Yum! Brands, Inc.

Hello everyone and thank you for joining the Young Brands 2025 Second Quarter earnings call. My name is Sami and I'll be coordinating your call today. During the presentation you can register a question by pressing star followed by one on your telephone keypad. If you change your mind please press star followed by two on your telephone keypad. In the interest of time we ask for each participant to limit it to one question. If you have a follow-up please rejoin the question queue. I would now like to hand over to our host Matt Morris, Head of Investor Relations to begin. Please go ahead Matt.

Good morning everyone and thank you for joining us today. On our call 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 will open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions, and reconciliations of non-GAAP financial measures. Please note that during today's call system sales and operating profit growth will exclude the impact of foreign currency. For more information on our reporting calendar for each market, please visit the financial reports section of the IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We would like to make you aware our third quarter earnings will be released on November 4th with the conference call on the same day. Now I'll turn it over to David.

Thank you Matt and good morning everyone. Thank you for joining us today. Before we dive into this quarter's results, I want to acknowledge that this will be my final earnings call as CEO before I officially pass the baton to Chris on October 1st. As one of the biggest champions of our brands and having personally recruited Chris to Yum many years ago, I am thrilled that the board unanimously elected Chris as our next CEO, yet again demonstrating the strength of Yum's internal talent. I couldn't think of a better person to lead this company. To ensure a seamless transition, I will serve as an advisor until the end of 2026. Now turning to the second quarter results. I'm proud that Yum brands delivered another strong quarter in a tough consumer environment. System sales grew 4% driven by strong unit growth at KFC International and persistent market share gains at Taco Bell US, with both businesses delivering positive transaction growth. Yum delivered 386 net new units, including 871 gross openings, reflecting the enduring appeal of our brands and the strength of our diversified system. This quarter Yum achieved a new digital sales milestone with digital mix reaching 57%, seven percentage points higher year Notably, KFC's digital sales grew 22% and mixed climb to over 60%. Digital sales growth is undeniably due to the continued expansion of digital channels and the global rollout of Byte, in which we made additional progress in international deployments and new service offerings across our US portfolio. We also made strides with expanding AI-driven personalized -to-one advertising, for which having a high digital mix will become a massive strategic advantage. I'll now discuss the strategic drivers that underline our commitment to being the most loved, deeply connected, and always trusted brands for consumers around the world. Afterwards, Chris will provide a deep dive on our second quarter results, balance sheet position, and capital strategy, followed by our current outlook for 2025. Starting with KFC. KFC contributes 52% of Yum's divisional operating profit, with KFC International accounting for 85% of our international operating profit. KFC International grew the same store sales 3%, driven by strong performance in key markets including South Africa, Spain, Canada, Japan, and the UK. Even with a solid overall top line performance, we have opportunities to improve performance in underperforming regions, such as the US and parts of Europe, where challenges stem from gaps in value perception, inconsistent consumer experience, and innovation that has not fully resonated with consumers. As a first step, KFC US recently introduced the Kentucky Fried Comeback campaign, aimed at striking the right balance between innovative, relevant products and strong consumer value. In Europe, the teams are focused on delivering distinctive product offerings and meaningful partnership activations that resonate with local consumers, along with tailoring individual and snacking occasions in the 3 to 5 euro price range. On March 1, Scott Mswinski assumed the role of KFC's CEO, bringing fresh energy and a clear vision for the brand's next chapter. Scott has articulated a compelling strategy focused on energizing the brand, enhancing its cultural relevance, and deepening consumer engagement worldwide, leaning on his findings at Taco Bell. A key pillar of his approach involves modernizing the brand to attract younger consumers, in part by leveraging local standout innovations like the Korean BBQ Chicken Sandwich, inspired by Squid Game in Spain, a product the team has recently introduced in select additional European markets as part of ongoing efforts to learn and scale regional successes. Scott is encouraging boldness and creativity in innovation and marketing. As an example, the United Kingdom elevated KFC's visibility and appeal with a younger audience through successful launches such as the Dirty Louisiana Burger and strategic cultural partnerships like Limitless Live, the UK's largest free music event, leading to a 5% increase in same store sales. Moving to Taco Bell, which accounts for 37% of our divisional operating profit, with Taco Bell US accounting for 82% of Yum's US profit. Taco Bell delivered 4% same store sales growth, outpacing the limited service category in the US by 4 percentage points. I'm thrilled at the progress Taco Bell made to elevate and broaden its menu with new occasions, including its focus on crispy chicken and an expanded beverage lineup. This quarter, Taco Bell reintroduced Crispy Nuggets and unleashed full flavor and full size versions of Crispy Chicken in the innovative new items to start Q3, such as the Crispy Chicken Taco and Crispy Chicken Burrito. The success of growing our chicken sales layer is undeniable, with total chicken sales up over 50% in two years. We expect the momentum in chicken to continue as Crispy Chicken becomes a permanent platform in 2026, while the momentum behind new occasions will continue with shredded beef later this year. As for beverages, the team has bold ambitions to make beverages as iconic as their food, aiming for $5 billion in total system sales by 2030. At the very start of Q3, they took a significant step with the release of a nationwide lineup of flavorful refrescas and announced plans to expand its innovative beverage concept, Livmas Cafe. Despite executing an unprecedented level of limited time offer innovation, Taco Bell's order accuracy has improved and maintained exceptional drive-through performance in the US. Internationally, Taco Bell's momentum remained robust, same-store sales being 5% in Q3, with double-digit increases in Canada and India. Moving on to Pizza Hut, which accounts for 11% of Yum's divisional operating profit. In the US, innovation with cheesy bites and ranch lovers' flights mixed well with existing consumers, but an insufficient value message amid a competitive value landscape resulted in transaction softness. The team has learned from this, and going forward, the US team is establishing compelling value propositions, including the recent launch of Wing Wednesday and Tuesday's $2 personal pan pizzas. Following the recent new mobile app launch this year, the team plans to double down on mobile app acquisitions to start the third quarter. Internationally, Pizza Hut grew same-store sales 2%, driven by the Middle East recovery, positive transaction growth in the UK, and strong performance in South Asia. Habit Burger and Grill -over-year system sales trends in Q2 declined 1%, consistent with the trend observed in Q2 last year. The decline reflects continued softness in consumer demand, with some impacts associated with the recent events in the LA area. The team improved its value offering through compelling weekly offers to our Char Club members and the launch of Gotta Habit meal deals in June in select markets, priced at $6, $8, and $10. Encouragingly, this emphasis on brand-right, abundant value lifted sales starting in June, and that positive momentum has continued into July. Looking ahead, I'm optimistic that increased marketing investments will further support sales momentum and build on the traction we're already seeing. In fact, recently, for the second year in a row, Habit has been ranked the number one best burger and number one best side for our Tempura Green Beans, and now it's been named the number one best best casual restaurant by USA Today's 10 best Reader's Choice Awards. We continue to push the boundaries of what's possible with bold strategic initiatives to keep us ahead of the competition and future-proof our business. At Taco Bell, LivMoz Cafe is part of the team's bold bet to go after the $25 billion beverage category in the US and will bring a new layer of hospitality and culinary creativity to the brand. The cafe was inspired by Gen Z's love for curated, customizable drinks and offers over 30 signature beverages, from churro chillers and specialty coffees to refrescas and Dirty Mountain Dew Baja Blast Dream sodas. With a LivMoz Cafe, our test store has seen a significant increase in transactions while more beverage users are visiting the cafe and choosing to dine in. The team announced last month that they will expand LivMoz Cafe within existing Taco Bell restaurants to 30 locations across Southern California and Texas by year end. In the US, we are moving forward with plans to expand our one-unit test of SAUCY. We will open several additional test units by end of year near our existing Orlando location. We continue to be encouraged that weekly sales have averaged materially higher than the pre-existing KFC since opening and that we're connecting with a younger demographic as one-third of SAUCY consumers are under age 30. We have a lot of learning ahead of us and we are eager to leverage the invaluable consumer insights relevant for our larger KFC US system. In the connected pillar, our progress continues to accelerate, leading us to become the world's most connected restaurant platform. Digital sales now total a record portion of our system sales. In Taco Bell US, 41 percent of our orders are digital, fueled by loyalty offers and unique digital activations like Mike's Hot Honey Tuesday Drop and Feed the Beat Record Club Box. Taco Bell's unique activations helped grow active loyalty consumers nearly 45 percent year over year. Across the organization, AI is supercharging our marketing. Over 200 million AI-generated communications have been sent this year, delivering up to five times incrementality compared to traditional approaches. This is not just marketing evolution, it's a revolution and we're only getting started. In addition, as our systems become more connected, we're finding more opportunities to strengthen our operations. For instance, this quarter we completed the conversion to a more advanced voice of the consumer product that helps aggregate consumer reviews from social channels and third-party delivery platforms and allows us to integrate such insights into Byte Coach to deliver more effective operations routines to restaurant general managers. corporate citizenship and sustainability play a key role in ensuring our brands remain trusted everywhere we operate. We recently issued our 2024 global citizenship and sustainability report, which highlights our efforts across our people, food, and planet pillars. Highlights from the report include achieving 89 percent of Yum approved suppliers being certified or on the path to global food safety initiative recognized certification. Yum also now sources 94 percent cage-free eggs across 25,000 restaurants, including in the U.S. and Western Europe. Additionally, we reduced emissions by 25 percent on an absolute basis for company-owned restaurants and corporate offices since 2019. These are just a few examples of how we are future-proofing the world's largest restaurant company. Congratulations to the teams around the world who are driving this important sustainability work every day. Your efforts are making a real impact on our business and our bottom line. I'd also like to highlight a few programs that Yum and our brands invest in that help people by building careers, connections, and strong communities. Pizza Hut Sri Lanka's Equal Slice for Everyone program offers up to six months of training for youth to gain restaurant skills and certification before joining the workforce. In Thailand, KFC's Bucket Search helps youth who left school regain confidence, explore vocations, and return to education. This program has impacted lives of hundreds of young people since 2023. I'm immensely proud of the work that is being done around the globe to ensure Yum brands is positively impacting the markets where we operate and the people who live there. To close, I want to extend my deepest thanks for our restaurant teams, franchisees, and support centers across the globe. Despite the challenges we faced in the second quarter, driven in part by softer consumer sentiment, our results stand as a powerful testament to the strength of our global brands and the dedication of our people. I'll share more final thoughts after Q&A, reflecting on my nearly four decades at Yum, including the past six years as CEO. It has truly been an incredible journey. I've had the privilege of working alongside the best talent and franchisees in the industry and feel the same way about the investor community. Your partnership, insights, and long-term perspective have pushed us to become a better company, better position for sustained long-term success. We've expanded our iconic brands by opening an additional 22,000 stores, and together we've navigated both challenges and milestones in our shared commitment to building a culture rooted in growth, purpose, and performance. We've built industry-leading digital capabilities we once thought unimaginable and dramatically accelerated the pace of unit development. As I look ahead, I couldn't be more confident that Yum is well positioned to continue to deliver sustainable growth and long-term value for our shareholders. Thank you. With that, Chris, over to you.