Yum! Brands, Inc.

Hello everybody and welcome to today's Yum! Yum! Brands Inc 2022 third quarter earnings call. My name is Drew and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing star 1 on your telephone keypad. If you change your mind, please press star followed by 2. We ask that you only ask one question on today's call. I'm now going to hand over to Gavin Fielder, Chief Strategy Officer and Interim Head of Investor Relations to begin. Please go ahead.

Thanks, operator. Good morning, everyone, and thank you for joining us. As a reminder, I will be covering for Jodi Dyer while she is out on maternity leave. On our call today are David Gibbs, our CEO, Chris Turner, our CFO, and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from David and Chris, we'll open the call to questions. Before we get started, I would like to remind you that this conference call includes date of this announcement and 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 definitions of non-GAAP financial measures and other metrics that may be used on today's call, as well as reconciliations of non-GAAP financial measures. Please note that during today's call, all our exit from Russia. As a reminder, as of the beginning of the second quarter, we elected to remove the Russia business from key performance metrics. This negatively impacted our third quarter unit growth by two percentage points and our system sales growth by three percentage points. Additionally, these units were removed from our same-store sales calculator We continue to include Russia in gap measures for KFC, including royalty revenue and expenses to support the Russia business and expenses incurred relating to the transfer of ownership of the business. As a result of our decision to exit our Russia business, we have reclassed net operating profits from the operating segments subsequent to the start of the conflict to corporate and unallocated and reflected as a special item within the other income and expense line. For more information on our reporting calendar for each market, please visit the financial report section of our website. We are 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 questions, it will be included in both our live conference and in any future use of the recording. We would like to make you aware of upcoming Young Investor events and following. Disclosures pertaining to outstanding debt in our restricted We will be hosting an investor day in person on Tuesday, December 13th, 2022 at the New York Stock Exchange. The event will also be webcast via our website at investors.yam.com. Fourth quarter earnings will be released on February 8th, 2023 with a conference call on the same day. Now, I'd like to turn the call over to David Gibbs.

Thank you, Gavin, and good morning, everyone. Our strong top line momentum this quarter highlights clear demand for our iconic brands. We delivered 10% system sales growth, underpinned by 5% same store sales growth, and 6% unit growth. While the broader macro environment evolves, our brands continue to thrive by being distinctive, creating excitement for consumers, and by delivering exceptional value and convenience. The investments we have made in areas such as consumer insights, marketing analytics, and new technology platforms allow us to act with taste and confidence to meet the needs of consumers around the world. I'm particularly thrilled about the performance of the KFC and Taco Bell divisions that were both standout performers this quarter. KFC did an excellent job in driving transaction growth through its omni-channel approach, leading to a sequential improvement in comps from the prior quarter. Taco Bell is winning thanks to its ability to generate and amplify standout moments in culture and translate the resulting top-line growth into impressive restaurant-level margin. I'm also excited to share that we opened a total of 979 gross units across 74 countries, proof that our development engine is powerful and diversified. As these results show, our committed and well-capitalized franchise partners are seizing opportunities to invest in the growth of our brands for the long term. Next, I want to provide an update on our rush events. As Gavin mentioned, we have a signed purchase agreement to transfer ownership of our Russian KFC restaurants, operating system, and master franchise rights to an existing KFC Russia franchisee. Following the completion of the transaction, we will have ceased our corporate presence in Russia. I want to say that I'm incredibly proud of how our local teams have managed through this extremely difficult time and prioritized the safety of our people in the region. Our number one priority is our people, and they will always be at the center of every decision we make. Now we'll talk about two of our growth drivers, our relevant, easy, and distinctive brands, or RED for short, and our unrivaled culture and talent. That will provide an update on our recipe for good. Chris will share the details of our third quarter financial results before discussing our bold restaurant development and unmatched operating capabilities growth drivers. First, I'll discuss our RED brands. Beginning with the KFC division, which accounts for 51% of our operating costs. System sales grew 12%, underpinned by 7% same-store sales growth and 7% unit growth. As these results prove, this business can perform well in a multitude of environments, even as certain pockets of its local portfolio experience heightened macro pressures. At KFC's international business, which represents 46% of our operating profit, our system sales grew 14%, driven by an 8% increase in same-store sales. This represents a significant acceleration from the 1% sector sales growth in the second quarter. We saw notable strength in the Middle East, India, and Africa, thanks to momentum across our digital channels and a focus on operations and value. Our Middle East market is truly on fire, where system sales grew an impressive 46% with strength across all channels, including a ramp up in the use of kiosks and click and collect. Our India market saw system sales grow 45% during the quarter, with customers enjoying the convenience-driven seven-minute express takeaway guarantee. In Africa, where system sales grew 31%, the team is focused on providing an easy and convenient digital experience for consumers. They've done an outstanding job rebranding their click and collect channel, as well as rolling out kiosks across the market to drive sales. underpinned by some talent-sharing offers like the all-in-one feast. At KFC U.S., we brought back our famous $5 mac and cheese bowls as a value-oriented item this quarter. The reboot of this much-loved product helps drive a positive 2% same-store sales count. Additionally, for a limited time, we launched a $6 two-piece drum and thigh combo, which has driven positive results in a meaningful sequential improvement in transactions. Moving on to our Taco Bell division, which represents 34% of our operating profit. We saw extremely strong momentum with system sales growing 9%, led by 6% same-store sales growth and 5% unit growth. At Taco Bell U.S., system sales grew 8% for the quarter, underpinned by 7% same-store sales growth and 2% unit growth. The brand is bringing to life its one-of-a-kind menu through creative innovation in ways that only Taco Bell can. This was most evident with the team adding products to its $2 cravings menu, such as the cheesy double beef burrito, while innovating with premium offers like the grilled cheese burrito. Taco Bell is a brand that is truly relevant, easy, and distinctive, with a unique ability to stand for value in the current economic environment, yet have a broad enough range to appeal to consumers across every demographic. As we enter the fourth quarter, we're even more excited about the momentum in Taco Bell U.S. with the relaunch of the Mexican pizza, which occurred in mid-September. At Taco Bell International, system sales grew 26%, driven by 30% unit growth and 5% same-store sales growth. In the third quarter, five markets delivered double-digit system sales growth, marking another milestone in Taco Bell's international expansion journey. Here to date, we've opened 111 net new units, almost double the number opened at this point last year. We're driving scale in key markets, helping our franchisees leverage their size to optimize marketing spend, expand development capabilities, and gain local sourcing efficiency. Next, at the Pizza Hut division, which accounts for 15% of our operating profit, our system sales grew 5%, led by 5% unit growth and 1% same-store sales growth. At Pizza Hut International, which accounts for 8% of our operating profit, system sales grew 6%, underpinned by 8% unit growth and 2% same-store sales growth. Across our markets, we are focused on finding ways to expand our reach and become a more everyday brand. For example, as a leading everyday value offering, the Pizza Hut India team launched a fun flavor pizza costing roughly $1.00. More broadly, the MyBox value platform is proving to be a key traffic driver through innovation and giving customers the option to customize with new entrees and side items. The platform helps us lean in on the individual meal and lunch occasions, and is now live in over 50 countries. I'm also pleased to say that our emerging markets are seeing a recovery in traffic and demand as we lap the impact of COVID. Pizza US, which accounts for 7% of our operating profits, saw system sales growth 2% driven by 1% same-store sales growth. A key focus for this business has been to provide our customers with the ability to access our brands wherever they are. As part of this initiative, we continue to partner with third-party aggregators and integrate them into our POS systems, with 90% of our system using at least one third-party marketplace. In addition, we are working to ensure we have the right value offerings to meet consumer demand and maintain franchisee profitability. This effort led to the introduction of items such as the $6.99 medium one-topping pairs deal and the return of the big dinner box as an abundant family value offer. Lastly, at the Habit Burger Grill, same-store sales trends on a three-year basis have sequentially improved since the second quarter. Additionally, we continue to see consumers download our mobile app, leading to a 10% increase in app downloads since last quarter. Digital sales at The Habit now account for 33% of mix. The team is making good progress, growing new sales channels, and forming direct relationships with our customers. Moving on to our unrivaled culture and talent growth drive. As we've mentioned on previous calls, we've been celebrating a 25th anniversary as a publicly traded company in various forums throughout this year. I'd like to acknowledge the important role our unique people-first culture and world-class talent have played in our success over the last 25 years. Our culture, which is focused on recognition and collaboration, is a key differentiator across our portfolio of iconic brands. It continues to drive retention and recruitment of amazing leaders who are developing others, growing their careers, and ensuring the continued strong performance and success of our brand. I'm proud of Young's deep bench of outstanding leaders and how our commitment to growing our people from within has driven a healthy increase in promotions and new opportunities for our team. Our culture continues to attract top external talent as well. We recently welcomed former Mars Inc. Executive Allison Park to our global leadership team as Young's Chief Corporate Affairs Officer, overseeing communications and public policy, as well as our ESG strategy, an area of increased importance as we continue driving our recipe for good. At Pizza Hut, we welcomed former Starbucks Executive Shannon Garcia as the brand's Global Chief Operating and Transformation Officer, a role that will evolve the ways in which the brand works with its markets to add value and operate with a digital-first mindset. These are just two examples of the incredible talent that our culture enables us to attract from outside and within our industry. When it comes to our recipe for good, we continue to invest in critical work that's focused on our three priority areas of people, food, and planet. I'm proud of our commitments and the progress we're making on the execution of our ESG agenda. For example, when it comes to our climate efforts, we've moved Yum's U.S. offices as well as all of our company-owned restaurants to renewable electricity. We're now conducting a global study on renewable energy markets to identify low-carbon solutions at our restaurants worldwide. And in August, P-STEP U.S. announced an exciting partnership with Dairy Farmers of America on an innovative farm-level sustainability project to provide participating farmers with the technology and data needed to help reduce greenhouse gas emissions. With iconic brands and unmatched scale, I truly believe that we're in a unique position to make a significant impact in the areas we are prioritizing. To wrap up, I'm excited about the momentum in the business that we demonstrated this quarter. The power and resilience of our brands was clear as we continue to prove we can perform well in any environment. With our diversified global scale, world-class franchise partners, and unmatched operating capabilities, I am more confident than ever in the future success of our business. With that, Chris, over to you.