The operator introduces the Yum! Brands, Inc. 2024 First Quarter Earnings Call and hands it over to Matt Morris, Head of Investor Relations. Matt introduces the CEO, CFO, and Senior Vice President and Corporate Controller. He reminds listeners about forward-looking statements and the cautionary statements in the earnings release and SEC filings. He also mentions that system sales growth and operating profit growth results exclude foreign currency impact and that the company recently acquired 218 KFC franchise restaurants in the UK and Ireland. He also notes that some business units report on a period calendar basis and that the first quarter same-store sales growth excludes the benefit from Leap Day. He asks listeners to keep in mind that this year will have an extra week in the fourth quarter for certain entities.

The company has a detailed reporting calendar for each market, which can be found on their website. The conference call is being recorded and will be available for playback. The company has upcoming investor events, including the release of second quarter earnings and an in-person Taco Bell Consumer Day. Despite a challenging operating environment, the company grew core operating profit by 6% in the first quarter. Taco Bell U.S. outperformed the industry, KFC International had strong unit growth, and the company is making progress with their digital and AI-powered platforms. Digital sales have increased and now represent over 50% of system sales.

The company has achieved impressive milestones, including $30 billion in annualized digital sales and reaching their long-term growth target. They will discuss their Relevant, Easy and Distinctive brands, Unrivaled Culture and Talent, and Good Growth strategy. The KFC division saw 4% system sales growth, with strong performance in Latin America, Africa, and Greater Asia. The Taco Bell division accounts for 35% of divisional operating profit and saw same-store sales pressure due to weather events and competition.

The fourth paragraph discusses the divisional operating profit for Taco Bell, with a 4% growth in system sales in the U.S. due to same-store sales growth and focus on key growth levers. The brand was also recognized as the Most Innovative Company in Dining by Fast Company. The team launched a new cravings value menu and ended the quarter with a successful launch of the Chicken Cantina menu. Taco Bell International also saw a 6% growth in system sales, with a focus on building brand and category awareness globally. The Pizza Hut division, which makes up 15% of the divisional operating profit, is not discussed in detail in this paragraph.

In the first quarter, system sales declined due to a decrease in same-store sales, impacted by difficult year-ago comparisons and conflicts in the Middle East. The team focused on individual meal occasions, with the launch of the Melts platform in India. Pizza Hut U.S. saw a decline in same-store sales but showed positive 2-year trends. The Habit Burger Grill also experienced a decline in system sales but saw improved margin trends. Yum! announced the appointment of a new CFO for KFC Global and congratulated and thanked their Senior Vice President of Finance for his 25 years of service.

The company has achieved an important milestone with more than half of their sales coming from digital. They have been working on building and acquiring various platforms to improve their digital and technology strategy. Taco Bell U.S. has been successful in deploying key platforms, while KFC International and Pizza Hut have also been making progress. This has led to a dramatic increase in digital sales and has had a significant impact on both consumers and franchisees. However, the company believes there is still more potential for value creation with their digital capabilities.

The company is entering a second phase of their technology journey, focusing on AI and leveraging data assets to maximize value creation. They have over 40 AI initiatives in progress, including Voice AI and AI-powered technology for restaurant managers. They have also launched a new system for consumer data insights across their brands in the U.S.

The company is focusing on using AI and data-driven innovation to improve the quick service industry. They are also working on improving their internal technology teams to better leverage their scale. The ultimate goal is to serve franchisees and delight consumers while maximizing shareholder returns. The company's business model and strategy give confidence for continued improvement. Initiatives to become a more nimble and data-driven organization are underway.

In this paragraph, the speaker discusses the company's financial results, growth drivers, and updates on their balance sheet and capital strategy. They mention a 2% increase in system sales and 6% unit growth in the first quarter. They also mention challenges in same-store sales due to prior year lapse and consumer demand pressures, but report a 6% core operating profit growth. They mention a decrease in general and administrative expenses and the impact of foreign currency translation on operating profit. The speaker also mentions the acquisition of 218 KFC stores in the UK and Ireland with high unit volumes and healthy cash margins.

In the first quarter, Yum! opened over 800 units globally, reaching a milestone of 30,000 KFC restaurants. They expect these new units to add $40 million in EBITDA in the next 12 months, but the impact on operating profit will be offset by depreciation and amortization. The outlook for development in 2024 is strong, with a goal of reaching 60,000 units. There are several reasons for this confidence, including broad-based development momentum, committed franchisees, and a large development white space. In China and India, KFC and Pizza Hut have been the fastest-growing QSR chains.

The company's brands have attractive unit economics in key markets due to scale and first-mover advantages. This allows for access to alternative financing, development teams, and market knowledge. The largest partner, Yum China, has AI-enabled tools for cost savings. Other partners have their own processing and distribution facilities for cost and reliability advantages. The company also has global innovation capabilities and is focused on delivering leading-edge technology solutions to franchisees. Data is becoming a crucial differentiator, particularly in the quick service restaurant industry.

In the quick service industry, the company has several characteristics that set them apart from their competitors, including their multi-brand portfolio, global reach, and ownership of key platforms. They plan to use data and AI to improve marketing and loyalty engagement. In terms of digital and technology accomplishments, they are onboarding Pizza Hut and Taco Bell onto their e-commerce platform, expanding their technology products and platforms, and rolling out their SuperApp to more restaurants.

In the third pillar of their Easy strategy, KFC and Pizza Hut have implemented a new management program to gather insights from consumer reviews across digital channels. This program is now live in 10,000 KFC restaurants and 7,000 Pizza Hut restaurants across 50 countries. The company also provided updates on their balance sheet and liquidity position, including a net leverage ratio of 4.1x and a cash balance of $652 million, with plans to use excess cash primarily for share repurchases. Their capital priorities are focused on maximizing shareholder value through investments in the business, maintaining a strong balance sheet, offering competitive dividends, and returning excess cash to shareholders.

The company has renewed their credit facility and expects strong unit growth in 2024, led by KFC International. They also expect Taco Bell to balance everyday value with premium innovation and have company-operated margins of 23% to 24%. They anticipate flat to slightly down ex special G&A for the year and at least 8% core operating profit growth. The company is proud of their progress and is focused on becoming the multi-brand franchisor of choice through a data-driven organization. They are confident in their ability to deliver sustained above-market shareholder returns. The call is now open for questions.

Jon asks about the decrease in G&A expenses and if the target of 1.7% system-wide sales is still reasonable. Chris explains that they expect G&A to be flat or slightly down due to one-time factors such as lapping the cyber event and some expenses related to the acquisition of stores in the UK. They are also driving their resource optimization program to find efficiencies and fund investments in their digital and technology strategy.

The company saw some special charges this quarter, but this will drive productivity in the future. They are also working on reducing the impact of their investments on the P&L by increasing franchisee adoption and leveraging their scale in digital and technology. This is all in service of delivering better, faster, and cheaper technology. The company reiterated their 2024 target to grow core operating profit in-line with their long-term algorithm of at least 8%, despite negative comps and below outlook core operating profit growth in the first quarter. They do not provide quarterly same-store sales guidance, but are preparing for various scenarios to reach their 8% target.

The speaker discusses the strong pipeline of development from their partners around the world, which they believe will help them reach their target of 8% growth. They also mention the difficulty of forecasting same-store sales growth in the current environment. The next question from David Palmer asks for more details on the highlights and lowlights of same-store sales trends in international markets, as well as their outlook for 2024. The speaker expresses confidence in their twin engines of growth, with 80% of their profit coming from Taco Bell U.S. and KFC International. They also mention the strong performance in Africa and Latin America, where they are the industry leader.

The company's international business, particularly in South Africa and Kenya, is performing well with strong system sales growth and net new unit growth. The focus on value for consumers is a trend seen both internationally and in the U.S. The company plans to leverage digital and technology spend to lower G&A growth in 2025 and 2026, but maintaining top technology talent may be a challenge.

Chris Turner, Yum!'s CFO, discusses the company's investments in digital and technology over the past few years and how it has created pressure on the G&A line. However, as they deploy these platforms to more markets and demonstrate their impact, it becomes easier to prove the business case and attract franchisees. Yum! will continue to make investments in AI and data, but as they see success, the net P&L impact will decrease over time.

The company expects to see a decrease in G&A as a percentage of system sales in the long run due to their increasing leverage on G&A. When deploying their tech initiatives, the company partners with franchisees who co-invest and see a strong business case. In Taco Bell U.S., where the most platforms have been deployed, there has been a significant increase in digital sales and franchisees have seen an increase in check size and frequency. The company's strong development momentum is proof that digital is adding to unit economics and positively impacting franchisees' P&Ls.

The speaker explains that the company is constantly enhancing its business model through various platforms and capabilities. They have seen an increase in check size and efficiency through the use of digital ordering and other tools, which ultimately benefits franchisees. They also discuss the impact of weather on their business in the first quarter and mention that Taco Bell is a significant contributor to their U.S. operating profit.

Taco Bell has seen improvement in same-store sales and is well-positioned for a more normal consumer environment. The launch of their Cantina Chicken menu has been well-received and they are a value leader. Pizza Hut had a lapse in the quarter but saw an acceleration in 2-year trends. KFC in the U.S. has been struggling, but the company is working to reset the brand and bring it to life like their successful international business.

The company is focused on increasing its unit growth and system-wide sales over time. They are not taking any specific actions to address the impact of the Middle East, and believe that time will resolve any issues. The company is building in emerging markets, which typically have lower average unit volumes, but they are also excited about development agreements in higher volume markets like Western Europe.

The speaker believes that the company's markets will always have a mix of lower volume and will continue to grow faster than traditional markets. They are seeing this trend globally and believe it is fine. The operator then asks a question about the company's results and sales performance, and the speaker responds that the Q1 results were slightly better than expected, despite weather impacts in the US. They are on track with their projections for the year and are confident in their operating profit commitment. The year may be challenging, but it is also an opportunity to gain market share, and the company is doing so through development.

The speaker discusses the strong performance of the business in the first quarter, highlighting its resilience and ability to navigate challenges. They credit this success to the company's growth engines, development strategies, and digital initiatives. They also mention the impressive statistic that 25% of all Yum! units have been built since January 2021, showcasing the freshness and modernity of the brand.

The speaker expresses confidence in their ability to navigate a difficult business environment and achieve 8% core operating profit growth. The call is now ending.

This summary was generated with AI and may contain some inaccuracies.