YUM! Brands, Inc. Q2 2023 Earnings Conference Call Insights

Key highlights from YUM! Brands, Inc. (YUM) Q2 2023 Earnings Concall

Management Update:

• [00:04:09] YUM said its distinctive digital capabilities enabled it to record $7 billion in digital sales in 2Q, representing over 45% of its global system sales.

Q&A Highlights:

• [00:28:20] Dennis Geiger with UBS enquired about the factors that are driving YUM’s strong 2023 outlook, including any potential headwinds to profitability. David Gibbs CEO said that Taco Bell U.S. has strong momentum going into Q3, and all businesses are continuing to perform well. YUM is confident that it will exceed its algorithm for 2H23. And YUM expects full-year core operating profit to grow in the low-double-digits, driven by improving margins in company-operated stores.

• [00:30:25] Brian Bittner at Oppenheimer & Co. asked about the drivers of YUM’s resilience and how has the macro environment impacted the company’s performance. David Gibbs CEO answered that YUM is able to navigate the current macro environment because of its strong brands, innovative marketing, and ability to adapt to changing consumer needs.

• [00:34:18] Jon Tower of Citi queried if YUM collect fees from franchisees who use its commerce platform, and how will these fees be reflected in the company’s P&L over time. Chris Turner CFO replied that YUM is excited about its new e-commerce platform, which will allow the company to implement marketing campaigns more quickly and efficiently. This will lead to faster, profitable growth for both the company and its franchisees.

• [00:36:55] John Ivankoe from J.P. Morgan asked if YUM sees an opportunity for quick-service restaurants to shift their focus from increasing average ticket to increasing transactions, even at the cost of some profit margin. David Gibbs CEO said that the pandemic disrupted transactions and ticket size, but YUM is seeing a return to normal with more individual meal occasions and declining party size.

• [00:39:11] David Palmer with Evercore ISI enquired that with improved marketing, innovation, and third-party delivery, does YUM see Pizza Hut as an ongoing stable same-store sales grower, even in a slowing economy. David Gibbs CEO answered that YUM is pleased with Pizza Hut’s performance, which is growing system sales and gaining share in the category. The company’s aggregator strategy has been successful, and it has some differentiating capabilities that will help it sustain its competitive advantage in Pizza Hut with the aggregators.

• [00:43:06] Brian Harbour of Morgan Stanley asked if franchisees are seeing food cost inflation easing, and if so, when do YUM expect it to reach peak inflation. Chris Turner CFO said YUM is focused on ensuring strong relative value for customers and strong unit economics for franchisees, even in the face of inflation.

• [00:45:14] David Tarantino at Baird enquired about G&A outlook, including the impact of higher bonus accruals, and share the long-term thoughts on G&A as a percentage of system sales. Chris Turner CFO replied that YUM is taking a lean approach to G&A, with modestly higher costs in the back half of the year due to higher incentive comp. However, G&A is expected to leverage on the full year and in the long term.