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YUM! Brands

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Elani Gardner

on 24 September 2013

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Transcript of YUM! Brands

YUM! Brands
Humble Beginnings
Yum! Brands Incorporated is based out of Louisville, Kentucky, where its first restaurant KFC was established. It has since then branched off into Mexican style cookery (Taco Bell) and leaders in chicken and pizza (Pizza Hut). In terms of system restaurants it is the largest company. Yum! Brands are currently present in over 130 countries with more than 39,000 restaurants. The four keys strategies Yum! Brand focuses on are:
• Driving an aggressive international expansion
• Staying consistent with brands already established in the US
• Driving industry-leading, long-term share-holder and franchise value
• And focusing on China as a major developmental brand

Comparative Horizontal Analysis: January- December
Balance Sheet

Common Size Vertical Analysis January- December Balance Sheet
Common Size Vertical Analysis January- December Income Statement

Operating costs are decreasing while operating income is slowly increasing. This means that YUM Brands is doing well because they are making a bigger profit, but their income is not much greater than what it was in the year 2008.

Global Expansion
The Global expansion to India and China took a tool on the cash on hand. The cash started off positively, but in the year 2010, the amount of cash went into a deficit. The company is hoping that in the future, the expansion and investment will lead the company out of deficit and into a large revenue. Also, during the 2010 global expansion, the company was collecting a larger amount of accounts and notes receivables, probably due to the various investors that it was dealing with at one point in time. So, in essence, though the company has a larger amount of money in 2012 compared to 2008, there were some mishaps in between that weren’t so preferable for the YUM brands company.

International Growth/Strategies
● 39,000 restaurants in over 130 countries
● Outside the U.S. they open over 5 new restaurants a day
○ Making them a leader in international retail development
○ Opened 1,976 new restaurants total 2012 outside U.S.

United States
■ Operates or franchises 15,987 locations

International
■ $17 billion sales and $715 million in operating profits (2012)
■ 949 new openings
■ Open over 700 new restaurants for the past 12 years
■ Looking into markets in Russia, Africa and Vietnam
■ Expanding in France and Germany
● France has highest unit volumes of any KFC business in the world.

China
■ $1 billion in operating profit (2012) with 6,000 restaurants
● Leading retail developer in China
● Business accounted for 42% of segments’ profits in 2012
■ “Greatest restaurant opportunity of the 21st century”
■ In 1987, KFC was first fast food restaurant to enter China.
● Most popular fast food restaurant in China with 4,400 stores
● Open more than one new KFC in China a day
■ Pizza Hut first to introduce pizza and casual western style dining in 1990
● Most popular fast food pizza restaurant with 900 stores.
■ Investing in emerging brands - Pizza Hut Home Service, East Dawning and Little Sheep
■ Goal - 20,000 + units in China long term

■ Global expansion success - “local management team, unmatched development capability, a country-wide distribution system, best-in-class operations, dedication to innovation and product quality and the development of multiple sales layers and day parts.”

○ India
■ The world’s second largest emerging market
■ 280 KFC and 180 Pizza Hut restaurants
● KFC is the fastest growing fast food style restaurant in India
● The Economic Times ranked Pizza Hut as “the #1 most trusted food-service brand” in India six years in a row
■ Taco Bell has just entered the market

Comparative Horizontal Analysis: January - December Income Statement
All of theses accounts are going up, but that is not such a preferable thing in the case of expenses. Operating expenses continued to rise from 2008- 2012 yet, the good thing is that the operating income continued to rise. The total revenue decreased in 2009 went down slightly, but then started rising. Operating income increased tremendously from 2011 to 2012 by a whopping 20.88%.

Strategies
○ Staying current with consumer preferences and infrastructure development trends.
○ Increase market penetration
○ Keep prices affordable in urban markets - Great success in China
○ Made India into its own separate division in 2012 because its potential market growth.
■ Forecasting to have largest consuming class in world by 2030 over U.S. and China.

○ "We want our markets to be super innovative and disruptive," said Christophe Poirier, the chief marketing officer for KFC International, in an interview with The Huffington Post. "When you are are not disruptive ... you don't reinvent the game."

■ Double Down was created for the U.S. market but with Internet media and consumer buzz, the global markets demand was inspired.
■ Many international creations has been adjusted to meet American palates to start American market consumption.

2 Variables Impacting Financial Performance
● Global investment and adaption in foreign markets
○ Majority of investment is in foreign markets such as China which accounts for almost 42% of the company’s profits.
○ Global issue in China with Avian Flu has sharply decreased profits and sales.
○ Finding balance of managing and improving current U.S. stores, while opening and expanding in new markets overseas.

● Rising cost for food ingredients and demand for higher wages for workers.
○ Along with Wal-Mart and McDonald’s, Yum! Brands is one of the largest employers of minimum wage workers.
○ By workers in the U.S. demanding to be paid $15 per hour, would greatly increase employee payroll costs and expenses and decrease the companies profits

Out of Total current assets, Accounts and Notes receivables went down which is good because the company is collecting closer to the time that money was lent. Cash went up which is a good thing because cash is one of the most important assets and it is making up the bulk of the total current assets. Overall, Between the expansion period, is where one sees the most change between the accounts.

Ratio Analysis 2008 - 2010
Receivables Ratios
2012: 301+286/2 =294/13,633=2.15%
2011: 286+256/2=271/12,626= 2.15%
2010:256+239/2=248/11,343=2.19%
2009:239+229/2=269/10,836=2.48%
2008:229+225/2=227/11,304=2.01%

Receivables Turnover Ratio
2012: 13,633/294= 46.37 times
2011:12,626/271= 46.59 times
2010:11,343/248= 45.74 times
2009:10,836/269= 40.28 times
2008:11,304/227= 49.80 times


The turnover Decreases from 2009-2010, but then starts slowly increasing again. So, the expansion and globalization is slowly proving to be a good thing. Starting in 2010, the turnover has been rising. The average collection period rose in 2009, but again started decreasing the following year which means that the company is receiving its money quicker. The Current assets compared to current liabilities were on the rise which is a good thing, but in the year 2012 the current assets were below the current liabilities. This was the case in 2008 and in 2009 as well, but the company started progressing slowly.

Would we invest?
● 13% Earnings Per Share (EPS) growth increase in 2012
● Recorded at eleven years in row at a 13% EPS growth
○ Competition only at 10% EPS growth
● Achieved Return on Investment Capital (ROIC) of 22%+
● Recovering from China KFC’s poultry supply investigation and Avian Flu
○ Anticipate to fall short of targeted growth of at least 10% EPS in 2013 because China's business is 42% of the company’s profits.
○ Company has had investigations or faced factors of SARS, Avian Flu, and Sudan Red before but has recovered.
● Trying to improve return by decreasing ownership in over penetrated markets, such as Pizza Hut United Kingdom, and increasing presence in under penetrated markets.
○ Overall, emerging markets should grow about 15 percent by 2012, with developed markets growing about 6 percent.”
● Increasing company owned units internationally for high growth and receive high returns
○ Russia and South Africa
● Starting global hunger campaigns and charities in local communities.
YES!!
Average Receivable Collection Period
2012: 365/46.37=7.87 days
2011:365/46.59 =7.83 days
2010:365/45.74 =7.98days
2009:365/40.28= 9.06 days
2008:365/49.80 = 7.33days

Current Ratio
2012: $1,909/$1,945= .98:1
2011:$2,321/$1,874=1.24:1
2010: $2,313/$1,602=1.44:1
2009:$1,208/$1,413=.85:1
2008:$951/$1,473=.64:1

Current Financial Position

It is a fortune 500 company, holding the #201 place. In 2012 only revenue was nearly $13 billion. Worldwide Yum! Brands has at least 5 new restaurants opening a day. 20% of Yum! Brands establishments are company owned and operated, the remaining 80% are franchises. Results for 2012 affirm a consistent record of success with 13% earnings per share growth which makes the 11th straight year Yum! Brands has delivered at least 13% with 10% being the target and a 22% return on investment capital.

Work Cited:
"YUM! Brands Inc. (YUM) | Short-term (Operating) Activity Analysis." Stock Analysis on Net. N.p., n.d. Web.
14 Sept. 2013.
Brandau, Mark. "Yum Aims to Double International Expansion." Nation's Restaurant News. 23 July 2012. Web. 10 Sept. 2013.
Chu, Kathy. "Yum Brands CEO Takes on the World — a Bite at a Time." USA TODAY. 27 Feb. 2012. Web. 10 Sept. 2013.
"Defining Global Company That Feeds the World." Yum! Brands. Web. 10 Sept. 2013.
Tepper, Rachel. "Yum! Brands' International Product Strategy: How The Double Down Went Global." The Huffington Post. TheHuffingtonPost.com, 11 Mar. 2013. Web. 10 Sept. 2013

The Global expansion to India and China took a tool on the cash on hand. The cash started off positively, but in the year 2010, the amount of cash went into a deficit. The company is hoping that in the future, the expansion and investment will lead the company out of deficit and into a large revenue. Also, during the 2010 global expansion, the company was collecting a larger amount of accounts and notes receivables, probably due to the various investors that it was dealing with at one point in time. So, in essence, though the company has a larger amount of money in 2012 compared to 2008, there were some mishaps in between that weren’t so preferable for the YUM brands company.

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