges for stores to be
closed (1) (5) (2) (9)
--------- -------- -------- --------
$ 3 $ 144 $ 116 $ 311
========= ======== ======== ========
U.S. $ 10 $ 144 $ 122 $ 306
International (7) - (6) 5
--------- -------- -------- --------
Total $ 3 $ 144 $ 116 $ 311
========= ======== ======== ========
After-tax net gain $ 3 $ 84 $ 68 $ 183
========= ======== ======== ========
Per diluted share $ 0.02 $ 0.52 $ 0.45 $ 1.14
========= ======== ======== ========
Unusual items of $3 million ($3 million after-tax or $0.01 per diluted share) in the quarter and $7 million ($5 million after-tax or $0.03 per diluted share) year-to-date 1999 primarily included:
TRICON Global Restaurants, Inc.
Restaurant Units Activity Summary
For the 36 Weeks Ended September 2, 2000
(unaudited)
Unconsolidated
Company Affiliates Franchisees Licensees Total
---------- --------------- ------------ ---------- ----------
KFC U.S.
Balance at December 25, 1999 1,439 - 3,743 49 5,231
Openings and acquisitions 35 - 81 - 116
Refranchising and licensing (103) - 103 - -
Closures (21) - (28) (5) (54)
---------- --------------- ------------ ---------- ----------
Balance at September 2, 2000 1,350 - 3,899 44 5,293
========== =============== ============ ========== ==========
% of Total 25.5% - 73.7% 0.8% 100.0%
Pizza Hut U.S.
Balance at December 25, 1999 2,355 - 4,446 1,283 8,084
Openings and acquisitions 17 - 78 132 227
Refranchising and licensing (277) - 277 - -
Closures (58) - (119) (113) (290)
---------- --------------- ------------ ---------- ----------
Balance at September 2, 2000 2,037 - 4,682 1,302 8,021
========== =============== ============ ========== ==========
% of Total 25.4% - 58.4% 16.2% 100.0%
Taco Bell U.S.
Balance at December 25, 1999 1,190 - 3,921 1,768 6,879
Openings 14 - 71 63 148
Refranchising and licensing (27) - 32 (5) -
Closures (17) - (43) (177) (237)
---------- --------------- ------------ ---------- ----------
Balance at September 2, 2000 1,160 - 3,981 1,649 6,790
========== =============== ============ ========== ==========
% of Total 17.1% - 58.6% 24.3% 100.0%
Total U.S.
Balance at December 25, 1999 4,984 - 12,110 3,100 20,194
Openings and acquisitions 66 - 230 195 491
Refranchising and licensing (407) - 412 (5) -
Closures (96) - (190) (295) (581)
---------- --------------- ------------ ---------- ----------
Balance at September 2, 2000 4,547 - 12,562 2,995 20,104
========== =============== ============ ========== ==========
% of Total 22.6% - 62.5% 14.9% 100.0%
International
Balance at December 25, 1999 1,997 1,178 6,304 309 9,788
Openings and acquisitions 104 54 333 17 508
Refranchising and licensing (72) 2 70 - -
Closures (36) (23) (132) (20) (211)
Other(a) (263) 616 (353) - -
---------- --------------- ------------ ---------- ----------
Balance at September 2, 2000 1,730 1,827 6,222 306 10,085
========== =============== ============ ========== ==========
% of Total 17.2% 18.1% 61.7% 3.0% 100.0%
Worldwide
Balance at December 25, 1999 6,981 1,178 18,414 3,409 29,982
Openings and acquisitions 170 54 563 212 999
Refranchising and licensing (479) 2 482 (5) -
Closures (132) (23) (322) (315) (792)
Other(a) (263) 616 (353) - -
---------- --------------- ------------ ---------- ----------
Balance at September 2, 2000 6,277(b) 1,827 18,784 3,301 30,189
========== =============== ============ ========== ==========
% of Total 20.8% 6.1% 62.2% 10.9% 100.0%