Yum!(YUM) - 2025 Q2 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements Presents YUM! Brands' unaudited condensed consolidated financial statements for Q2 and YTD periods ending June 30, 2025 and 2024, including income, cash flow, and balance sheets with notes Condensed Consolidated Statements of Income Q2 and YTD 2025 vs 2024 Income Statement Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,933 | $1,763 | $3,720 | $3,361 | | Operating Profit | $622 | $607 | $1,170 | $1,127 | | Net Income | $374 | $367 | $628 | $681 | | Diluted EPS | $1.33 | $1.28 | $2.23 | $2.38 | - Total revenues increased by 9.6% in Q2 2025 and 10.7% YTD compared to the same periods in 2024, driven by growth in both Company sales and Franchise revenues[8] - YTD Net Income decreased from $681 million in 2024 to $628 million in 2025, primarily due to a significantly higher income tax provision in 2025[8] Condensed Consolidated Statements of Cash Flows YTD 2025 vs 2024 Cash Flow Highlights (in millions) | Cash Flow Activity | YTD 6/30/2025 | YTD 6/30/2024 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $850 | $705 | | Net Cash Used in Investing Activities | ($130) | ($253) | | Net Cash Used in Financing Activities | ($741) | ($547) | - Net cash from operating activities increased year-over-year, rising to $850 million from $705 million[11] - Cash used in financing activities increased, primarily due to a significant rise in share repurchases ($338 million in 2025 vs. $50 million in 2024)[11] Condensed Consolidated Balance Sheets Balance Sheet Highlights (in millions) | Metric | 6/30/2025 | 12/31/2024 | | :--- | :--- | :--- | | Total Current Assets | $1,826 | $1,871 | | Total Assets | $6,917 | $6,727 | | Total Current Liabilities | $2,229 | $1,269 | | Long-term debt | $10,418 | $11,306 | | Total Liabilities | $14,597 | $14,375 | | Total Shareholders' Deficit | ($7,680) | ($7,648) | - Total assets increased slightly to $6.9 billion as of June 30, 2025. Total liabilities also increased, resulting in a slightly larger shareholders' deficit[12] - Short-term borrowings saw a substantial increase from $27 million at year-end 2024 to $971 million at the end of Q2 2025[12] Notes to Condensed Consolidated Financial Statements - In Q2 and YTD 2025, the company acquired 58 and 63 restaurants from franchisees, respectively, for a total cash consideration of $98 million[27] - The company repurchased 2.3 million shares for $336 million YTD 2025. As of June 30, 2025, $1.3 billion remains authorized for future repurchases under the May 2024 program[33] - The YTD effective tax rate increased significantly to 32.4% in 2025 from 21.8% in 2024, primarily due to a $102 million reserve related to a tax matter in Mexico[40][41] - The company is contesting an IRS proposed adjustment for the 2014 fiscal year, which asserts an underpayment of $2.1 billion in tax plus penalties and interest. The company believes its position is more likely than not to be sustained and has not recorded a reserve[80][81][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance for Q2 and H1 2025, covering system-wide sales, same-store sales, unit growth, and reconciliations of GAAP to non-GAAP measures, liquidity, and capital resources Results of Operations YUM! Brands YTD 2025 Financial Highlights (% Change vs YTD 2024) | Division | System Sales (ex FX) | Same-Store Sales | Units | GAAP Operating Profit | Core Operating Profit | | :--- | :--- | :--- | :--- | :--- | :--- | | KFC Division | +5% | +2% | +5% | +8% | +8% | | Taco Bell Division | +8% | +6% | +2% | +10% | +10% | | Pizza Hut Division | (2)% | (1)% | Even | (17)% | (17)% | | YUM | +4% | +2% | +3% | +4% | +5% | - YTD 2025 EPS excluding special items was $2.74, a 10% increase from $2.50 in the prior year[107] - The company recorded special items charges YTD 2025 related to a resource optimization program ($32 million), brand headquarters consolidation ($17 million), and costs related to the termination of the Turkey franchise and German acquisition ($7 million)[116][118] - A significant event impacting unit count was the termination of franchise agreements in Turkey, resulting in the closure of 283 KFC and 254 Pizza Hut restaurants in January 2025[108] Divisional Performance - KFC Division: YTD system sales (ex-FX) grew 5% driven by 2% same-store sales growth and 5% unit growth. Operating profit increased 8%, supported by sales growth[129][135] - Taco Bell Division: Showed strong performance with YTD system sales (ex-FX) up 8%, driven by 6% same-store sales growth. Operating profit grew 10% due to sales leverage, despite higher restaurant operating costs[137][141] - Pizza Hut Division: Continued to struggle, with YTD system sales (ex-FX) down 2% on a (1)% same-store sales decline. Operating profit fell 17% due to bad debt expense, higher G&A, and sales declines[143][147] - Habit Burger & Grill Division: YTD system sales (ex-FX) declined 1% with a same-store sales decline of (3)%. However, operating profit improved to $2 million from a loss of ($3 million) in the prior year[150] Liquidity and Capital Resources - The company expects annual operating cash flows to continue exceeding $1.4 billion, which will be used for business investment, dividends, and share repurchases[156] - As of June 30, 2025, the company had approximately $680 million in cash and $400 million outstanding on its $1.5 billion revolving credit facility[157] - The consolidated net leverage ratio was 3.8x EBITDA at the end of the quarter, with a medium-term target of approximately 4.0x. Approximately 96% of the company's $11.0 billion in debt has a fixed interest rate[159][160] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states no material changes occurred to market risk disclosures presented in its Annual Report on Form 10-K for the year ended December 31, 2024 - There were no material changes to the company's market risk disclosures during the quarter ended June 30, 2025[165] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[166] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[167] Report of Independent Registered Public Accounting Firm KPMG LLP reviewed Yum! Brands' interim financial information as of June 30, 2025, and found no material modifications needed for U.S. GAAP conformity - The independent auditors, KPMG LLP, conducted a review of the interim financial statements and are not aware of any material modifications needed for conformity with U.S. GAAP[170] Part II. Other Information and Signatures Item 1. Legal Proceedings This section incorporates by reference legal proceedings information detailed in Note 14 of the Condensed Consolidated Financial Statements - Details regarding legal proceedings are provided in Note 14 to the financial statements, which covers matters such as an IRS dispute and a regulatory action in India[175][80][86] Item 1A. Risk Factors The company reports no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors disclosed in the 2024 Form 10-K were reported for the quarter[176] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchases during Q2 2025, confirming an active program with substantial remaining capacity Share Repurchases in Q2 2025 | Fiscal Period | Shares Purchased (thousands) | Average Price Paid per Share | Remaining Authorization (millions) | | :--- | :--- | :--- | :--- | | April 2025 | 453 | $146.55 | $1,315 | | May 2025 | 163 | $146.34 | $1,291 | | June 2025 | 124 | $142.25 | $1,274 | | Total Q2 | 740 | $145.79 | $1,274 | - As of June 30, 2025, the company has remaining capacity to repurchase up to $1.3 billion of Common Stock under its May 2024 authorization, which extends through December 31, 2026[177] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including management compensation plans, a CEO offer letter, and required CEO/CFO certifications - Exhibits filed include the 2025 Long Term Incentive Plan, various award agreements, a CEO offer letter, and required CEO/CFO certifications[179]