omniture

Yum China Reports Third Quarter 2019 Results

Total revenues grew 5% or 8% in constant currency;
Total system sales grew 8% and same-store sales grew 2% in constant currency
2019-10-30 04:30 5378

SHANGHAI, Oct. 30, 2019 /PRNewswire/ -- Yum China Holdings, Inc. (the "Company" or "Yum China") (NYSE: YUMC) today reported unaudited results for the third quarter ended September 30, 2019. Reported GAAP results include Special Items, which are excluded from adjusted measures.  Special Items are not allocated to any segment and therefore only impact reported GAAP results of Yum China.  See "Reconciliation of Reported GAAP Results to Adjusted Measures" within this release.

Third Quarter Highlights

  • Total revenues increased 5% year over year to $2.3 billion from $2.2 billion (8% year over year increase excluding foreign currency translation ("F/X")).
  • Total system sales grew 8% year over year, with growth of 10% at KFC and 3% at Pizza Hut, excluding F/X.
  • Same-store sales grew 2% year over year, with a 3% increase at KFC and a 1% increase at Pizza Hut, excluding F/X.
  • Restaurant margin was 17.7%, compared with 17.6% in the prior year period.
  • Operating Profit increased 11% year over year to $300 million from $269 million (14% year over year increase excluding F/X).
  • Effective tax rate was 26.9%.
  • Net Income increased 11% to $223 million from $203 million in the prior year period, primarily due to the increase in operating profit and mark to market gain from our equity investment in Meituan Dianping.
  • Diluted EPS increased 14% to $0.58 from $0.51 in the prior year period (8% year over year increase excluding the $0.03 per share mark to market gain from our equity investment in Meituan Dianping).
  • Opened 231 new restaurants during the quarter, bringing total store count to 8,917 across more than 1,300 cities.

Key Financial Results


Third Quarter 2019



Year to Date Ended 9/30/2019


% Change



% Change


System Sales


Same-Store
Sales


Net New
Units


Operating
Profit



System Sales


Same-Store
Sales


Net New
Units


Operating
Profit

Yum China

+8


+2


+7


+11



+9


+4


+7


(6)

   KFC

+10


+3


+9


+12



+11


+4


+9


+4

   Pizza Hut

+3


+1


+2


(29)



+3


+1


+2


+9

 



Third Quarter




Year to Date Ended 9/30

(in US$ million, except







% Change









% Change

for per share data and percentages)


2019



2018


Reported


Ex F/X



2019


2018


Reported


Ex F/X

Operating Profit

$

300


$

269


+11


+14



$

807


$

857


(6)


(1)

Adjusted Operating Profit[1]

$

300


$

269


+11


+14



$

807


$

759


+6


+12

Net Income

$

223


$

203


+11


+14



$

623


$

634


(2)


+4

Adjusted Net Income[1]

$

223


$

203


+11


+14



$

631


$

560


+13


+19

Basic Earnings Per Common Share

$

0.59


$

0.53


+11


+15



$

1.65


$

1.64


+1


+6

Adjusted Basic Earnings Per





















   Common Share[1]

$

0.59


$

0.53


+11


+15



$

1.67


$

1.45


+15


+21

Diluted Earnings Per Common Share

$

0.58


$

0.51


+14


+16



$

1.60


$

1.59


+1


+6

Adjusted Diluted Earnings Per





















   Common Share[1]

$

0.58


$

0.51


+14


+16



$

1.62


$

1.41


+15


+21

[1]See "Reconciliation of Reported GAAP Results to Adjusted Measures" included in the accompanying tables of this release for further details.

Note:  All comparisons are versus the same period a year ago.


NM refers to changes over 100%, from negative to positive amounts or from zero to an amount.

Percentages may not recompute due to rounding.

System sales and same-store sales percentages exclude the impact of F/X.

CEO and CFO Comments

Joey Wat, CEO of Yum China, commented, "We are pleased with our continued strong performance in the third quarter, which was driven by our competitive positioning, leading digital capabilities and ongoing innovation across the business. We achieved our 12th consecutive quarter of system sales growth since the spin-off, highlighting the strength of our business model and demonstrating our ability to effectively adapt to changing market conditions. KFC delivered solid sales and profit growth as we strategically decreased promotion intensity to protect margins. Pizza Hut maintained positive sales momentum with a decline in margin during the quarter due to the important and necessary long-term investments in the revitalization program."

"We will continue to build on KFC's resilient business model, cement the revitalization of Pizza Hut, invest in the growth of our smaller brands and sharpen our industry-leading digital ecosystem, which enables us to meet customer demands and manage the business effectively," continued Ms. Wat. "We are cautiously optimistic about the future because we see significant growth opportunities in China, and we will focus on leveraging our competitive advantages to succeed in this dynamic environment."

Andy Yeung, CFO of Yum China, added, "I am very excited to have joined the Yum China team and am pleased to be reporting another strong set of quarterly results, which highlight Yum China's strength in many areas. We continued rapid expansion of our store network and maintained very healthy cash payback for our new stores. We also delivered strong sales, operating profit and EPS growth despite continued pressure from higher chicken and labor costs. In addition, we returned $109 million to shareholders through dividends and share repurchases in the quarter. Looking ahead, we will continue to focus on driving sales and managing costs while making prudent investments to drive long-term growth. As always, we remain committed to driving significant overall value to our shareholders."

Dividend and Share Repurchase

  • The Board of Directors declared a cash dividend of $0.12 per share on Yum China's common stock, payable as of the close of business on December 17, 2019 to shareholders of record as of the close of business on November 26, 2019.
  • During the third quarter, we repurchased approximately 1.4 million shares of Yum China common stock for $64.0 million at an average price of $44.70 per share.

Digital and Delivery 

  • As of September 30, 2019, the KFC loyalty program had over 200 million members and the Pizza Hut loyalty program had over 65 million members, an increase of 55 million and 15 million, respectively, year over year.
  • Digital payments accounted for 91% of Company sales in the quarter, an increase of 9 percentage points year over year.
  • Delivery contributed to 20% of Company sales in the third quarter of 2019, an increase of 3 percentage points year over year. Delivery services are now available in 1,225 cities, up from 1,063 cities at the end of the prior year period.

New-Unit Development and Asset Upgrade

  • The Company opened 231 new restaurants and remodeled 222 restaurants in the third quarter of 2019.


New Units



Restaurant Count



Third Quarter


Year to Date



As of 9/30



2019


Ended 9/30/2019



2019


2018

Yum China


231


646



8,917


8,313

   KFC


174


501



6,324


5,800

   Pizza Hut


24


84



2,255


2,215

   Others[2]


33


61



338


298

[2] Others include Little Sheep, East Dawning, Taco Bell and COFFii & JOY.

Restaurant Margin

  • In the third quarter of 2019, Yum China restaurant margin was 17.7%, as compared with 17.6% in the prior year period, primarily attributable to sales leverage, productivity improvement and other cost savings, partially offset by wage and commodity inflation and promotional activities.

Third Quarter




Year to Date Ended 9/30





2019



2018



% pts change




2019



2018



% pts change



Yum China



17.7

%



17.6

%



+0.1





17.0

%



16.9

%



+0.1



   KFC



20.1

%



19.2

%



+0.9





18.8

%



19.0

%



(0.2)



   Pizza Hut



11.4

%



13.8

%



(2.4)





12.4

%



11.8

%



+0.6



2019 Outlook

  • The Company continues to expect fiscal year 2019 targets as follows:
    • Between 800 and 850 gross new units.
    • Capital expenditures between $475 million and $525 million.
    • Effective tax rate below 28%, excluding any impact from the Company's equity investment in Meituan Dianping.

The Company provides its effective tax rate outlook excluding any impact from its investment in Meituan Dianping, which will be subject to mark to market accounting and may be significant.

Conference Call

Yum China's management will hold an earnings conference call at 8:00 p.m. U.S. Eastern Time on Tuesday, October 29, 2019 (8:00 a.m. Beijing/Hong Kong Time on Wednesday, October 30, 2019). A copy of the presentation will be available on the Yum China Holdings, Inc. website, http://ir.yumchina.com.

U.S.:                          +1 845 675 0437
Mainland China:        400 620 8038 or 800 819 0121
Hong Kong:               +852 3018 6771
U.K.:                          +44 20 36214779
International:             +65 6713 5090
Password:                 Yum China

A replay of the conference call will be available two hours after the call ends until 8:00 a.m. U.S. Eastern Time on Wednesday, November 6, 2019 (9:00 p.m. Beijing/Hong Kong Time on Wednesday, November 6, 2019) and may be accessed by phone at the following numbers:

U.S.:                          +1 855 452 5696
International:             +61 2 9003 4211
Passcode:                 7952028

Additionally, a live webcast and an archived webcast of this conference call will be available at http://ir.yumchina.com.

Forward-Looking Statements

This press release contains "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, including under "2019 Outlook." 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," "project," "likely," "will," "continue," "should," "forecast," "outlook" or similar terminology. These statements are based on current estimates and assumptions made by us in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable under the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Forward-looking statements include, without limitation, statements regarding the future strategies, business plans, investment plans, earnings, performance and returns of Yum China, statements regarding the revitalization of Pizza Hut, anticipated effects of population and macroeconomic trends, the capital structure and effective tax rate of Yum China, the anticipated effects of our digital and delivery capabilities on growth and beliefs regarding the long-term drivers of Yum China's business. Forward-looking statements are not guarantees of performance and are inherently subject to known and unknown risks and uncertainties that are difficult to predict and could cause our actual results or events to differ materially from those indicated by those statements. We cannot assure you that any of our expectations, estimates or assumptions will be achieved. The forward-looking statements included in this press release are only made as of the date of this press release, and we disclaim any obligation to publicly update any forward-looking statement to reflect subsequent events or circumstances, except as required by law. Numerous factors could cause our actual results or events to differ materially from those expressed or implied by forward-looking statements, including, without limitation: whether we are able to achieve development goals at the times and in the amounts currently anticipated, if at all, the success of our marketing campaigns and product innovation, our ability to maintain food safety and quality control systems, our ability to control costs and expenses, including tax costs, as well as changes in political, economic and regulatory conditions in China. 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. You should consult our filings with the Securities and Exchange Commission (including the information set forth under the captions "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K) for additional detail about factors that could affect our financial and other results.

About Yum China Holdings, Inc.

Yum China Holdings, Inc. is a licensee of Yum! Brands in mainland China. It has exclusive rights in mainland China to KFC, China's leading quick-service restaurant brand, Pizza Hut, the leading casual dining restaurant brand in China, and Taco Bell, a California-based restaurant chain serving innovative Mexican-inspired food. Yum China also owns the Little Sheep, East Dawning and COFFii & JOY concepts outright. The Company had more than 8,900 restaurants in over 1,300 cities at the end of September 2019. In 2019, Yum China was named to the Bloomberg Gender-Equality Index and was certified as a Top Employer 2019 in China by the Top Employers Institute. For more information, please visit http://ir.yumchina.com.

Investor Relations Contact: 
              Tel: +86 21 2407 7556 
              IR@YumChina.com

Media Contact: 
              Tel: +86 21 2407 7510 
              Media@YumChina.com 

 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Income

(in US$ million, except per share data)

(unaudited)



Quarter Ended


% Change


Year to Date Ended


% Change


9/30/2019


9/30/2018


B/(W)


9/30/2019


9/30/2018


B/(W)

Revenues


















Company sales

$

2,097


$

2,008


4



$

6,112


$

5,912


3


Franchise fees and income


38



36


7




113



110


3


Revenues from transactions with


















   franchisees and unconsolidated affiliates


172



159


8




496



461


8


Other revenues


12



9


39




26



18


45


Total revenues


2,319



2,212


5




6,747



6,501


4


Costs and Expenses, Net


















Company restaurants


















Food and paper


651



610


(7)




1,896



1,775


(7)


Payroll and employee benefits


455



430


(6)




1,371



1,296


(6)


Occupancy and other operating expenses


619



615


(1)




1,804



1,841


2


Company restaurant expenses


1,725



1,655


(4)




5,071



4,912


(3)


General and administrative expenses


117



119





340



334


(2)


Franchise expenses


19



18


(3)




55



55


1


Expenses for transactions with


















   franchisees and unconsolidated affiliates


167



156


(7)




488



454


(7)


Other operating costs and expenses


9



6


(56)




20



17


(21)


Closures and impairment (income) expenses, net


(1)



(1)


18




14



15


6


Other income, net


(17)



(10)


73




(48)



(143)


(67)


Total costs and expenses, net


2,019



1,943


(4)




5,940



5,644


(5)


Operating Profit


300



269


11




807



857


(6)


Interest income, net


10



10


6




29



28


4


Investment gain


12




NM




39




NM


Income Before Income Taxes


322



279


15




875



885


(1)


Income tax provision


(87)



(67)


(28)




(226)



(227)


1


Net income – including noncontrolling interests


235



212


11




649



658


(1)


Net income – noncontrolling interests


12



9


(26)




26



24


(6)


Net Income – Yum China Holdings, Inc.

$

223


$

203


11



$

623


$

634


(2)


Effective tax rate


26.9%



24.2%


(2.7)

ppts.



25.8%



25.%7


(0.1)

ppts.



















Basic Earnings Per Common Share

$

0.59


$

0.53





$

1.65


$

1.64




Weighted average shares outstanding


















    (in millions)


377



384






378



386






















Diluted Earnings Per Common Share

$

0.58


$

0.51





$

1.60


$

1.59




Weighted average shares outstanding


















    (in millions)


388



394






389



398






















Cash Dividends Declared Per Common Share

$

0.12


$

0.10





$

0.36


$

0.30






















Company sales


100.0%



100.0%






100.0%



100.0%




Food and paper


31.0



30.4


(0.6)

ppts.



31.0



30.0


(1.0)

ppts.

Payroll and employee benefits


21.7



21.4


(0.3)

ppts.



22.4



21.9


(0.5)

ppts.

Occupancy and other operating expenses


29.6



30.6


1.0

ppts.



29.6



31.2


1.6

ppts.

Restaurant margin


17.7%



17.6%


0.1

ppts.



17.0%



16.9%


0.1

ppts.

Operating margin


14.3%



13.4%


0.9

ppts.



13.2%



14.5%


(1.3)

ppts.


Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

KFC Operating Results

(in US$ million)

(unaudited)



Quarter Ended


% Change


Year to Date Ended


% Change


9/30/2019


9/30/2018


B/(W)


9/30/2019


9/30/2018


B/(W)

Revenues


















Company sales

$

1,546


$

1,452


6



$

4,495


$

4,248


6


Franchise fees and income


35



34


4




104



104


1


Revenues from transactions with


















   franchisees and unconsolidated affiliates


16



15


9




48



47


3


Other revenues


1




NM




1




NM


Total revenues


1,598



1,501


6




4,648



4,399


6


Costs and Expenses, Net


















Company restaurants


















Food and paper


477



444


(7)




1,403



1,281


(10)


Payroll and employee benefits


311



297


(5)




942



879


(7)


Occupancy and other operating expenses


447



432


(3)




1,305



1,281


(2)


Company restaurant expenses


1,235



1,173


(5)




3,650



3,441


(6)


General and administrative expenses


50



44


(16)




148



135


(10)


Franchise expenses


18



17


(2)




53



53



Expenses for transactions with


















   franchisees and unconsolidated affiliates


16



15


(4)




48



47


(2)


Closures and impairment expenses, net





NM




7



6


(7)


Other income, net


(16)



(12)


34




(46)



(42)


7


Total costs and expenses, net


1,303



1,237


(5)




3,860



3,640


(6)


Operating Profit

$

295


$

264


12



$

788


$

759


4


Company sales


100.0%



100.0%






100.0%



100.0%




Food and paper


30.9



30.6


(0.3)

ppts.



31.2



30.2


(1.0)

ppts.

Payroll and employee benefits


20.1



20.4


0.3

ppts.



21.0



20.7


(0.3)

ppts.

Occupancy and other operating expenses


28.9



29.8


0.9

ppts.



29.0



30.1


1.1

ppts.

Restaurant margin


20.1%



19.2%


0.9

ppts.



18.8%



19%.0


(0.2)

ppts.

Operating margin


19.1%



18.1%


1.0

ppts.



17.%5



17.8%


(0.3)

ppts.


Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Pizza Hut Operating Results

(in US$ million)

(unaudited)



Quarter Ended


% Change


Year to Date Ended


% Change


9/30/2019


9/30/2018


B/(W)


9/30/2019


9/30/2018


B/(W)

Revenues



















Company sales

$

540


$

548


(1)



$

1,588


$

1,640



(3)


Franchise fees and income


1



1


NM




3



2



68


Revenues from transactions with



















   franchisees and unconsolidated affiliates


1



1


NM




3



1



NM


Other revenues





NM




1





NM


Total revenues


542



550


(1)




1,595



1,643



(3)


Costs and Expenses, Net



















Company restaurants



















Food and paper


170



163


(5)




484



486




Payroll and employee benefits


140



130


(8)




420



410



(2)


Occupancy and other operating expenses


168



179


7




487



551



12


Company restaurant expenses


478



472


(1)




1,391



1,447



4


General and administrative expenses


25



24


(6)




76



80



5


Franchise expenses


1



1


(73)




2



2



(34)


Expenses for transactions with



















   franchisees and unconsolidated affiliates


1



1


NM




3



1



NM


Other operating costs and expenses





NM




1





NM


Closures and impairment (income) expenses, net


(1)



(1)


77




5



9



38


Other income, net





NM






(2)



NM


Total costs and expenses, net


504



497


(2)




1,478



1,537



4


Operating Profit

$

38


$

53


(29)



$

117


$

106



9


Company sales


100.0%



100.0%






100.0%



100.0%





Food and paper


31.5



29.7


(1.8)

ppts.



30.5



29.6



(0.9)

ppts.

Payroll and employee benefits


26.0



23.8


(2.2)

ppts.



26.5



25.0



(1.5)

ppts.

Occupancy and other operating expenses


31.1



32.7


1.6

ppts.



30.6



33.6



3

ppts.

Restaurant margin


11.4%



13.8%


(2.4)

ppts.



12.4%



11.8%



0.6

ppts.

Operating margin


7.0%



9.8%


(2.8)

ppts.



7.4%



6.5%



0.9

ppts.


Percentages may not recompute due to rounding.

 

 

Yum China Holdings, Inc.

Condensed Consolidated Balance Sheets

(in US$ million)



9/30/2019


12/31/2018


(Unaudited)




ASSETS






Current Assets






Cash and cash equivalents

$

1,355


$

1,266

Short-term investments


364



122

Accounts receivable, net


79



80

Inventories, net


317



307

Prepaid expenses and other current assets


141



177

Total Current Assets


2,256



1,952

Property, plant and equipment, net


1,506



1,615

Operating lease right-of-use assets


1,893



Goodwill


256



266

Intangible assets, net


97



116

Deferred income taxes


89



89

Investments in unconsolidated affiliates


74



81

Other assets


539



491

Total Assets


6,710



4,610

LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY






Current Liabilities






Accounts payable and other current liabilities


1,566



1,199

Income taxes payable


82



54

Total Current Liabilities


1,648



1,253

Non-current operating lease liabilities


1,729



Capital lease obligations


23



25

Other liabilities


195



355

Total Liabilities


3,595



1,633

Redeemable Noncontrolling Interest


1



1

Equity






Common stock, $0.01 par value; 1,000 million shares authorized;

  394 million shares and 392 million shares issued at September 30, 2019 and December 31,

  2018, respectively; 376 million shares and 379 million shares outstanding at September 30,

  2019 and December 31, 2018, respectively


4



4

Treasury stock


(664)



(460)

Additional paid-in capital


2,423



2,402

Retained earnings


1,371



944

Accumulated other comprehensive loss


(109)



(17)

Total Equity – Yum China Holdings, Inc.


3,025



2,873

Noncontrolling interests


89



103

Total Equity


3,114



2,976

Total Liabilities, Redeemable Noncontrolling Interest and Equity

$

6,710


$

4,610







 

 

Yum China Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(in US$ million)

(unaudited)



Year to Date Ended


9/30/2019


9/30/2018

Cash Flows – Operating Activities






Net income – including noncontrolling interests

$

649


$

658

Depreciation and amortization


322



343

Amortization of operating lease right-of-use assets


251



Closures and impairment expenses


14



15

Gain from re-measurement of equity interest upon acquisition




(98)

Investment gain


(39)



Equity income from investments in unconsolidated affiliates


(56)



(52)

Distributions of income received from unconsolidated affiliates


50



51

Deferred income taxes


12



46

Share-based compensation expense


21



18

Changes in accounts receivable


(2)



2

Changes in inventories


(22)



14

Changes in prepaid expenses and other current assets


7



(13)

Changes in accounts payable and other current liabilities


118



184

Changes in income taxes payable


32



41

Changes in non-current operating lease liabilities


(280)



Other, net


(32)



(36)

Net Cash Provided by Operating Activities


1,045



1,173

Cash Flows – Investing Activities






Capital spending


(310)



(359)

Purchases of short-term investments


(619)



(513)

Maturities of short-term investments


366



513

Acquisition of business, net of cash acquired




(91)

Investment in equity securities




(74)

Other, net


10



(3)

Net Cash Used in Investing Activities


(553)



(527)

Cash Flows – Financing Activities






Repayment of short-term borrowings assumed from acquisition




(10)

Repurchase of shares of common stock


(207)



(161)

Cash dividends paid on common stock


(136)



(115)

Dividends paid to noncontrolling interests


(25)



(29)

Other, net




(3)

Net Cash Used in Financing Activities


(368)



(318)

Effect of Exchange Rates on Cash and Cash Equivalents and Restricted Cash


(26)



(53)

Net Increase in Cash, Cash Equivalents and Restricted Cash


98



275

Cash, Cash Equivalents and Restricted Cash - Beginning of Period


1,266



1,059

Cash, Cash Equivalents and Restricted Cash - End of Period

$

1,364


$

1,334

In this press release:

  • The Company provides certain percentage changes excluding the impact of foreign currency translation ("F/X"). These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the F/X impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
  • System sales growth reflects the results of all restaurants regardless of ownership, including Company-owned, franchise and unconsolidated affiliate restaurants that operate our restaurant concepts, except for non-Company-owned restaurants for which we do not receive a sales-based royalty. Sales of franchise and unconsolidated affiliate restaurants typically generate ongoing franchise fees for the Company at a rate of approximately 6% of system sales. Franchise and unconsolidated affiliate restaurant sales are not included in Company sales in the Condensed Consolidated Statements of Income; however, the franchise fees are included in the Company's revenues. We believe system sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates all of our revenue drivers, Company and franchise same-store sales as well as net unit growth.
  • Effective January 1, 2018, the Company revised its definition of same-store sales growth to represent the estimated percentage change in sales of food of all restaurants in the Company system that have been open prior to the first day of our prior fiscal year. We refer to these as our "base" stores. Previously, same-store sales growth represented the estimated percentage change in sales of all restaurants in the Company system that have been open for one year or more, and the base stores changed on a rolling basis from month to month. This revision was made to align with how management measures performance internally and focuses on trends of a more stable base of stores.
  • Company Restaurant profit ("Restaurant profit") is defined as Company sales less expenses incurred directly by our Company-owned restaurants in generating Company sales. Company restaurant margin percentage is defined as Restaurant profit divided by Company sales.

Reconciliation of Reported GAAP Results to Adjusted Measures
(in millions, except per share data)
(unaudited)

In addition to the results provided in accordance with US Generally Accepted Accounting Principles ("GAAP") in this press release, the Company provides measures adjusted for Special Items, which include Adjusted Operating Profit, Adjusted Net Income, Adjusted EPS, Adjusted Effective Tax Rate and Adjusted EBITDA, which we define as net income including noncontrolling interests adjusted for income tax, interest income, net, investment gain or loss, depreciation, amortization and other items, including store impairment charges and Special Items. The Special Item for the year to date ended September 30, 2019 represents the impact from the US Tax Cuts and Jobs Act (the "Tax Act"), as described in the accompanying notes. The Special Item for the year to date ended September 30, 2018 represents a gain recognized from the re-measurement of our previously held equity interest in Wuxi KFC at fair value upon acquisition, as described in the accompanying notes. The Company excludes impact from Special Items for the purpose of evaluating performance internally. Special Items are not included in any of our segment results. In addition, the Company provides Adjusted EBITDA because we believe that investors and analysts may find it useful in measuring operating performance without regard to items such as income tax, interest income, net, investment gain or loss, depreciation, amortization and other items, including store impairment charges and Special Items. These adjusted measures are not intended to replace the presentation of our financial results in accordance with GAAP.  Rather, the Company believes that the presentation of these adjusted measures provide additional information to investors to facilitate the comparison of past and present results, excluding those items that the Company does not believe are indicative of our ongoing operations due to their nature.  These adjusted measures should not be considered in isolation or as a substitute for GAAP financial results, but should be read in conjunction with the unaudited Condensed Consolidated Statements of Income and other information presented herein. A reconciliation of the most directly comparable GAAP measures to adjusted measures follows.


Quarter Ended


Year to Date Ended


9/30/2019


9/30/2018


9/30/2019


9/30/2018

Detail of Special Items
























Gain from re-measurement of equity interest upon acquisition(b)

$


$


$


$

98

Special Items, Operating Profit








98

Tax effect on Special Items(c)








(24)

Impact from the Tax Act(d)






(8)



Special Items, net income – including noncontrolling interests






(8)



74

Special Items, net income – noncontrolling interests








Special Items, Net Income –Yum China Holdings, Inc.

$


$


$

(8)


$

74

Weighted Average Diluted Shares Outstanding


388



394



389



398

Special Items, Diluted Earnings Per Common Share

$


$


$

(0.02)


$

0.18

Reconciliation of Operating Profit to Adjusted Operating Profit












Operating Profit

$

300


$

269


$

807


$

857

Special Items, Operating Profit








98

Adjusted Operating Profit

$

300


$

269


$

807


$

759

Reconciliation of Net Income to Adjusted Net Income












Net Income – Yum China Holdings, Inc.

$

223


$

203


$

623


$

634

Special Items, Net Income –Yum China Holdings, Inc.






(8)



74

Adjusted Net Income – Yum China Holdings, Inc.

$

223


$

203


$

631


$

560

Reconciliation of EPS to Adjusted EPS












Basic Earnings Per Common Share

$

0.59


$

0.53


$

1.65


$

1.64

Special Items, Basic Earnings Per Common Share






(0.02)



0.19

Adjusted Basic Earnings Per Common Share

$

0.59


$

0.53


$

1.67


$

1.45

Diluted Earnings Per Common Share

$

0.58


$

0.51


$

1.6


$

1.59

Special Items, Diluted Earnings Per Common Share






(0.02)



0.18

Adjusted Diluted Earnings Per Common Share

$

0.58


$

0.51


$

1.62


$

1.41

Reconciliation of Effective Tax Rate to Adjusted Effective Tax Rate












Effective tax rate


26.9%



24.2%



25.8%



25.7%

Impact on effective tax rate as a result of Special Items






0.9%



(0.1)%

Adjusted effective tax rate


26.9%



24.2%



24.9%



25.8%

Notes to the Condensed Consolidated Statements of Income, Condensed Consolidated Balance Sheets,
Condensed Consolidated Statements of Cash Flows and Reconciliation of Reported GAAP Results to Adjusted Measures
(in US$ million)
(unaudited)

(a)      Amounts presented as of and for the quarters and years to date ended September 30, 2019 and 2018 are unaudited.
(b)      As a result of the acquisition of Wuxi KFC in the first quarter of 2018, the Company recognized a gain of $98 million from the re-measurement of our previously held 47% equity interest at fair value, which was not allocated to any segment for performance reporting purposes.
(c)      The tax expense was determined based upon the nature, as well as the jurisdiction, of each Special Item at the applicable tax rate.
(d)      We completed the evaluation of the impact on our transition tax computation based on the final regulations released by the US Treasury Department and the IRS in the first quarter of 2019 and recorded an additional amount of $8 million for the transition tax accordingly.

Reconciliation of Net Income to Adjusted EBITDA

(in US$ million)

(unaudited)

Net income, along with the reconciliation to Adjusted EBITDA, is presented below.



Quarter Ended


Year to Date Ended


9/30/2019


9/30/2018


9/30/2019


9/30/2018

Reconciliation of Net Income to Adjusted EBITDA












Net Income – Yum China Holdings, Inc.

$

223


$

203


$

623


$

634

Net income – noncontrolling interests


12



9



26



24

Income tax provision


87



67



226



227

Interest income, net


(10)



(10)



(29)



(28)

Investment gain


(12)





(39)



Operating Profit


300



269



807



857

Special Items, Operating Profit








(98)

Adjusted Operating Profit


300



269



807



759

Depreciation and amortization


105



108



322



343

Store impairment charges


2



2



27



23

Adjusted EBITDA

$

407


$

379


$

1,156


$

1,125

 

 

Unit Count by Brand


KFC




12/31/2018



New Builds



Closures



Refranchised



9/30/2019


Company-owned



4,597




398




(62)




(8)




4,925


Unconsolidated affiliates



811




69




(17)








863


Franchisees



502




34




(8)




8




536


Total



5,910




501




(87)







6,324




Pizza Hut




12/31/2018



New Builds



Closures



Refranchised



9/30/2019


Company-owned



2,188




75




(68)




(30)




2,165


Franchisees



52




9




(1)




30




90


Total



2,240




84




(69)







2,255




Others




12/31/2018



New Builds



Closures



Refranchised



9/30/2019


Company-owned



47




38




(2)




(2)




81


Franchisees



287




23




(55)




2




257


Total



334




61




(57)







338


 

 

Yum China Holdings, Inc.

Segment Results

(in US$ million)

(unaudited)


Quarter Ended 9/30/2019


KFC



Pizza Hut



All Other
Segments(1)



Corporate

and

Unallocated(2)



Elimination



Total


Company sales


$

1,546



$

540



$

11



$



$



$

2,097


Franchise fees and income



35




1




2










38


Revenues from transactions with

   franchisees and unconsolidated affiliates



16




1




8




147







172


Other revenues



1







19




1




(9)




12


Total revenues


$

1,598



$

542



$

40



$

148



$

(9)



$

2,319


Company restaurant expenses



1,235




478




12










1,725


General and administrative expenses



50




25




8




34







117


Franchise expenses



18




1













19


Expenses for transactions with

  franchisees and unconsolidated affiliates



16




1




5




145







167


Other operating costs and expenses









17




1




(9)




9


Closures and impairment income, net






(1)













(1)


Other income, net



(16)










(1)







(17)


Total costs and expenses, net



1,303




504




42




179




(9)




2,019


Operating Profit (Loss)


$

295



$

38



$

(2)



$

(31)



$



$

300



Quarter Ended 9/30/2018


KFC



Pizza Hut



All Other
Segments(1)



Corporate

and

Unallocated(2)



Elimination



Total


Company sales


$

1,452



$

548



$

8



$



$



$

2,008


Franchise fees and income



34




1




1










36


Revenues from transactions with

   franchisees and unconsolidated affiliates



15




1




7




136







159


Other revenues









14




1




(6)




9


Total revenues


$

1,501



$

550



$

30



$

137



$

(6)



$

2,212


Company restaurant expenses



1,173




472




9







1




1,655


General and administrative expenses



44




24




9




42







119


Franchise expenses



17




1













18


Expenses for transactions with

  franchisees and unconsolidated affiliates



15




1




5




135







156


Other operating costs and expenses









13







(7)




6


Closures and impairment income, net






(1)













(1)


Other income, net



(12)










2







(10)


Total costs and expenses, net



1,237




497




36




179




(6)




1,943


Operating Profit (Loss)


$

264



$

53



$

(6)



$

(42)



$



$

269



Year to Date Ended 9/30/2019


KFC



Pizza Hut



All Other
Segments(1)



Corporate

and

Unallocated(2)



Elimination



Total


Company sales


$

4,495



$

1,588



$

29



$



$



$

6,112


Franchise fees and income



104




3




6










113


Revenues from transactions with

   franchisees and unconsolidated affiliates



48




3




20




425







496


Other revenues



1




1




49




3




(28)




26


Total revenues


$

4,648



$

1,595



$

104



$

428



$

(28)



$

6,747


Company restaurant expenses



3,650




1,391




31







(1)




5,071


General and administrative expenses



148




76




24




92







340


Franchise expenses



53




2













55


Expenses for transactions with

  franchisees and unconsolidated affiliates



48




3




16




421







488


Other operating costs and expenses






1




43




3




(27)




20


Closures and impairment expenses, net



7




5




2










14


Other income, net



(46)










(2)







(48)


Total costs and expenses, net



3,860




1,478




116




514




(28)




5,940


Operating Profit (Loss)


$

788



$

117



$

(12)



$

(86)



$



$

807



Year to Date Ended 9/30/2018


KFC



Pizza Hut



All Other
Segments(1)



Corporate

and

Unallocated(2)



Elimination



Total


Company sales


$

4,248



$

1,640



$

24



$



$



$

5,912


Franchise fees and income



104




2




4










110


Revenues from transactions with

   franchisees and unconsolidated affiliates



47




1




18




395







461


Other revenues









25




2




(9)




18


Total revenues


$

4,399



$

1,643



$

71



$

397



$

(9)



$

6,501


Company restaurant expenses



3,441




1,447




25







(1)




4,912


General and administrative expenses



135




80




25




94







334


Franchise expenses



53




2













55


Expenses for transactions with

  franchisees and unconsolidated affiliates



47




1




14




392







454


Other operating costs and expenses









24




1




(8)




17


Closures and impairment expenses, net



6




9













15


Other income, net



(42)




(2)




(1)




(98)







(143)


Total costs and expenses, net



3,640




1,537




87




389




(9)




5,644


Operating Profit (Loss)


$

759



$

106



$

(16)



$

8



$



$

857



The above tables reconcile segment information, which is based on management responsibility, with our Condensed Consolidated
Statements of Income. 


(1) Starting from the first quarter of 2019, our newly developed COFFii & JOY concept and e-commerce business became
operating segments, as their financial results started being regularly reviewed by the Company's chief operating decision maker.
Accordingly, our six non-reportable operating segments, reflecting the operations of East Dawning, Little Sheep, Taco Bell,
Daojia, COFFii & JOY and our e-commerce business, are combined and referred to as All Other Segments, as those operating
segments are insignificant both individually and in the aggregate. Segment financial information for prior quarters has been
recast to align with this change in segment reporting. There was no impact on the condensed consolidated financial statements
of the Company as a result of this change.


(2) Corporate and unallocated expenses comprise items that are not allocated to segments for performance reporting purposes.
Amount includes revenues and expenses associated with transactions with franchisees and unconsolidated affiliates such as
inventory procurement and other services provided to franchisees and unconsolidated affiliates. The Corporate and Unallocated
column in the above tables includes, among other amounts, all amounts that we have deemed Special Items. See "Reconciliation
of Reported GAAP Results to Adjusted Measures".

 

 

 

Cision View original content:http://www.prnewswire.com/news-releases/yum-china-reports-third-quarter-2019-results-300947122.html

Source: Yum China Holdings, Inc.
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