Reporter's Notebook

The numbers behind Yum! Brands' newly combined U.S. and international divisions

By now, most foodservice observers know that in major departure from past practices, KFC, Pizza Hut and Taco Bell-parent Yum! Brands Inc. this month combined its U.S. and Yum Restaurants International (YRI) divisions and going forward will report results by brand.

YRI covers multiple countries outside of America, excluding China and India.

“We believe that having 100-percent focused brand teams will enable us to more aggressively accelerate growth," David C. Novak, chairman and chief executive of Louisville, Ky.-based Yum Brands, has said of the consolidation. "We also believe know-how sharing will be more powerful by bringing the U.S. and international businesses together.”

Company officials further noted, “Yum Restaurants China and Yum Restaurants India will remain separate divisions given their strategic importance and enormous growth potential.”

The long term implications of the move won't be fully understood for some time, but in the shorter term, some shareholders, analysts and franchisees will be watching to see if details about U.S.-market performance disappear from Yum financial reports as a result of the combination.

Yum’s mature U.S. operations don’t often generate the sort of growth news that greatly excites shareholders, but the YRI division, with a newer story to tell and different restaurant models to work with in some markets, has had a pretty good run in recent years.

People who don't spend time poring over Yum’s public reports or analyst materials, might be surprised to learn that, saleswise, YRI is nearly the equal of the U.S. group with which it is now joined and, in terms of revenue and operating profit, can outperform its domestic peer. So apart from the strategic, operational and administrative pluses cited by the company, the combination may also yield some public relations advantages.

When its sales were much lower than its U.S. divisional cousin’s, YRI’s strong, stand-alone performance was an eye catcher that could be pointed out for wow factor, but would not significantly benefit the company in a combined-division scenario. Though a number of reasons could be logically cited for doing so, keeping the two groups separated then also had the effect of maximizing YRI’s star power. Now, however, the balance of power between the two former divisions makes it possible for YRI to bring some spark to the combined group when U.S. performance is less than electrifying, or for the domestic team to save the day should it find wind in its sails at a time when the international component is in the doldrums. 

YRI and U.S. operations, through the second quarter of fiscal 2013, generated nearly equal systemwide sales, with YRI’s yield coming in about 3.55-percent lower. From a company-store-sales perspective, YRI’s sales were 6.40-percent lower than those generated by U.S. operations. (Refranchising initiatives have negatively impacted company-store-sales numbers for both the U.S. and YRI.)

Here are some numbers derived from data reported by the company in quarterly filings and analyst materials that can provide a sense of what each division brought to the business-combination shindig:

Yum Brands Inc. U.S. sales, all brands, in $ millions, through two quarters of FY 13, by quarters and combined:

                    Q1 FY13            Q2 FY13     6 Mos. FY13

Co. Sales:       $505                $510            $1,015

Fran. Sales     3,553               3,706             7,259

Sys. Sales       4,058                4,216             8,274

YRI sales, all brands, in $ millions (U.S.), FY 13 through 2 quarters:

                     Q1 FY13           Q2 FY13      6 Mos. FY13

Co. Sales:         $444              $506             $950

Fran. Sales       3,653             3,377            7,030

Sys. Sales         4,097             3,883            7,980

Yum U.S. systemwide sales, all brands, year-over-year % change by fiscal year (FY) or quarter (Q):

FY08      FY09    FY10     FY11       FY12       Q1-13   Q2-13

2.96       -4.08     1.66     -0.19       -1.43        1.81        1.64

YRI systemwide sales, all brands, year-over-year % change:

FY08          FY09       FY10   FY11      FY12     Q1-13   Q2-13

9.91            -3.54       8.16   12.50       2.04       3.67      1.52

Yum U.S. co.-store sales, all brands, year-over-year % change, by fiscal year or quarter:

 FY08        FY09       FY10      FY11           FY12       Q1-13     Q2-13

-2.39        -15.24     -10.26   -10.57          -15.00      -18.81    -19.05

YRI co.-store sales, all brands, year-over-year % change:

FY08      FY09      FY10    FY11      FY12      Q1-13    Q2-13

-3.70      -12.57    -0.56    1.34        2.61        -12.77    -12.31

For the first nine months of fiscal 2013 ended in September, Yum officials said YRI had system-sales growth of 2 percent after the impact of foreign currency exchanges, or 5 percent excluding such exchanges. For the same period, the U.S. saw 1-percent growth in system sales.

During those nine months, the company said, YRI had revenue of $2.10 billion (U.S.) and operating profit of $525 million, compared with U.S.-division revenue and operating profit of $2.09 billion and $502 million, respectively.

Yum also indicated that, excluding licensees, the U.S. group had 16,042 systemwide locations in September, which represented net growth of 15 restaurants for the first nine month of fiscal 2013, while YRI had 14,756 units, or 256 more sites than it had at the beginning of the year.

Contact Alan J. Liddle at alan.liddle@penton.com                                                                         Follow him on Twitter: @AJ_NRN

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