The paragraph is the introduction to Yum! Brands' 2024 Third Quarter Earnings Call. The operator, Lauren, welcomes participants and introduces Matt Morris, the Head of Investor Relations. Matt Morris outlines the call's structure, which includes remarks from CEO David Gibbs and CFO Chris Turner, followed by a Q&A session. He mentions that the call includes forward-looking statements subject to uncertainties and provides guidance on where to find related disclosures. He also notes that financial results discussed exclude foreign currency impacts and highlights that there will be an extra week in the fourth quarter for certain business units. The earnings call is being broadcasted on their website and is available for playback.

The paragraph provides an overview of Yum! Brands' investor events and recent business performance. Taco Bell Consumer Day and the Live Moss Live event are scheduled for January 28 in Los Angeles, and the company's fourth quarter earnings will be released on February 5. Despite a challenging consumer environment, Yum! Brands reported a 3% year-over-year profit growth, driven by Taco Bell U.S. and KFC International. Taco Bell U.S. achieved a 4% increase in same-store sales, outpacing industry trends, while KFC International saw 9% unit growth across 64 countries. The paragraph highlights Taco Bell's strategic success and KFC's strong brand and franchise confidence as key factors in Yum! Brands' growth.

KFC has seen a significant increase in unit openings, with growth in key regions like Africa, Latin America, and parts of Europe and Asia, despite a challenging global macroeconomic environment. The brand is enhancing its capabilities through new centers of excellence to maintain long-term growth. In South Africa, KFC has limited price increases, boosting sales. However, sales growth has varied regionally, with notable challenges in the Middle East, Indonesia, and Malaysia due to regional conflicts, causing same-store sales to decline significantly.

The paragraph discusses the challenges faced by some restaurant franchisees due to the Middle East conflict, impacting their financial health, particularly smaller partners. The company is working to support them with strategic changes to improve growth and profitability. While these issues have also impacted markets like the U.K., Australia, and New Zealand, they are location-specific and not reflective of global trends. On a positive note, KFC markets outside of China saw a slight increase in same-store sales. In the U.S., the fast-food industry is dealing with a complex consumer environment, but the company's scale and digital capabilities, particularly through its successful Taco Bell business, provide a competitive advantage.

The paragraph discusses the challenges faced by Pizza Hut and KFC, mentioning that while leaders are implementing new strategies to improve results, unit closures have increased due to the Middle East conflict and issues in China. Despite this, overall unit growth was 5% year-over-year, though closures of low-volume units may impact Q4 growth targets. The financial impact of these closures is expected to be minimal. Looking ahead, 2024's growth will show a temporary reset, but the momentum in unit openings remains strong for 2025. The paragraph also highlights the company's RED strategy, culture, talent, and plans, with KFC division sales growing by 1% despite challenges.

The paragraph discusses various strategies and market performances of KFC and Taco Bell. KFC is responding to competitive challenges by focusing on incremental value offers and a robust digital strategy, particularly in markets like Mexico, Poland, and Korea, leading to transaction growth. KFC is also seeing sales growth in Africa, Latin America, and the Caribbean thanks to product innovation. In the U.S., they plan to strengthen their value proposition. Additionally, their digital sales have increased due to the growth of the KFC Rewards membership. Meanwhile, Taco Bell, which contributes significantly to the company's profit, saw a 5% increase in system sales, driven by new offerings like the Cheesy Street Chalupas and reintroduced products like the Cheez-It, as well as promotional deals that boosted delivery sales.

Toward the end of the quarter, Taco Bell opted to make breakfast optional for franchise partners to allocate marketing funds more effectively towards successful growth products like Cantina Chicken and the value menu. This change is expected to have a minimal impact on same-store sales growth. Taco Bell has seen substantial growth in its loyalty program and digital sales, with a 30% year-over-year increase in digital sales. Internationally, Taco Bell is focusing on its core pillars of brand, food, and value, with positive same-store sales growth continuing into the fourth quarter. The brand is also enhancing its local cultural connections, exemplified by extended hours near music venues in the U.K., and has opened its first equity store there with positive consumer reactions. Taco Bell International could become a major growth driver for Yum! in the future. Meanwhile, Pizza Hut experienced a 1% decline in system sales due to a 4% decline in same-store sales, partly offset by 2% unit growth.

The paragraph highlights Yum!'s strategies and challenges during a recent quarter. Despite positive traffic growth driven by a marketing plan for their Chicago Tavern Style Pizza, they faced competition from deep value offers in the market. In response, they adjusted pricing strategies in certain regions and hired a new Chief Brand Officer to improve brand positioning and enhance consumer relationship platforms. Habit Burger Grill showed sales improvement due to accolades and strategic marketing, generating excitement and customer visits. The company's success is attributed to its strong talent base and leadership.

The paragraph announces the promotion of Erica Burkhart to Chief Legal Officer and Corporate Secretary at Yum!, recognizing her leadership and contributions. It also acknowledges Scott Catlett for his service as he departs the company. Additionally, Joe Park is named President of Yum!'s Digital and Restaurant Technology Ecosystem, furthering efforts to enhance digital and technological integration, including AI capabilities. The company's commitment to digital leadership is highlighted by a recent Global Leadership Summit, which emphasized technology and AI investments. The paragraph concludes by mentioning the publication of Yum!'s annual global citizenship and sustainability report.

The report highlights Yum!'s commitment to its three priority pillars: people, food, and planet, with progress in reducing greenhouse gas emissions and sustainable packaging. Despite operating challenges, the business shows strength with twin growth engines: Taco Bell U.S. and KFC International. The business model remains resilient, achieving 6% core operating profit growth. Yum! utilizes its scale and technology to enhance franchisee profitability and shareholder value. Chris Turner discusses financial results, noting a 1% system sales growth driven by 5% unit growth, with challenges in the U.S., China, and Middle East affecting trends. The third quarter's Ex special G&A was lower than anticipated, and reported G&A included expenses from an optimization program.

In the third quarter, Yum! Brands reached over 60,000 restaurants worldwide, with a net increase of 547 units. KFC drove significant growth, particularly in China, India, Thailand, and Japan, while also expanding rapidly in Italy, the Philippines, and South Africa. Despite challenges, Saudi Arabia's KFC growth remains strong. Pizza Hut added 63 units, influenced by new openings in China, India, and the U.S., but faced closures. Taco Bell saw growth with nearly 50 new units primarily in the U.S., and a 7% increase in international units outside China, including new openings in Bosnia and the U.K. The U.K. locations are part of a strategy to refine business practices and innovation.

The paragraph outlines the progress in a company's digital and technology initiatives, focusing on two phases. The first phase aims to develop a comprehensive suite of platforms to control digital ecosystems and enhance innovation and cost-efficiency, including a cloud-based point-of-sale system, e-commerce platform, delivery optimization, and a global data platform. The second phase seeks to maximize platform value through AI and data utilization, with innovations like labor scheduling, inventory management, and personalized marketing. It also highlights Taco Bell's digital efforts, with significant advancements in drive-through voice AI and loyalty program enhancements, processing over 2 million orders across 300 U.S. stores, making it the largest QSR voice AI brand globally.

Taco Bell has implemented a connected ecosystem in 160 stores to enhance the loyalty experience through personalization and rewards without affecting service speed, and plans to standardize digital menu boards across 6,000 locations by 2025. They also advanced Yum!'s e-commerce engine deployment, completing a significant portion for Pizza Hut in the U.S. and expanding to international markets. Under the easy operations pillar, Yum! is expanding its Super App, a restaurant management tool, to KFC operations in 50 countries, with plans to double its reach by year-end. Additionally, an AI-powered labor scheduler is improving efficiency in over 5,000 Taco Bell U.S. stores.

The paragraph discusses Taco Bell's use of AI for labor and inventory management, expecting to expand these solutions across other brands by 2025. It highlights the success of AI-driven marketing campaigns, which have improved consumer engagement and reduced churn, promising a higher marketing ROI. Updates on the balance sheet are provided, noting net capital expenditures of $34 million and share repurchases totaling $277 million, with a net leverage ratio of 4.1x and no debt maturities until 2026. Capital priorities include business investment and shareholder returns. The outlook for the remainder of 2024 predicts Q4 core operating profit growth in the mid- to high single digits, with an additional contribution from a 53rd week. Taco Bell's Q4 store margins are expected at 23-24%, with net interest expense just under $140 million.

The paragraph discusses Yum!'s achievements and future goals. Despite a challenging environment, the company successfully opened approximately 4,500 new restaurants this year and aims to continue expanding globally. Yum! is transforming into a digital multi-brand powerhouse and plans to unveil more digital initiatives at an upcoming Taco Bell Consumer Day. In the Q&A session, Gregory Francfort from Guggenheim Securities inquires about operating profit growth. Chris Turner, the respondent, notes that although core operating profit growth is at 6% this year, sales in key markets like China and the Middle East fell short of expectations. This may lead to ending the year below the operating profit goal for 2024, primarily due to a conflict situation affecting these markets.

The paragraph discusses the company's strong performance and its ongoing investments in digital and AI projects for long-term growth. They are planning for 2025 but note no significant changes. The operator introduces Brian Bittner from Oppenheimer, who asks about the fourth quarter guidance related to core operating profit growth and global same-store sales. He highlights Taco Bell's strong performance with a 4% increase in same-store sales and its high consumer value ranking amidst industry competition. David Gibbs, likely from the company, acknowledges Taco Bell's strength and mentions its positive performance both in the U.S. and internationally.

The paragraph discusses Taco Bell's sustained momentum into Q4, highlighting its unique ability to deliver value through innovative products that positively impact franchisee margins, setting it apart from competitors. The introduction of the "decades menu" and the $7 Lux Box is mentioned as a strategy to offer innovation and value to consumers, boosting confidence in Taco Bell's market position. Despite challenges in forecasting global sales, current positive trends from Q3 are continuing. Following this, Jon Tower from Citi inquires about the potential risk of not achieving a 5% net unit growth this year, and asks about strategies to address weak market areas and consolidate smaller operators to improve future growth prospects.

The paragraph discusses the resilience and strength of Yum!'s business model and its franchisees, particularly highlighting their ability to continue growing and investing in challenging economic conditions in 2024. Despite difficulties, franchisees like Americana in the Middle East are generating positive operating profits. The company anticipates a modest risk in achieving its new unit growth target, expecting growth in the range of 4.5% to 5.0%, with some elevated closures primarily involving lower volume stores. Overall, the closures are not seen as a widespread issue, but rather a strategic decision involving less successful locations.

In the paragraph, Chris Turner explains the deceleration in net new unit growth for the business, attributing about two-thirds of the change to the impact of a conflict situation on various geographic markets. He emphasizes that the closure of units, which are generally low-volume, has minimal economic impact on the overall business. Turner highlights that while higher closures are occurring, the system sales contribution remains consistent with last year. Additionally, he reassures that the global franchise base is strong, particularly in the Middle East, where most franchisees are effectively managing the situation, with only two countries needing support to transition businesses to better operators.

The paragraph discusses how the company manages franchisee challenges, potentially involving unit closures or accounting adjustments, but usually ends up with a successful transition to a 3C franchisee, promoting long-term growth. Dennis Geiger from UBS asks about managing profitability amid macro pressures in 2024, especially regarding G&A growth. Chris Turner states that more details will be provided in the next call, but mentions the positive performance of their growth engines and highlights Taco Bell's strong performance in the U.S. and KFC International's 9% unit growth in Q3, as well as the success of their digital initiatives.

The paragraph discusses Yum! Brands' excitement about their AI-driven initiatives, particularly digital marketing and AI-enabled drive-throughs in the U.S. They have conducted pilots across their three large brands and are leveraging a robust digital ecosystem. The AI marketing uses their extensive data assets for hyper-personalized offers and rapid refinement, enhancing customer engagement through store technology and apps. Specific impact numbers aren't shared, but the initiatives are anticipated to be profitable, with expectations for quick scaling by 2025.

The article discusses the successful implementation of voice AI technology at Taco Bell, which has enhanced customer and team member experiences, leading to a faster-than-expected rollout. John Ivankoe from JPMorgan inquires about the potential for using franchisee fee collection to significantly impact Yum!'s general and administrative (G&A) expenses. In response, David Gibbs acknowledges the question and notes its similarity to a previous inquiry without providing a detailed answer.

The paragraph discusses the company's commitment to providing franchisees with superior and cost-effective technology compared to competitors, aiming to enhance sales and business operations, exemplified by the implementation of voice AI to reduce labor costs. The company believes that this will encourage franchisees to open more stores, driving profitability. Investment in technology is planned to be recouped by offering lower-cost solutions than competitors. The operator then shifts to a Q&A segment where David Tarantino from Baird asks about sales trends in Taco Bell and KFC segments. David Gibbs confirms positive sales momentum in Taco Bell both in the U.S. and internationally, without geopolitical conflicts affecting its global footprint.

The paragraph discusses the uncertainty in forecasting KFC sales, noting that despite being a year past the onset of a conflict, its impact on sales is still unclear. It suggests that sales might improve once this period is surpassed. David Gibbs then provides closing remarks, highlighting enthusiasm for the upcoming Taco Bell Investor Day on January 28 in Irvine, California, and encourages participants to attend. The conference call concludes with an invitation to disconnect.

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