Yum! Brands, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Yum! Brand's first quarter 2019 earnings release call. At this time, all participants have been placed in a listen-only mode. After the speaker's remarks, there will be a question and answer session. If you wish to ask a question at that time, simply press star and the number one on your telephone keypad. In the interest of time, we do ask that you please limit yourself to only one question. Thank you. It is now my pleasure to turn the call over to Keith Signer, Vice President, Investor Relations, Corporate Strategy, and Treasurer. Please go ahead, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us. On our call today are Greg Creed, our CEO, David Gibbs, our President, Chief Operating Officer, and Chief Financial Officer, and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Greg and David, we'll open the call to questions. Before we get started, I'd like to remind you that this conference call includes forward-looking statements. Forward-looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from those statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC. In addition, please refer to our earnings releases and relevant sections of our filings with the SEC to find disclosures and reconciliations of non-GAAP financial members that may be used on today's call. Please note the following regarding our basis of presentation for today's call. First, all system sales results exclude the impact of foreign currency. Second, Pizza Hut division and worldwide system sales and net new unit growth include the benefit of the increase in units in the fourth quarter of 2018 related to our strategic alliance with Telepizza. Same-store sales growth reflects the inclusion of Telepizza in the prior year base. Third, core operating profit growth figures exclude the impact of foreign currency and special items. Fourth, the lease accounting standard was prospectively adopted on January 1st, 2019. As a reminder, this is a GAAP-required change resulting in the recognition of operating lease assets and liabilities on the balance sheet. We do not expect a change in our income statement or cash flows as a result of this accounting change. And last, please note that 2019 results will include a 53rd week. We're broadcasting this conference call via our website. This call is also being recorded and will be available for playback. Please be advised that if you ask a question, it will be included in both our live conference and in any future use of the recording. We'd like to make you aware of the following changes in upcoming Yelm Investor events. Disclosures pertaining to outstanding debt in our restricted group capital structure will be provided at the time of the Form 10-Q filing. Second quarter 2019 earnings will be released on August 1st, 2019 with a conference call on the same day. Now, I'd like to turn it over to Mr. Greg Creed.

Thank you, Keith, and good morning, everyone. This quarter marks the start of the third and final year in our transformation of Yum! Brands. We're pleased to report a strong start to the year with first quarter system sales growth of 8%, including 4% system sales growth and 7% net new unit growth. Focus on our four growth drivers, increase collaboration, and our unrivaled culture continue to fuel these results. As usual, David and I will walk you through the lens of these four key growth drivers. I'll provide an update on our relevant, easy, and distinctive brands, or as we say, RED for short, as well as unrivaled culture and talent. Then, David will discuss bold restaurant development and unmatched franchise operating capability. I'll begin with our three red brands. In the first quarter, KFC Division delivered system sales growth of 9% with same-store sales growth of 5% and net new unit growth of 6%. This global powerhouse saw widespread strength coupled with standout performances in some of our larger markets, as well as a tailwind from lapping the distribution disruption in the UK last year. Internationally, call-outs for the quarter include Japan, Indonesia, Australia, Africa and China. And you'll notice as I give some details, there are consistent themes, value and innovation working well together. Japan and Indonesia led the way, each with double-digit same-store sales growth. Japan's 15% same-store sales growth was driven by the well-received share pack as well as lunch value deals and hot and honey chicken on the bone innovation. Indonesia's 12% same-store sales growth was driven by value and innovation with big box value counterbalanced by the combo superstar innovation. Australia's same-store sales grew 6% on the back of the dual-layer value combined with core product news. And Africa, where 10% same-store sales growth came with as a result of strong value promotions such as the Streetwise mix, coupled with an innovative Zinger chutney sandwich. Importantly, these markets maintain momentum in development while generating this strong same-store sales growth. Now to KFC US, where same-store sales grew 2%. We started the year off with a continued focus on value by introducing a new channel for a la carte menu items, offering our original famous bowls for just $3, and two chicken littles for $3. Both offers drove transactions for the quarter and allowed customers flexibility to build their own meals. We then followed this up with new options in both the $5 fill-up and $20 family meal offerings. Operational enhancements such as a new menu board design and delivery through Grubhub each positively contributed to first quarter sales. We now have 2,200 KFCs offering delivery and 3,200 restaurants available for click and collect on the Grubhub marketplace. We're excited about the operational ease and the increased check growth for our franchisees. And we look forward to the nationwide launch of KFC delivery in the U.S. later this year. Lastly, KFC continued its campaign of distinctive and truly breakthrough marketing from the KFC Innovations Lab. Moving on to our Pizza Hut division, In the U.S., same-store sales were flat and system sales declined 1% due to a net new unit decline of 1% as we continue to transform our asset base from dine-in to off-premise focused assets. Pizza Hut U.S. continued to provide compelling value to customers by maintaining our $7.99 large two-topping pizza deal and the $5 line-up. The $5 lineup, which features favorites like a medium one-topping pizza, garlic knots, wings, and cinnamon mini rolls, help drive traffic and provides a pipeline for future product innovation. In March, we added a new teammate to the lineup with our pepperoni pozzone, ensuring our best innovation is accessible at a great price. As we've continued to reiterate, for both the U.S. and the international businesses, sustainable improvements in sales growth will remain a slow build as we update and reposition the asset base and make the messaging more distinctive. We're encouraged by the steps we've taken to enhance assets, provide value offerings, and improve operations to help our franchisees succeed. With that in mind, we're excited about our partnership with Grubhub and the opportunity to leverage the Grubhub marketplace as an additional sales channel for Pizza Hut. We ended the first quarter with over 200 locations on the Grubhub marketplace. While customers are placing the orders on the Grubhub website, Pizza Hut delivery drivers are completing the orders. Now, onto Pizza Hut International. System sales grew 13% in the quarter, including a benefit from the addition of the tele-pizza units in Q4 of last year, while same-store sales were flat. We were pleased to see same-store sales growth in places like Malaysia, Indonesia, and Hong Kong. As one example, Malaysia delivered a very strong same-store sales growth at 6%, with their dominant value offering a buy one, get one promotion. In regards to development, we continue to find success in our off-premise focused asset options, including DELCOs, fast casual DELCOs, and express units. As we mentioned during our previous earnings call and at our investor day last year, the gap between dine-in channel sales and off-premise is significant, with the US and international seeing roughly seven points and six point differentials between the two channels respectively. In order to enhance the assets we view as the future of the brand, we're leveraging best practices from our strongest markets to provide targeted, compelling options in our off-premise focused asset options. Last but not least, Taco Bell, where system sales grew 7% with same-store sales growth of 4% and net new unit growth of 3%. Encouragingly, the U.S. same-store sales grew a healthy 5%, though Taco Bell International caused the division to round down to 4%. Starting with the U.S., we began the quarter by showcasing $1 and $5 value and finished the quarter with innovation. Taco Bell continued to double down on value in the U.S. with the $1 grande burritos and the double cheesy gordita crunch box. Our famous nacho fries came back again for a limited time and were so popular that yet again, one in four orders contained fries. We then finished the quarter off strong by introducing a new limited time offering, Steak rattlesnake fries. Our signature seasoned fries with marinated steak kicked up with a bit of creamy jalapeno sauce. Of course, nacho fries are cool to eat, but they're also awesomely spicy. The official launch of Taco Bell delivery has been very encouraging. Having launched with marketing support in February, franchisees are all in on this major initiative and are very excited about delivery as an opportunity to drive incremental sales and transactions. Given its early days, we aren't going to provide specific data, but I will say that both traffic and checks saw benefits from the launch. Customers are also loving a new way to get their favorite Taco Bell products. Feedback has been positive, plus the strength of our partnership with Grubhub has allowed for real-time feedback and learning to continue to elevate the customer experience to even higher levels. Delivery is now live in over 4,000 Taco Bell restaurants in the U.S., An opportunistic market expansion should increase restaurant coverage over time. Additionally, click and collect functionality is available on all Taco Bell.com and Taco Bell app while we're also testing this functionality through Grubhub. For Taco Bell International, there's a lot to be excited about. We expanded into the first new market of 2019 with the launch of Taco Bell Thailand, where we hosted a launch party that generated nearly half a billion impressions. Borrowing from the US, we introduced value boxes around the world, which drove growth in the UK, India, and Japan. The UK opened its fifth restaurant in central London, and the five-pound stacker box was a success. India maintained momentum with positive same-store sales, driven by their launch of their Big Bell box. And Taco Bell's dedication to their purpose to feed people's lives with mass is shining through, and we are proud of the team and our franchise partners who work hard to bring this iconic brand to life. Now to unrivaled culture and talent. As you've heard me say before, our two most important assets are our brands and our people. For us, unrivaled culture and talent is a true competitive advantage and we'll continue to focus on it to fuel results and accelerate growth. In the 140 markets where we operate, it's our 2,000 franchisees and their employees who are delivering the customer experience at KFC, Pizza Hut, and Taco Bell. In fact, recently in Europe, David and I launched our next generation leadership development course for franchisees and employees called Inspiring Culture to Fuel Results. This is a program focused on building up our people to lead in a way that makes our three iconic brands relevant, easy, and distinctive from the inside out. Because of the investment we continue to make in our rival culture and talent, we're seeing the strong progress and results on the transformation and setting a healthy foundation for sustainable growth. In conclusion, I'm excited about the work we're doing with world-class leaders focusing on our four key growth drivers to build a world with more yum. We remain confident as we relay the foundation of our transformation strategy to maximize shareholder value. And with that, it gives me great pleasure to introduce our President, Chief Operating Officer, and Chief Financial Officer, David Gibbs.