YUM – Initial Thoughts from Analyst Meeting

YUM’s senior management has a history of over promising and under delivering in the U.S. See below:

2007: At its December 2006 Investor Day, YUM provided 2007 U.S. operating profit growth guidance of 5%.

On its 1Q07 earnings call, the company revised this guidance and said that it did not expect to meet its 5% long-term growth goal but that operating profit growth should be positive.

2007 U.S. operating profit came in down 3%.

2008: At its December 2007 Investor Day, YUM again provided 2008 U.S. operating profit growth guidance of 5%.

On its 2Q08 earnings call, the company lowered this guidance and said that U.S. operating profit should decline about 3%.

U.S. operating profit year-to-date through 3Q08 came in down 11%.

2009: Today, at its December 2008 Investor Day, YUM provided 2009 U.S. operating profit growth guidance of 15% (9% from expected G&A savings).

2009 will come in ???

The company is obviously lapping an extremely easy comparison from 2008, but the company has been lapping easy comparisons (not as easy as 2008) for the last 5 years.

YUM is expecting to grow EPS by at least 10% in 2009. The company has been successful in achieving this goal in recent years with little to negative operating profit growth in the U.S. so positive growth in 2009 should help to make this an easy feat. However, YUM has also reduced its share count in the last 5 reported years and is on target to repurchase nearly $1.7 billion in stock in 2008. The company’s significant share buybacks have helped to support YUM’s annual EPS growth. Currently, the company does not expect to buy back any shares in 2009, largely because the company levered up significantly in 2008 in order to maintain its share repurchases in 2008.

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