YUM
#As far as the 2019 target for EPS, obviously, there are some FX headwinds to that that are setting us back, but our interest rate has come in a little bit better than we expected.
So there will be pluses and minuses as we go along the journey.
And as far as our pressure on G&A, I am really pleased that the organization has embraced our effort to get more efficient and we are certainly looking for G&A efficiencies continuously as we go forward on this journey.
But at this time, our long-term guidance remains the same.
Obviously, our bold goal, <UNK>, as you know, is 7% system sales growth and as <UNK> outlined, we believe we can get to 2% to 3% same-store sales growth next year and 3% development.
I think what's very clear is that we are much more focused on these two.
So as I work with the leaders in the organization.
I would say we've raised the awareness on the importance of net new unit growth, not just in the US, but outside.
In that context, obviously, we had a very strong year at Taco Bell.
Obviously, at KFC, in the US, we've been a net closer.
I believe that by the time we get to the end of 2019, we will be a net builder of new units at KFC, so I think that will be a turnaround.
We have signed significant development agreements with Pizza Hut International with a number of franchisees around the world.
These are in the order of magnitude of 200 to 300 restaurants over like five years and I think that, on the KFC front, our ability to continue to penetrate in emerging markets you know remains.
So I feel very good about our ability to continually grow our net new unit growth and I think there is an equal focus on same-store sales growth getting back to really understanding consumer insights, really getting to what makes the consumer different and really understanding that what we are delivering is a food experience, not just food.
And I think all of that will help us enormously.
So I feel confident that I think we probably grew system sales around 4% last year.
We are [tithing] at least 5% this year and I think we are definitely on our way to delivering close to the bold goal of 7% by the end of 2019.
Yeah, as far as the components of our journey to the 2019 EPS guidance, as we have said before, we are not going to get into specific details around sales guidance, for example, other than to just say the reasonable assumptions consistent with historical and our modest expectations for going forward.
I will just remind everybody that share repurchases, things that are very much in our control make up the vast majority of this journey, which is why we have confidence in being able to hit the targets.
And to answer the second question, I think there's really three things, <UNK>.
I think the first one is we are much more focused as an organization.
We are absolutely focused on driving same-store sales, net new unit and obviously shareholder returns.
I think there's four areas that we are more focused in building distinct and relevant brands, obviously enhancing our franchise capability, this bold asset development and unrivaled culture and talent.
And internally, even as we did the 2017 AOP, it was very clear across all the divisions that they are more focused on these four things, which we believe will ultimately lead to stronger system sales growth.
I think the second thing is we are running the organizations really through what I call a global leadership team, so it's not just the Yum! executive team, but we meet monthly as a global leadership team, which is obviously the division CEOs and Presidents and I think the last meeting, which we had two weeks ago, they remain incredibly confident and optimistic about both 2017, as well as hitting all the three-year transformation plans.
And then the last one is we are going to have our first global leadership conference in five years in about a month.
This will be bringing the top 200 leaders of the organization together and essentially the core of this meeting is about how do we go from good to great.
How do we go from growing 5% system sales and get to 7%.
And my objective is to use those 200 leaders to essentially be co-authors of this growth because we are going to have to do things differently.
We are going to have to be bolder and I want them to co-author that sort of how.
I know they are excited about it and I believe that we will leave with everyone having absolutely clear clarity on what we are doing on the focus that we are changing and I think hopefully bolder and more courageous decisions that will get us from 4% to 5% system sales growth to the 7% number, which is our bold goal.
Sure, <UNK>.
So let me just say I think we did deliver 6% net new unit growth in Pizza Hut International last year and I know the team because of the development agreements we've already signed, very, very confident that we continue to grow net new units in the Pizza Hut world.
There are some very good examples, as you mentioned, about what we are calling the repeatable model.
So in Thailand, we've turned that business around.
I think we've delivered at least 18% sales growth for three quarters in a row.
We've obviously captured what we've done there and as I alluded to in my remarks, so taking that to Korea and Malaysia.
I'm very excited about the master franchise agreement that we've done in Australia.
The results in Australia have improved markedly.
I happened to meet with the master franchisee when I was there in December.
I'm very impressed and I think that you will see both stronger same-store sales growth, as well as, as I said in my remarks, the opportunistic ability to acquire another pizza company and transform those assets into Pizza Hut.
So on the international side, I feel very good that we have captured the repeatable model, the things that work and that we have an accelerating net new unit model in place.
In the US, I think it's very clear ---+ in fact, the way I look at it, I go back to what is the underpinning of why Taco Bell has had a pretty successful ten-year run and what is it that helped us turn around the US KFC business.
I think it's really two things.
It's the partnership and relationship we have with the franchisees and that then leading to an aligned long-term strategy.
And so I think if I look at Taco Bell, I think our relationship with our franchisees is world-class and that enables us not to be in a week-to-week, month-to-month planning cycle, but to be really looking at the long term and have great sort of trajection.
I think as I said on the KFC US turnaround, I think Jason Marker and the team, they've changed the relationship with the franchisees.
On the basis of that change in the relationship, we've now got a much more long-term sort of strategic alignment.
On the Pizza Hut side, I think the good news is I know that both the franchisees and us want to replicate the results of both Taco Bell and KFC.
I think both sides recognize that we need to improve the relationship and out of that relationship will become hopefully a more long-term aligned strategy.
So, while there are many things to do at Pizza Hut, as we have talked about, there's assets, there's technology, there's operating systems, there's communication, I think fundamentally when we get ourselves into an aligned long-term strategy that executes the plan ---+ we know we've got a plan ---+ then I believe we will start to see an improvement in Pizza Hut.
So I remain positive that we can do this.
We know what's got to get done and I do believe our franchise partners at Pizza Hut want to be successful just as much as we do.
And on the refranchising question, of the 427 units that we sold in 2016, 195 of those were US Pizza Huts.
So we have reduced our exposure to the US Pizza Hut business a little bit and certainly as we go forward, selling stores in Pizza Hut is part of our strategy along with the other brands, but I won't provide any more specifics on the go-forward plan, but we will update you as we move forward on that.
Well, obviously, the Pizza Hut business is a delivery business and I think in the US, well, through delivery and carry out, more than 90% of the sales come from that now.
So the other thing I'm really excited about is Roger's commitment to take KFC and make it more of a global delivery brand.
As I said in the prepared remarks, we are already in 5000 stores doing delivery.
Obviously, we have over 20,000 KFCs.
The great thing about KFC is it is perfectly set up to be delivered.
There is nothing better than a bucket of Original Recipe chicken in terms of a transportation vehicle, product that holds its heat, delivers well.
So in that sense, I do believe and I know Roger believes that accelerating delivery is a key part of it.
And on Taco Bell, obviously, <UNK> has started to roll out Taco Bell delivery.
This product isn't as well set up to be delivered as the other two brands, but what is interesting is that when people want this product, they will have it delivered.
I think we are already in about 400 stores in the US.
It's not a huge part of the business at the moment for Taco Bell.
I know that <UNK> and the team are committed to accelerating that.
Where we do have delivery, particularly around college towns, it can actually be I think about 4% or 5% of sales, but still a long way to go.
So to answer your question, we are focused on it.
We really have to turn Pizza Hut into a delivery brand.
We are still probably well-known as a dine-in brand, but the delivery brand is what we've got to change the consumer's perception.
KFC, we are committed to growing delivery and we have a great product to deliver.
And on Taco Bell, our customers want it; we just got to work at how we get it to them.
So the answer is we are very focused on that and that will be one of the drivers of growth.
The other thing I would add is that Taco Bell is actually in over 900 stores with delivery now and when you think about the Pizza Hut business, one of the challenges we have in the US is more than half the stores have dining rooms attached to them and aren't really ideally set up for delivery.
So that is ---+ part of the journey at Pizza Hut is getting into more delivery-friendly assets over time.
Here's what I will say on the G&A front.
If you look at what we've released in 2016, it looks like G&A went up about $60 million, but the reality is, if you back out special, it went down about $50 million and that's before the effect of inflation.
So we made some considerable progress on G&A in 2016.
In 2017, we've got a different mix of refranchising and G&A cuts that collectively is going to provide this 1 to 2 point headwind, but we are certainly on track with the plans we had to get to the 2019 targets and we are going to make meaningful progress on G&A in 2017, similar to the progress that we made in 2016.
No, we believe that is the right number.
Obviously, there's uncertainty on that as we see potential changes in policy, but that is our current guidance.
On Pizza Hut, hopefully, by the end of year, we will be at a single POS system in the US, which will help enormously.
Internationally, we are looking at getting out of multiple POS systems down to maybe one or two, so that will help dramatically.
Taco Bell is almost at a single POS and back-of-house system, which obviously sets them up for e-commerce, digital, social.
And KFC is obviously also making progress to get to a more aligned one system.
That will help us do things like loyalty, which obviously are critical and important in the marketplace.
It sets us up to obviously drive a social agenda and I think all of that will lead to improved growth for the business going forward.
Yes, I think obviously, Pizza Hut has got a very big digital ordering business today, but I think the opportunity for us to do loyalty and things like that will obviously happen once we get to this single POS system.
Taco Bell already has mobile apps you can obviously order through.
I think that business isn't large yet, but what it does do is actually make the brand a relevant brand, so it's one of those things where we may not be getting a lot of business from e-commerce on Taco Bell.
It does actually reinforce that this is a millennial-centric brand.
And then on KFC, yes, I think it's not going to happen anytime soon, but we definitely know we need to be in the loyalty business and so whether it is late this year, next year, that's probably more the timing that things will occur.
First, on the margin question, good question and, yes, this is all consistent with the plan.
Post the October investor and analyst event, we put a slide up that actually showed pro forma for the whole transformation to at least 98%, what our restaurant-level and EBITDA margins and EBIT margins would look like on a baseline of 2015.
So if you look at that, you can actually see pretty explicitly where we think those margins can get to within a vacuum.
On the other front, yes, as I said in my introductory comments, we are going to get you pro forma results for the new fiscal year and for China and we are shooting for early April, so that will be full quarterly just like I ---+ look, I've been in your shoes and I know what you are looking for and what will be most useful.
It is coming.
We are shooting for early April.
Restated for everything.
Yes.
It obviously is ahead of our run rate.
As I think I said earlier, the organization is much more focused on two things ---+ driving same-store sales and delivering net new units.
So I think just the amount of time we are spending on what do we need to do in order to deliver that growth, as we alluded to obviously both KFC and Taco Bell took that Q4 momentum into Q1.
We've got the launch of Georgia Gold.
You've got the launch of Naked Chicken Chalupa and obviously we still got a lot of work to do on Pizza Hut.
So with the plans that we put together for the AOP, I feel really good about the plans across the brands internationally and in the US.
It's nice to go into the quarter with some momentum and I think this focus is really starting to pay off and I will be even more excited when we come out of the global management meeting and I've got the top 200 leaders to really help us think about what else can we do from a bold and courageous point of view in order to deliver even more same-store sales growth and even more net new unit growth.
I'm really looking for to that meeting because there is nothing better than being asked to co-author your own future.
I feel good about that; I feel good about the plans that the divisions presented in 2017 and now we've got to go and execute, which is what we've traditionally been very good at.
Look, our performance will differ obviously across the three brands, so averaging 2% to 3%.
I have expectations that maybe one brand will do better, one will do a little less and one will do about that number.
So I'm not expecting every brand to deliver that.
I think the brands that have got momentum, we can build on that and the brand that doesn't have momentum, we've got to do a lot of work.
I sat down with the Pizza Hut US team yesterday.
We were reviewing calendar changes for this year, which obviously they are working with the franchise community.
So no one is sitting still either.
If we are having success, we are trying to build on it.
If we are not having success, we are acting quickly in order to change the trend.
<UNK>, we don't have that number with us right now.
Give me a call afterwards and we can discuss.
I think the easiest answer is no.
I'm not seeing any impact anywhere.
There's obviously a lot of discussion and speculation, but I am not seeing any impact on our business in any country so far.
On November 3, we filed an 8-K showing a pro forma end of 3Q balance sheet and cash flow statement for Yum!, excluding China.
What you'll see is a lot of the cash you just referenced in the $2.99 billion related to China so we show you actually what it was excluding China as of the end of 3Q.
Then if you do the walk from that number to what we show at the end of 4Q, largely that is one quarter of dividend and the share repurchases that were accomplished through the quarter as we outlined in our press release.
Give me a call afterwards and we can clarify, but that should be all the pieces you need to get through the walk.
That's what we have now.
Long term in terms of cash needs, it's a little different now given the moving pieces related to refranchising.
We still have some company-operated stores.
We do not need $700 million as of now and we'd like to knock that down over time.
Historically, we've been in the $600 million to $700 million range, including China, so it's less than that now.
We will update you as we get closer to run rate at the end of the transformation, but definitely less than the $700 million we have now.
As we said, we are monitoring all market and macro conditions constantly, trying to make the best decision and get to the optimal mix of interest rate, duration and flexibility.
As we said, we are comfortable with our capital structure right now.
If anything changes, we will communicate that in due course.
Well, the good news, <UNK>, is that our [delco] model, our small box model, is a really good, economic model.
The cash paybacks from building delcos is three years to four years on average.
So we have a way to get out of those red roof restaurants that are holding us back.
And by the way, not all of them are suboptimized for delivery.
Some of them were built more recently.
Some of our dine-in stores aren't even red roofs.
They were built with the newer model.
So there is a mix of assets there.
But we do have an economic way to get into a better asset and Artie Starrs, the President of the Pizza Hut US business, is working with the franchisees on a plan to make that happen.
And unlike a lot of transformations where you can introduce a new product overnight and it's a quick fix, this one takes a little bit of time.
We also have a fast casual model, which we've talked about at previous investor meetings, which really plays into the current trend in the pizza category.
We are seeing a lot of growth in fast casual.
We've had a lot of success with that, albeit with a small number of units and the franchisees and the Pizza Hut management team are excited about it and using that as another option to get into an asset that's better positioned for delivery but also can add incremental sales through lunch dayparts in this fast casual model.
I think, right now, we are obviously having a lot of discussions with the US franchisees, which Artie is leading.
And I think until there's an outcome ---+ as I said earlier, I think the great thing is that the US Pizza Hut franchisees as much as we do want to obviously turn the performance around and be more like KFC and Taco Bell in the US.
They understand that it's going to require a partnership.
They understand it's going to require long-term strategic alignment and I think how that plays out in terms of what both sides do in order to build that relationship and get ourselves strategically aligned, that is sort of a work in progress, but I am very confident both sides want to obviously get to a better place and get this brand back into growth.
Thanks, everybody, for being on the call.
I guess for me 2016 was a landmark year.
We successfully spun off Yum! China, we launched this multiyear transformation plan and we returned $6.2 billion to shareholders.
I'm very pleased with the results and a solid end to what I think was an extraordinary year.
Core operating profit increased 27% in the quarter and 13% for the year, obviously exceeding our guidance.
I remain very confident in our three-year plan.
There is no change to our long-term guidance and I'm encouraged by the early progress we are doing to unlock growth through this focus four growth drivers.
We are off to a running start.
I think we can accelerate growth, reduce volatility and increase capital return to shareholders.
So I guess in summary I'm very excited about the future of Yum! and I think we represent an extremely compelling growth story and one that investors I hope will buy into.
So thanks for being on the call.
Thanks for coming out in the horrible weather and we look forward to speaking to you all very soon.
Thanks again.
