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Previous: TRICON GLOBAL RESTAURANTS INC, 8-K, 2000-07-20 |
Next: CHEVY CHASE AUTO RECEIVABLES TRUST 1997-2, 8-K, 2000-07-20 |
EXHIBIT 99
TRICON GLOBAL RESTAURANTS REPORTS A 26 PERCENT
INCREASE
IN ONGOING OPERATING EARNINGS TO $0.76 PER SHARE
FOR THE SECOND QUARTER
LOUISVILLE, KY (JULY 18, 2000) – Tricon Global Restaurants, Inc. (NYSE:YUM) reported second quarter ongoing operating earnings of $113 million, or $0.76 per share, a 26 percent increase for the quarter ended June 10, 2000. Year-to-date ongoing operating earnings increased 27 percent to $1.39 per share. Additionally, Tricon took an unusual charge of $72 million, $0.31 per share, almost entirely due to the AmeriServe bankruptcy.
Financial Highlights
Ongoing Operations
($MM Except Per Diluted Share Amounts)
% Change vs. % Change vs.
Q2 Prior Year Q2 YTD Prior Year
---------- ------------- ------ ----------
System Sales 5,014 - 9,940 1
Revenues(a) 1,656 (12) 3,253 (12)
Operating Profit 226 6 425 5
Operating Earnings 113 16 209 18
==============================================================================
Operating EPS(b) 0.76 26 1.39 27
==============================================================================
Net Facility Actions .26 (47) .43 (30)
Unusual items (.31) NM (.32) NM
Reported EPS(c) 0.71 (36) 1.50 (15)
David C. Novak, Chief Executive Officer said, ” We are pleased to achieve our eighth consecutive quarter of over 20 percent growth in ongoing operating EPS. The second quarter’s 26 percent growth in ongoing operating EPS was driven by continued outstanding contributions from our International business and strong performance from Pizza Hut. Additionally, significant reductions in general and administrative costs and excellent progress from our financial strategies benefited results, while KFC performed as expected. The one area of disappointment was Taco Bell’s same store sales which declined 6%.
“I recognized that fundamental change at Taco Bell was necessary, and today we separately announced significant actions unanimously supported by our Board of Directors designed to regain sales momentum at Taco Bell, including both new leadership and a change in our advertising agency.
“Importantly, the underlying consumer dynamics of the Taco Bell brand are solid. While we lead the QSR category in providing unique, great tasting food at a superior value, the burger chains have improved their value positions and narrowed the gap versus Taco Bell. We are bringing fresh, new thinking to the brand to better leverage Taco Bell’s unique market strengths and will continue to invest in the brand to make this happen. Additionally, we are implementing aggressive strategies for the balance of the year that will drive product news and value differentiation, which we are hopeful will improve sales performance versus current trends.
“However, given Taco Bell’s current trends it is prudent that we now reduce our full-year performance expectations to mid-teens growth in ongoing operating EPS, which is below our prior forecast but consistent with our stated long-term growth objectives. And our full year forecast for U.S. blended same store sales is now negative 1% to 2%. Of course, we will strive to beat these marks, and will continue to take every required action to reinvigorate the Taco Bell business and drive consistent same store sales growth at all of our brands.”
Tricon’s international business continues to deliver excellent results with ongoing operating profits up 20%, on top of 59% growth last year. This is the eighth straight quarter of 20% or better growth in operating profits. Ongoing operating profits were driven by solid sales growth and 695 new unit openings over the past year, including 430 KFCs, 240 Pizza Huts and 25 Taco Bells. Franchise fees were up 14% and ongoing restaurant level margins improved by 100 basis points. Same store sales growth continues to be solid in key countries, including Australia, China, Korea, Mexico and the United Kingdom.
In the U.S., Pizza Hut continues to deliver strong results. For the quarter, same store sales were up 1%, while lapping very strong prior year growth of 9%. Pizza Hut continues to leverage its leadership position in innovation and variety with great products including The Edge Pizza, which drove sales in the quarter. Pizza Hut has solid momentum going forward, and we expect same store sales to show 3% to 4% growth for the second half of the year.
Taco Bell’s same store sales were down 6%. We expect these trends to continue through at least the third quarter. To address this, the Company earlier today announced the appointment of Emil Brolick, a 12-year veteran of Wendy’s International, Inc., as Taco Bell’s new president. Brolick has been credited as one of the architects of Wendy’s consistent same store sales growth and new product introductions. The Company also announced it is assigning its $200+ million advertising account to Foote Cone & Belding on an interim basis until Brolick has had an opportunity to fully review the situation.
As expected, KFC’s same store sales were down 3%. KFC is repositioning its business to focus more on the high growth segments of the chicken business, while maintaining its leadership position in home meal replacement. KFC’s recent investment targeted at successfully launching into the chicken sandwich category has led to some erosion in the chicken strips and chicken on the bone segments. Going forward, a more balanced approach is expected to rebuild the momentum in these segments while continuing to grow the sandwich business. We expect same store sales trends to improve from the second quarter to the third quarter, which we expect to be flat to down slightly.
Tricon continued to make operational progress in the quarter. Ongoing operating profit increased 6%, driven by an 11% reduction in ongoing G&A and an 8% increase in franchise fees. Ongoing restaurant level margins were up 40 basis points driven by portfolio benefits. This was partially offset by the impact of sales deleverage in the U.S. and higher U.S. labor rates.
Tricon continued to make substantial progress executing its financial strategies, refranchising 248 restaurants in the quarter for a year-to-date total of 431 restaurants. In addition, Tricon repurchased 2.5 million shares of its stock for $79 million in the quarter. This completed the $350 million share repurchase program announced in September 1999. A total of 9.8 million shares were repurchased under this program.
Dave Deno, Chief Financial Officer, said, “We are very pleased with the strong execution of our financial strategies despite the reduction in our operating forecast. We continue to realize significant savings by reducing our ongoing general and administrative expenses, which were down about $25 million for the quarter and over $60 million year-to-date. For the balance of the year we anticipate modest additional improvement in reducing these costs. During the quarter, we aggressively repurchased our stock and completed our $350 million authorized program reducing our outstanding shares by almost 10 million since the program began. This year’s free cash flow performance will be adversely affected by the weak performance at Taco Bell and, more significantly, the one-time cash costs related to the AmeriServe situation. However, we do expect to reduce debt slightly for the year along with repurchasing $216 million of our stock and funding the AmeriServe situation. We are doing everything possible to ensure cash is invested in only the highest return opportunities. Along those lines we are pleased to confirm our refranchising program is on track to sell at least 600 units during 2000 delivering in excess of $200 million in free cash flow. Finally, we expect our returns on invested capital to show continued improvement for the year.”
As previously disclosed, we have been advancing funds to AmeriServe during its bankruptcy proceedings under a debtor-in-possession revolving credit facility. In connection with the facility and other costs and obligations of the AmeriServe bankruptcy, we have recorded a $70 million unusual charge in our second quarter.
Tricon continues to work closely with AmeriServe, its suppliers and the purchasing cooperative for the Tricon system to ensure that Tricon system restaurants receive supplies in a timely and cost effective manner. To date, Tricon has not experienced any significant service interruptions. Tricon is purchasing restaurant level inventory for the U.S. system directly from suppliers, while AmeriServe continues to distribute products to stores and provide ordering, inventory, billing and collection services for the same fee in effect prior to the bankruptcy filing.
AmeriServe recently confirmed that it is exploring a number of strategic alternatives, including the potential sale of substantially all of its assets to another distribution company. AmeriServe also announced that it has entered into preliminary discussions with several parties, including McLane Company, Inc. (a subsidiary of Wal-Mart Stores, Inc.), concerning these strategies. As part of these discussions, Tricon may be asked to modify certain terms and conditions of its existing contract with AmeriServe, including payment terms, the length of the agreement and the amount of the distribution fee. Tricon does not expect that such changes, if any, would have a material effect on ongoing operations. In any event, Tricon intends to continue to work closely with AmeriServe to facilitate a sale of the AmeriServe business to a buyer, or the consummation of another strategic alternative that, in either case, is acceptable to the Tricon system.
Tricon remains committed to AmeriServe as it is reorganized through the bankruptcy process – whether through the sale of the business to one or more acceptable distributors or another strategic alternative. However, Tricon has also undertaken contingency planning and believes that sufficient capacity exists at competitive rates with alternative distributors in the event AmeriServe is no longer able to meet the distribution needs of the Tricon system.
The term "ongoing" in the following section excludes the impact of facility actions net gain, unusual items, and last year's accounting changes.
-------------------------------------------------------------------------------
Period 4 Period 5 Period 6 2nd Quarter
-------------------------------------------------------------------------------
KFC (3) (5) (1) (3)
-------------------------------------------------------------------------------
Pizza Hut (1) 0 3 1
-------------------------------------------------------------------------------
Taco Bell (5) (7) (7) (6)
-------------------------------------------------------------------------------
U.S. Blended (3) (4) (1) (3)
-------------------------------------------------------------------------------
Note: The second quarter consists of Periods 4, 5, and 6.
*These results should be read in conjunction with the attached financial
summary.
Quarter % Year-To-Date %
--------------------------- Change -------------------------- Change
2000 1999 B/(W) 2000 1999 B/(W)
------------ ------------ ------------- ------------ ------------ -------------
System sales(a) $ 5,014 $ 5,002 - $ 9,940 $ 9,808 1
Company revenues(b) $ 1,656 $ 1,886 (12) $ 3,253 $ 3,699 (12)
Ongoing operating profit(c) $ 226 $ 214 6 $ 425 $ 406 5
Interest expense 41 51 18 82 103 20
Income tax provision 72 66 (10) 134 125 (7)
------------ ------------ ------------ ------------
Ongoing operating earnings(c) $ 113 $ 97 16 $ 209 $ 178 18
============ ============ ============ ============
Earnings per diluted share components:
Ongoing operating earnings $ 0.76 $ 0.60 26 $ 1.39 $ 1.10 27
Accounting changes(d) - 0.02 NM - 0.06 NM
Facility actions net gain 0.26 0.49 (47) 0.43 0.61 (30)
Unusual items(e) (0.31) (0.01) NM (0.32) (0.01) NM
------------ ------------ ------------ ------------
Total $ 0.71 $ 1.10 (36) $ 1.50 $ 1.76 (15)
============ ============ ============ ============
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These “forward-looking” statements reflect management’s expectations and are based upon currently available data; however, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in these statements. Factors that can cause actual results to differ materially include economic and political conditions in the countries and territories where Tricon operates, the impact of such conditions on consumer spending and currency exchange rates, pricing pressures resulting from competitive discounting, new product and concept development by Tricon and other food industry competitors, the success of our refranchising strategy, fluctuations in commodity prices, supplier contracts, ongoing business viability of our key distributor, the ability to secure alternative distribution to our restaurants at competitive rates, and actuarially determined casualty loss estimates. Further information on factors that could affect Tricon’s financial and other results are included in the company’s Forms 10-Q and 10-K, filed with the Securities and Exchange Commission.
PLEASE NOTE THAT WE ARE REVISING THE TIME OF OUR CONFERENCE CALL. Our call will begin at 9:00 a.m. EDT on July 19 instead of 10:00 a.m. EDT as originally scheduled.
The call-in procedure is:
The call will be recorded and available for playback by dialing 800-615-3210 in the U.S. or 703-326-3020 Internationally. The access code is 4391740. The playback will run continually from Wednesday, July 19 starting around 12:00 noon EDT through Sunday, July 23 ending at 12:00 midnight EDT. You can also listen to a replay of the call by accessing our Internet site at www.triconglobal.com then selecting “Streetfusion 2nd Quarter Earnings Webcast.”
Please contact Larry Gathof (502-874-8918) or Tim Jerzyk (502-874-8617) with questions.
% %
% Pro Forma % Pro Forma
12 Weeks Ended Change Change 24 Weeks Ended Change Change
----------------------- B/(W) B/(W) --------------------- B/(W) B/(W)
6/10/00 6/12/99 (a) (a)(b) 6/10/00 6/12/99 (a) (a)(b)
----------- ---------- ---------- ------------ ---------- --------- ---------- ------------
Revenues
Company sales $ 1,480 $ 1,723 (14) (14) $ 2,905 $ 3,385 (14) (14)
Franchise and license fees 176 163 8 8 348 314 11 11
----------- ----------
1,656 1,886 (12) (12) 3,253 3,699 (12) (12)
----------- ---------- ---------- ---------
Costs and expenses, net
Company restaurants
Food and paper 449 534 16 16 890 1,062 16 16
Payroll and employee benefits 407 481 15 16 817 944 13 14
Occupancy and other operating
expenses 387 437 11 11 760 849 10 10
----------- ---------- ---------- ---------
1,243 1,452 14 14 2,467 2,855 14 14
General and administrative
expenses(c) 195 215 10 11 376 428 12 14
Other (income) expense(d) (8) (1) NM NM (15) (6) NM NM
Facility actions net gain(e) (66) (133) (50) (50) (113) (167) (32) (32)
Unusual items(f) 72 4 NM NM 76 4 NM NM
----------- ---------- ---------- ---------
Total costs and expenses,
net(c)(g) 1,436 1,537 7 7 2,791 3,114 10 11
----------- ---------- ---------- ---------
Operating profit 220 349 (37) (36) 462 585 (21) (19)
Interest expense, net 41 51 18 18 82 103 20 20
----------- ---------- ---------- ---------
Income before income taxes 179 298 (40) (39) 380 482 (21) (18)
Income tax provision(h) 73 119 38 37 154 197 22 19
----------- ---------- ---------- ---------
Net income $ 106 $ 179 (41) (40) $ 226 $ 285 (21) (18)
=========== ========== ========== =========
Basic EPS Data
EPS $ 0.72 $ 1.16 (38) (37) $ 1.53 $ 1.86 (18) (15)
=========== ========== ========== =========
Average shares outstanding 147 154 4 4 148 153 4 4
=========== ========== ========== =========
Diluted EPS Data
EPS $ 0.71 $ 1.10 (36) (34) $ 1.50 $ 1.76 (15) (12)
=========== ========== ========== =========
Average shares outstanding 149 163 8 8 150 162 7 7
=========== ========== ========== =========
See accompanying notes.
12 Weeks Ended % Change 24 Weeks Ended % Change
--------------------- B/(W) ---------------------- B/(W)
6/10/00 6/12/99 (a) 6/10/00 6/12/99 (a)
--------- ---------- --------- ---------- ---------- -----------
System Sales
United States $ 3,271 $ 3,389 (4) $ 6,476 $ 6,609 (2)
International 1,743 1,613 8 3,464 3,199 8
--------- ---------- ---------- ----------
Worldwide $ 5,014 $ 5,002 - $ 9,940 $ 9,808 1
========= ========== ========== ==========
Revenues
United States
Company sales $ 1,054 $ 1,282 (18) $ 2,101 $ 2,546 (17)
Franchise and license fees 119 113 6 234 215 9
--------- ---------- ---------- ----------
Total United States 1,173 1,395 (16) 2,335 2,761 (15)
--------- ---------- ---------- ----------
International
Company sales 426 441 (3) 804 839 (4)
Franchise and license fees 57 50 14 114 99 15
--------- ---------- ---------- ----------
Total International 483 491 (2) 918 938 (2)
--------- ---------- ---------- ----------
Worldwide $ 1,656 $ 1,886 (12) $ 3,253 $ 3,699 (12)
========= ========== ========== ==========
% %
12 Weeks Ended Proforma 24 Weeks Ended % Proforma
--------------------- % Change Change ---------------------- Change Change
B/(W) B/(W) B/(W) B/(W)
6/10/00 6/12/99 (a) (a)(b) 6/10/00 6/12/99 (a) (a)(b)
--------- ---------- --------- ---------- ---------- ---------- ----------- -----------
Restaurant Margin
United States(c)(g) $ 172 $ 208 (17) (17) $ 316 $ 412 (23) (22)
International(c) 65 63 3 3 122 118 3 4
--------- ---------- ---------- ----------
Worldwide $ 237 $ 271 (13) (12) $ 438 $ 530 (17) (16)
========= ========== ========== ==========
Restaurant Margin As A Percent Of Company Sales
United States(c)(g) 16.4% 16.3% 0.1 ppts. 0.2 ppts. 15.1% 16.2% (1.1) ppts. (0.8) ppts.
International(c) 15.2% 14.2% 1.0 ppts. 1.0 ppts. 15.1% 14.0% 1.1 ppts. 1.1 ppts.
Worldwide 16.0% 15.7% 0.3 ppts. 0.4 ppts. 15.1% 15.7% (0.6) ppts. (0.4) ppts.
Operating Profit
United States ongoing operating
profit(g) $ 190 $ 204 (7) $ 346 $ 379 (9)
International ongoing
operating profit 68 58 20 143 114 26
Ongoing unallocated
and corporate expenses (33) (46) 29 (65) (84) 23
Foreign exchange gain (loss) 1 (2) NM 1 (3) NM
--------- ---------- ---------- ----------
Worldwide ongoing
operating profit 226 214 6 425 406 5
Accounting changes(c) - 6 NM - 16 NM
Facility actions net gain(e) 66 133 (50) 113 167 (32)
Unusual items(f) (72) (4) NM (76) (4) NM
--------- ---------- ---------- ----------
Reported operating profit(c)(g) $ 220 $ 349 (37) $ 462 $ 585 (21)
========= ========== ========== ==========
See accompanying notes.
NOTES TO THE CONDENSED CONSOLIDATED STATEMENT OF INCOME AND
SUPPLEMENTAL SCHEDULE OF REPORTABLE OPERATING SEGMENTS' REVENUES AND
OPERATING PROFIT:
(tabular dollar amounts in millions, except per share amounts)
12 Weeks Ended 6/12/99 24 Weeks Ended 6/12/99
----------------------------------- ------------------------------------
Restaurant Restaurant
Margin G&A Total Margin G&A Total
----------- --------- ----------- ----------- ---------- -----------
U.S. $ 2 $ 1 $ 3 $ 8 $ 4 $ 12
International - (1) (1) - (2) (2)
Unallocated - 4 4 - 6 6
----------- --------- ----------- ----------- ---------- -----------
Total $ 2 $ 4 $ 6 $ 8 $ 8 $ 16
=========== ========= =========== =========== ========== ===========
12 Weeks Ended 24 Weeks Ended
------------------------ ------------------------
6/10/00 6/12/99 6/10/00 6/12/99
----------- ----------- ----------- -----------
Equity income from investments in unconsolidated
affiliates $ (7) $ (3) $ (14) $ (9)
Foreign exchange net (gain) loss (1) 2 (1) 3
----------- ----------- ----------- -----------
Total other (income) expense $ (8) $ (1) $ (15) $ (6)
=========== =========== =========== ===========
12 Weeks Ended 24 Weeks Ended
------------------------ ------------------------
6/10/00 6/12/99 6/10/00 6/12/99
----------- ----------- ----------- -----------
Refranchising net gains $ 74 $ 141 $ 121 $ 178
Store closure net (costs) credits (4) 1 (3) -
Impairment charges for stores that will continue
to be used in the business (4) (7) (4) (7)
Impairment charges for stores to be closed - (2) (1) (4)
----------- ----------- ----------- -----------
$ 66 $ 133 $ 113 $ 167
=========== =========== =========== ===========
U.S. $ 69 $ 129 $ 112 $ 162
International (3) 4 1 5
----------- ----------- ----------- -----------
Total $ 66 $ 133 $ 113 $ 167
=========== =========== =========== ===========
After-tax net gain $ 39 $ 80 $ 65 $ 99
=========== =========== =========== ===========
Per diluted share $ 0.26 $ 0.49 $ 0.43 $ 0.61
=========== =========== =========== ===========
Facility actions net gain in 1999 included favorable adjustments to our 1997 fourth quarter charge of $3 million ($2 million after-tax or $.01 per diluted share) in the quarter and $4 million ($3 million after-tax or $.02 per diluted share) year-to-date. These adjustments related to decisions to retain certain stores originally expected to be disposed of and better-than-expected proceeds from stores disposed of.
Unusual items of $4 million ($2 million after-tax) in the quarter and year-to-date 1999, primarily included:
Year-to-date restaurant margin and operating profit in 1999 included favorable self-insurance adjustments and other insurance-related adjustments of $21 million. The 1999 self-insurance adjustments reflected improved casualty loss trends across all three of our U.S. operating companies.
Unconsolidated
Company Affiliates Franchisees Licensees Total
---------- -------------- ------------- ----------- ----------
KFC U.S.
Balance at December 25, 1999 1,439 - 3,743 49 5,231
Openings and acquisitions 12 - 37 - 49
Refranchising and licensing (73) - 73 - -
Closures (8) - (1) (4) (13)
---------- -------------- ------------- ----------- ----------
Balance at June 10, 2000 1,370 - 3,852 45 5,267
========== ============== ============= =========== ==========
% of Total 26.0% 0.0% 73.1% 0.9% 100.0%
Pizza Hut U.S.
Balance at December 25, 1999 2,355 - 4,446 1,283 8,084
Openings and acquisitions 12 - 54 76 142
Refranchising and licensing (264) - 264 - -
Closures (47) - (74) (75) (196)
---------- -------------- ------------- ----------- ----------
Balance at June 10, 2000 2,056 - 4,690 1,284 8,030
========== ============== ============= =========== ==========
% of Total 25.6% 0.0% 58.4% 16.0% 100.0%
Taco Bell U.S.
Balance at December 25, 1999 1,190 - 3,921 1,768 6,879
Openings 6 - 43 42 91
Refranchising and licensing (27) - 29 (2) -
Closures (9) - (29) (103) (141)
---------- -------------- ------------- ----------- ----------
Balance at June 10, 2000 1,160 - 3,964 1,705 6,829
========== ============== ============= =========== ==========
% of Total 17.0% 0.0% 58.0% 25.0% 100.0%
Total U.S.
Balance at December 25, 1999 4,984 - 12,110 3,100 20,194
Openings and acquisitions 30 - 134 118 282
Refranchising and licensing (364) - 366 (2) -
Closures (64) - (104) (182) (350)
---------- -------------- ------------- ----------- ----------
Balance at June 10, 2000 4,586 - 12,506 3,034 20,126
========== ============== ============= =========== ==========
% of Total 22.8% 0.0% 62.1% 15.1% 100.0%
International
Balance at December 25, 1999 1,997 1,178 6,304 309 9,788
Openings and acquisitions 50 38 181 14 283
Refranchising and licensing (67) - 67 - -
Closures (21) (13) (84) (12) (130)
---------- -------------- ------------- ----------- ----------
Balance at June 10, 2000 1,959 1,203 6,468 311 9,941
========== ============== ============= =========== ==========
% of Total 19.7% 12.1% 65.1% 3.1% 100.0%
Worldwide
Balance at December 25, 1999 6,981 1,178 18,414 3,409 29,982
Openings and acquisitions 80 38 315 132 565
Refranchising and licensing (431) - 433 (2) -
Closures (85) (13) (188) (194) (480)
---------- -------------- ------------- ----------- ----------
Balance at June 10, 2000 6,545(a) 1,203 18,974 3,345 30,067
========== ============== ============= =========== ==========
% of Total 21.8% 4.0% 63.1% 11.1% 100.0%
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