百勝餐飲集團 (YUM) 2003 Q1 法說會逐字稿

Good morning. My name is Amy and I will be your conference facilitator today. At this time I would like to welcome everyone to the Yum! Brands 2002 fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question press pound key. Thank you. I would now like to turn the call over to Tim Jerzyk, Vice President of Investor Relations. Please go ahead, sir.

Thanks, Amy. Good morning everyone and thanks for join us on the call.

Before we begin I'd like to go through a few necessary things. This call is being recorded and will be available for playback and we are broadcasting the conference call via our website at www.yum.com.

Please be advised that if you ask a question it will be included in both our live conference and in any future use of the recording. I would also like to advise this that conference call may include forward-looking statements that reflect managements expectations based on currently available data. However, actual results are subject to future events and uncertainties.

The information in this conference call relates to projections or other forward-looking statements may be relied on subject to the Safe Harbor statement included in our earnings release and may continue to be used while in call remains active in our portion of the company's website on the Investors Section of the website which will be until May 9, 2003.

On today's call we have David Novak, Chairman and CEO, David Deno our CFO and Aylwin Lewis our Chief Operating Officer. All three will follow with remarks and we will then take your questions. Right now I'd like to turn the call over to David Novak.

Thank you Jim and good morning. I'm sure you've seen the earnings release from last night and you saw we made our quarterly EPS commitment again at 39 cents which was one cent better than last years very strong results before income from special items. We also expect to meet our full year commitment of at least $2.00 a share.

This includes our best analysis of the potential impact of SARS in our international business. And David Deno will talk a little bit more about that later.

Our first quarter performance was clearly driven by the strength of our international business. International system growth of 8% in local currency terms and 14% in U.S. dollars for the first quarter was clearly better than our forecast which helped us to offset U.S. same-store sales which were slightly worse than we expected.

Looking at the long run prospects of our business, which is what really matters, we remain confident of our commitment to grow EPS at least 10% every year with comparable growth in cash flow and with high returns. As I just mentioned we expect to earn at least $2.00 a share in 2003.

Importantly, we are focused on 2003 execution as well as setting the table for the future as we continue to build the capability of our powerful international growth engine. We're investing in resourcing in a big way behind the broad scale execution of our multibranding strategy and our Customer Mania service initiative is now moving into year three around the globe.

We remain very focused on improving key operational majors and setting the stage for a more trusted, consistently positive customer experience in our restaurants.

For the balance of 2003, here's what you can expect from us as we execute our three key strategies. First, you can expect our international growth to continue. We will benefit from the 1051 new stores opened during 2002.

In 2003, we and our franchise partners will open at least another thousand new stores internationally and grow international profits at 15%. Importantly, we will continue to be very disciplined in our international capital investments and will continue to target high returns.

Our second key strategy is to multibrand with our great brands. We'll continue to ramp up multibranding to accelerate our U.S. growth. We will also begin testing multibranding in international markets.

Over time, multibranding has the potential to transform our existing 26,000 single brand traditional restaurants worldwide and unlock more new unit growth. Aylwin Lewis, our Chief Operating Officer and President of Multibranding is with us on the call today to update you as to our progress to date in 2003. What we are working on and our targets for the balance of the year.

The biggest news in the first quarter is we've really picked up the pace of solving the multibrand equation for Pizza Hut. As you may have seen, we have acquired Pasta Bravo to enable multibranding of our Pizza Hut brand.

Our initial testing has been positive and franchise interest is high on a global basis. I'll talk more about Pasta Bravo later.

During 2003 we will also be very focused on mainstreaming our Long John Silver's combinations with KFC and Taco Bell, expanding KFC and A&W combinations, and begin to test Taco Bell and A&W combinations. In fact my senior team just visited the very first Taco Bell A&W this week. Very impressed with what we saw from the facility customer and operations standpoint.

This year, we expect to add approximately 400 multibrand restaurants as we execute a strategy that we believe will transform our U.S. business and elevate the manner in which we compete in the quick service restaurant industry. We believe that multibranding is the biggest sales and profit driver in the category since the advent of the drive-thru window. Consumers tell us this is simply a great idea.

Finally, our third key strategy and most important to us is to continue to make our brand stronger and stronger and even more differentiated particularly through great operations. We will continue to steadily improve our operations, which we believe will improve our capability about to drive consistent U.S. same-store sales growth of at least 2%.

The key to this is people capability and we're especially proud our team member turnover is now at 100% for the first quarter and is below the industry average and a record low for us as a company. This is a foundation that we've never had before.

When you combine that with restaurant general manager turnover of between 15 and 20%, which is right in our target range, continuing improvement in our RGM state and stability and the key operational indicators are all supporting our ability to improve customer experiences in our restaurants.

Finally we're confident that our portfolio of category leading brands. The innovation we have planned for the balance of this year, continued improvement in system-wide operations, combined with the expansion of multibranding, we can continue to perform at least at our historical average of 2% growth in U.S. company same-store sales.

Looking at our core U.S. business and the impact it has an earnings and cash flow, blended same-store sales growth is a key major in the United States for Yum. This reflects our advantage in the fact that we own a portfolio of category leading brands, diversified within the quick service restaurant industry.

I'll answer any questions you have on our individual brands during our Q&A.

International growth, multibranding and continually improving operations and differentiating our category leading brands. These are the three building blocks that give us a great opportunity for growth in our industry and we're attacking it with vengeance.

With that, let me turn it over to David Deno, our CFO, to take you through the details of the quarter and how we will deliver at least 10% earnings growth, strong cash flow, continued growth in franchise fees and higher returns in 2003. Dave?

Thank you, David. And good morning, everyone. Before getting to our results, like David, I would just like to underscore the three terrific growth drivers that differentiate us from the rest of our category.

First and foremost our international expansion. As you know our international division is our largest and fastest growing. We remain focused on continuing to build the business, profitable international restaurant expansion is and will be a major driver for Yum profits, returns and cash flow.

Second, we have a portfolio of great category leading brands and we are extremely focused on executing our unique multibrand strategy, which combines two of our great brands in one restaurant. Importantly, this is very much a customer driven strategy.

The significant number of existing U.S. restaurants, the opportunity is there for us to transform our U.S. business and how our brands compete within the QSR category.

And third, most important of all, by making our portfolio brands even stronger, by differentiating them in everything we do and becoming the best QSR operators through our Customer Mania culture.

The three strategies are all driven by the customer, are properly resourced and provide us with portfolio diversity in our profitable growth model. With our focus on the execution of these three strategies and the continued execution of our financial strategies, we are confident in our ability to deliver at least 10% earnings growth annually.

Now let's look at our Q1 results. So I will give you my thoughts and let you review additional details of our first quarter performance in our earnings release from yesterday evening if you have not already done so.

We were pleased we were able to meet our Q1 commitment in a difficult environment. This speaks to the strength of this company, its significant scale, portfolio of great brands and global diversity.

As you review the quarter results, please keep in mind last year's very strong global results when EPS increased 37% with very good performance from both our U.S. and international businesses. This year most notably, we have continued to invest and spend behind our strategies even in tough quarters like this.

We are focused on making Yum a great restaurant company investment for the long term. Our Q1 EPS of 39-cents was 1-cent ahead of last years results, prior to 2-cents of special items gains from last year. Those gains were primarily collections from our receivables from the Ameri-Serve situation. The details of special items can be found in the earnings release.

This result was due to very good performance by our international business as well as a slightly lower tax rate and the reduction in shares from the company's recent repurchase activity. As we detailed in our earnings release, our restaurant margin declined last year due to several factors, including sales to leverage, discounting and wage inflation in the United States.

We were not happy at all with our Q1 restaurant margin execution and have specifically addressed corrective measures in this area with the appropriate U.S. teams. So in summary for Q1, revenue increased 12%, EPS was 1-cent ahead of last years results before 2-cents of special item gains last year, cash flow continues to be strong for the overall enterprise, total cash generation was $152 million.

This includes cash flow provided by operating activities, re-franchising proceeds, sales of excess property, equipment and proceeds from employee stock options. This $152 million of cash flow enables us to more than fund our capital expenditures of $112 million.

Additionally, with value available in the equity market we bought back $48 million of our stock. This is all pretty much in the line with our forecast provided to you in February, with some upside from international systems sales growth partially offset by slightly lower U.S. comp sales.

One last thing before I go to the forecast. As I often said and we at Yum believe, our balance sheet continues to get stronger and stronger each quarter. As you may have seen recently, we are re-removed to positive watch at several rating agencies and even received a one notch upgrade as well.

Others agree with our beliefs here at Yum. Now let's look ahead. Our full year EPS target before any special items is at $2.00 a share, up at least 10% from a comparable basis in 2002 or $1.82.

In the second quarter, we were confident with the consensus of 46-cents a share, which is 7% ahead of last year, prior to the special items gains of 2-cents per share last year. Again, those special items were result of Ameri-Serve collection.

We provided you with all the details of this forecast in our earnings release yesterday evening. As you can track our progress during the quarter, as we provide you both international and U.S. sales results every four week period. I will point out that we are expecting continuing improvement in our U.S. business for Q2 with positive comp sales in the plus 2% range.

For international business, keep in mind the timing shift impact from Chinese New Year which impacted the period four sales results as noted in our sales release. Additionally you will see a slight shift in system sales guidance down to plus 5 to plus 6 range, as we incorporate what we know today from the impact of events in the Middle East, it's affecting our franchise business there, and impacts to various markets from SARS, the flu-like illness that has affected some markets. [INAUDIBLE].

There are also some areas in the world where we believe sales may have been impacted slightly by anti-American sentiment. This factored into this plus 5 to 6% growth forecast to the best of our ability to what we know today.

One other point to note for Q2, this is also the last quarter that we will have year-over-year comparison affected by the May 2002 acquisition of the Long John Silver's and A&W brands.

Let's look at the full year and what we can expect to accomplish in 2003. On an annual planning basis you will recall that we build our business plans for 16% earnings growth. We commit to at least 10% earnings growth each and every year. In other words, we carry a 6% contingency.

This contingency is designed to provide cover against any unforeseen hazards. Looking at the full year 2003, we expected that the first half of the year be a little bumpy in the U.S. particularly at Pizza Hut and KFC, along with a very strong lap versus Q1 last year in the U.S.

Having said that, we continue to commit to our full year target of at least 10% growth in earnings.

Now let's look at our U.S. brand portfolio for 2003. We continue to expect to gain momentum as the year progresses. Taco Bell is on path for another good year with relatively steady growth. They've been working on getting better and better at what they successfully achieved over the last 18 months.

Taco Bell same-store sales performance continues to be among the best in the restaurant business. They are positively lapping strong sales gains from a year ago with plus 1% in period four and we expect better results for the balance of the second quarter.

Taco Bell will continue to focus on the brand positioning of bold choice, utilizing the "think outside the bun" campaign. We expect that Taco Bell will accomplish steady sales growth utilizing its very effective positioning and a balanced marketing calendar of price value, core products and product news.

Right now Taco Bell is featuring the Cheesy Gordito Crunch and more good news is coming. Additionally, in the details they'll be working on getting better and better at late-night sales, service speed and overall operations. We expect the Taco Bell brand will deliver at least 2% same-store sales growth for 2003.

Now turn our attention to KFC. At KFC the laps are visible. Q1 in 2002 was a very strong plus 5% in comp sales, getting easier after that. With the really big challenge of lapping a plus 7 in period six last year.

The KFC team is focused on gain changing initiatives in three areas. First, a new way to communicate that KFC has quality meals worth the price you pay.

Second, creating a pipeline of better for you options that give the customer permission to come to KFC more often.

Third, stepping up the consistency of restaurant operations with an emphasis on better speed of service at the drive thru.

Here's what you can expect from KFC going forward. First next week begins a new approach to value. Restaurant quality at half the price. A compelling way to explain to America that you can feed your family a delicious complete dinner for less than $4 per person.

Second, KFC will soon be test marketing better for you menu options. Testing will continue through the second half of 2003.

Third, KFC is the process of implementing Taco Bell speed tools now. Company operations are just being completed this month. Their goal is a 30 second reduction in drive thru speed of service.

KFC is highly effective when leading in chicken innovation and the results of period four reflect the power of the brand. As you saw by the period four sales numbers, KFC really did a good job of exciting the QSR customer with the introduction of a quality product that no one else in the category has. Boneless wings.

There's definitely more to come letter in 2003 from KFC. After a tough first quarter, we expect that KFC will generate at least 2% same-store sales growth for the balance of the year.

Now on to Pizza Hut. The new team is in place and working extremely hard to improve brand performance. Our expectations for progress begin to show in the second half, especially in the areas that will drive growth in that business.

Great operations, a good pipeline of product news, and most importantly a very well differentiated brand. The team is working on a new brand positioning and a new advertising campaign. You'll hear and see more about that in the second half. Of course Pizza Hut will continue to focus on its core strength, which is product news and innovation.

From a positioning perspective the team believes Pizza Hut must be more relevant to the core of the home meal replacement category. This includes a very focused execution on improved operations. Including such things as better telephone access for the customer and better delivery trade and area penetration.

We'd like to tell you more, but this is our most competitive category. The team is working on a lot of new things. We're upbeat when looking at Pizza Hut, but we cannot provide more detail at this point.

At Pizza Hut, we expect same-store sales growth to be positive for the second half of 2003. For the U.S., even though our blended same-store sales growth was negative in Q1 we expect to be up 2% in 2003. Please keep in mind our fourth quartered is a four period 16 week quarter the heaviest weighted quarter of the year.

For the balance of the year and beyond, a key focus will be improved operations. And our Customer Mania and operations initiatives will continue. Importantly, these have been fully resourced and funded for 2003.

Looking at cash flow, we expect another strong year in 2003. Cash flow provided by operating activity should be well over $1 billion.

One of the key strengths of this $1 billion plus of cash flow is that it is sourced significantly by franchise fees which are expected to be in excess of $900 million prior to any taxes in 2003 and growing 4 to 6% each year.

Adding in the positive cash flow benefit of re-franchising, the sales of excess properties and equipment, and employee stock option proceeds, we expect to generate over $1.2 billion of cash this year. That will more than fund $800 to $825 million in capital expenditures, generate free cash flow available of about $400 million in 2003.

Looking ahead, as we detailed for you previously, we believe that we have the balance sheet and cash flow to grow this business profitably with good returns for many years to come.

One final note before I close out. One thing that is a very recent development is the spread of SARS, a flu-like virus, in parts of the world, including Asia.

In several markets around the world, including Hong Kong, Singapore, Taiwan and certain sections of China, an illness, SARS, Severe Acute Respiratory Syndrome, has impacted overall retail trend and the company's sales trend. Based on information currently available, we believe that the likely effect of SARS outbreaks in these marks is reflected in the company's current annual outlook of $2.00 a share in EPS.

We do not currently expect that the SARS outbreak will affect the entire country of China. In a hypothetical example though, if SARS were to impact the entire country of China for approximately two to three months, with sales declines in the 20% range, Yum's full year EPS would be impacted by approximately 3 to 4 cents.

Based on current trends in the total Yum portfolio, both in the U.S. and around the world, contingencies currently available would allow the company to offset this hypothetical shortfall and maintain the $2.00 per share earnings estimate for 2003. As always, though, the company will continue to update shareholders each four week period on current sales trends worldwide.

Again, let me reiterate we expect another good year for Yum Brands in a very challenging environment. And we believe that we will deliver at least 10% growth in EPS. Back to you, David.

Thank you very much, Dave. Before I introduce our next speaker, I'd like to step back for a minute and talk a little bit about multibranding. As we said before we've been experimenting with the concept of the multibranding since the mid-90s, where we put two of our great brands into one restaurant location. At that time it was KFC and Taco Bell.

Based on the volumes of research that we've done and talking to thousands of customers in our restaurants, we've learned very clearly that the customer sees this as a very big idea. And last year, with the acquisition of Long John Silver's and A&W restaurant brands, we were really able to step up the transformation to multibranding in the United States at Taco Bell and KFC.

Once we got to this critical point of really exploding execution of the strategy because we had more branded options, we really looked our organizational structure and said we needed to have a leader for this key business strategy so they could really drive execution. When you think about multibranding, operations are critical.

We want to satisfy our customers, but we really want to make sure we that have the operations capability to add this variety to our restaurants, which our customers are clearly telling us they want. Aylwin Lewis, our Chief Operating Officer, was the absolute perfect person to put in charge of this effort.

No one knows operations in our industry better than Aylwin and he's very excited about the opportunity. So what we did is we promoted Aylwin to President and Chief Multibranding and Operating Officer for all of Yum Brands.

Aylwin is spending the vast bulk of his time building multibranding capabilities and our operations capability which are totally intertwined. I'm confident he along with the other operators in our organization are going to make steady progress and really enable the execution of this break through strategy.

I'm also pleased to say that this year we just complete the acquisition of the Pasta Bravo brand to enable what we think could be the multibranding transformation for the Pizza Hut business. With our Pizza Hut franchisees, we will actively be testing Pizza Hut and Pasta Bravo combinations. We are really excited about this opportunity.

With Pasta Bravo we think we got a great deal when you look at what's going on in the marketplace. For a very affordable price, $5 million, we got in return a proven operating platform and a delicious line of affordable pastas.

We couldn't develop this ourselves for three years. It would take a long time to do this, but we got a proven capable operating platform for $5 million with a great tasting line of affordable process that we can do in a multibranding format, and frankly we may be able to do in a stand alone format outside the United States.

I hope that you can take away from this is just another example of our financial discipline. Now $5 million for a brand is not a bad price.

Let me just briefly take you through how we expect to execute Pasta Bravo in the context of multibranding with Pizza Hut. The Pizza Hut Pasta Bravo multibrand will provide table service with display cases featuring fresh pastas and outstanding salads and feature a theater style presentation.

In other words you'll walk in, you'll see fresh offerings on display with, you know, you'll smell the delicious pastas with the live sauté cooking. There's display cooking there with chefs with chefs hats on. It's very impressive and that's where we're at today.

We've opened up one restaurant, well, two restaurants actually, and we have our franchisees very excited about testing this concept with us. We've got a lot of work to do, but we're confident we're hunting in the right area for Pizza Hut and we now have multibranding solutions for all three of our lead brands, Pizza Hut, Taco Bell and KFC.

It's very exciting and we look forward to reporting to you our progress. Remember, each of our brands have unutilized capacity in thousands of our restaurants. And we think this is the best way to bring choice and variety to the consumer in a branded way. This is a huge opportunity for us to accelerate our U.S. potential.

I also attended in the first quarter our franchise convention in Hawaii. And I can tell you the international franchisees are very, very excited about moving very quickly to learn about multibranding Pizza Hut Pasta Bravo as well and we'll will testing Pasta Bravo combinations outside of the United States in the coming year.

Speaking of Aylwin Lewis, which I just talked about, gave him all this glowing terms here, I hope you don't think I need to give you a raise now, but anyway, I've asked him to come on this call and update you on the progress that we've made thus far, multibranding, and what we expect to accomplish for the rest of the year. With that, let me turn it over to Aylwin.

Thank you, David. I appreciate that introduction.

I'd like to spend a few minutes this morning on the call updating you on our progress so far in 2003 and what we expect the balance of 2003 on what is a very exciting strategy for Yum, multibranding our great brands. We provided quite a bit of information last December in our New York annual investor update meeting.

This information including slides is available to you and remains on our investor website at Yum.com. Before I update you on our progress in 2003, let me recap why we think multibranding is such a big idea and can lead to acceleration of our U.S. business growth.

In a very competitive U.S. QSR market, multibranding transforms our U.S. business. And it is true customer driven innovation in how our brands compete for the long run. This is a winning strategy for Yum.

We have been doing this multibranding for over 8 years. The key data point for us is that the QSR customer prefers a multibranded restaurant to a single brand restaurant six to one.

It's not inconclusive, it is very clear. It's a clear win-win situation for our customers and for Yum. The customer gets branded choice in the same retail space and on our end, sales increase at least 20% on average with the second brand, and the unit cash flow increases on average at least 30%.

Today I'd like to update you on how we are making progress bringing this big idea to life. I'll talk about how we'll resource the round execution of multibranding, what we are doing to enhance the kitchen area of these restaurants and improve labor productivity, and then I'll talk a little bit about people capability in support of multibrand.

Resources. We have 80 people on my team at Yum who are 100% dedicated to the execution of the multibrand strategy. From a dollar perspective that translates into nearly $10 million of GNA investment that we very continuously made versus having no fully dedicated resource just over two years ago.

This team is comprised of some of our best operators from all over Yum in the U.S. They include restaurant design and kitchen experts and as we recently announced we've just hired our first multibrand CMO.

This person is expected to provide the marketing leadership we need for this growing multibrand business. The mission for the overall team is to optimize the benefits to our customers, our operators and our shareholders of this exciting multibrand strategy.

This includes day-to-day customer experience in the restaurant, training of our teams in these restaurants, local marketing of each restaurant, building design, kitchen layout, kitchen equipment integration and daily labor staffing. The bottom line is, we're going after executing multibrand in absolutely the best way we know.

This team is doing everything they can to maximize sales, profits, cash flow return from every Yum multibrand restaurant we build and open. There are about 17,000 existing single brand U.S. restaurants that we own.

We expect several thousand new multibrand locations to be added in the U.S., which includes Taco Bell and KFC. Currently we think the potential is over 10,000 multibrand restaurants in the U.S. alone by combining Taco Bell, KFC, Long John Silver's and A&W in a dual brand combination. This number does not include what we believe we can do with Pizza Hut and Pasta Bravo.

Let's look at our progress to date in 2003. Our broad target is to add 400 more multibrand restaurants to the U.S. base this year. In the first quarter, the company and our franchise partners added 72 multibrand restaurants. You can review from our earning release more details about these restaurants.

Our over arcing guiding principle of multibrands is that we're going to be quick but we're not going to hurry. We're going to do multibranding in absolutely the best way possible with our best operators. In fact, we just put into place tough operational standards that will help us identify our best operators.

When you look at other retail companies that really transform their business, we like the transformation of Walgreen's to a prime corner retailer. We are using them as an example of what is possible for us with our multibranding strategy. We briefly talked at length about the need to more fully integrate our multibrand kitchens.

This is critical to improving through put. Due to ease of operations, labor productivity and the ability to serve our customers optimally with speed. We're making solid progress.

Last year we were able to open several new multibrand restaurants with our latest generation of integrated kitchen equipment. What's exciting is, based on our early learning from these restaurants, we have been able to eliminate up to five linear feet from our equipment line. This will help benefit potentially for how our buildings are built.

This new generation pack line for the kitchen currently being implemented in the latest openings with our KFC, Long John's, as well as our Taco Bell Long John's this year. Labor utilization another key area we are working to improve within multibranding.

We have been working with a new software package that we purchased this year which provides us with the opportunity and ability to do back to house labor simulation modeling. Labor deployment will be enhanced, which means reducing cost and serving customers better.

We just recently completed this model simulation results for our KFC Taco Bell combinations as well as our KFC A&W combinations. We are optimistic that we can make some real progress based on the model results and over the long run we will reduce labor costs in our multibrand restaurants by about 1% in terms of margins. That's significant in terms of cash flow and returns given the higher volumes of our multibrand restaurants.

Before I wrap up, I'd like to briefly update you on how we're looking at people capabilities relative to driving multibrand success. Those of you who have heard me speak before, know that people capability first is a cornerstone not only to our young principle, before our worldwide operating framework.

We believe we have a great proven tool in identifying and profiling a successful multibrand general manager. We have used some industry experts and have identified four areas that are critical to success of a multibrand general manager.

The key for us is to separate those managers who kind of muscle results each day in a single brand to what is needed in a multibrand restaurant, which is true managerial skills. Particularly in the areas of time management, stress management, communication and delegation.

We have developed a process and a tool that will allow us to identify these four skill areas with our RGM population. The first step will be to identify the readiness of each general manager that we currently have and to identify the training opportunities with timeframes that will help them get ready to be a multibrand manager.

So for the first time we're able to look at our population and say who will have a great chance as an RGM of being a great multibrand manager. I've got to tell you, this is early stage, but I'm very excited about this opportunity and the possibility of using this tool.

Overall in my judgment, we've made good progress so far in 2003 in the areas of resourcing. In a big way, we have effectively resourced behind this great strategy and we're spending to make this happen for our shareholders as well as our customers.

Back at house integration, we're making progress to improve through put in these multibrand restaurants by reducing the pack lines at least 5 linear feet. Labor utilization and enhanced productivity is a big goal for us and we believe the modelling tool that I'll discuss will allow for better staffing and scheduling and allow us reduce our labor costs at least 1% in the long term for our multibranding restaurants.

And then finally, people capability which is the cornerstone of success of multibrand execution, we believe we have a tool that will finally allow us to look at our population and identify who will be a multibrand restaurant manager through skill. Let me say that we're making progress overall in our operations.

We have this ops platform that we've been working on for the last three years. The good thing is, as we improve our ops it gets us ready for multibranding, because multibranding success is highly dependent on running great restaurants.

Overall, we're happy where we are today, but we're working hard to become great managing our multibrand restaurants. I'm very excited about this strategy. We're going to bring innovation to our customers and the marketplace and multibranding will be a reality.

David, I'll turn it back to you.

Thank, Aylwin, I appreciate it. I think when you look at our business over the long term, when you think about our international growth opportunities, our multibranding growth opportunities, and the fact that we have a portfolio of leading brands; I think we are anything but your ordinary restaurant company.

You know, what I hope you get a feel for from us whenever you talk to us today or any of our people out in the field, we don't have a strategic problem at Yum Brands. We are focused on the thing which is going to make those strategies happen and that's execution.

Getting better and better and better and better at executing the basics of this business to make these growth opportunities become realities.

So with that, I'd like to now turn it over to you and we'll be happy to answer any questions that you have about our business.

Amy, let's get to the questions.

Thank you, sir. If you would like to ask a question, please press star then the number one on your telephone keypad at this time. We'll pause a moment to compile the Q and A roster. Your first question comes from Janice Meyer with Credit Suisse First Boston.

Janice Meyer, CFA: Thank you. A question on Pizza Hut. You seem to be certainly optimistic about the trends later this year, but I'm still unclear of the strategies to produce the results. Without giving up competitive information, can you help us understand or at least give us some confidence that you understand what the issues are and what the strategies are to deal with that? For example, we heard a lot of talk about the need for value and yet, you ran the cinnamon stick product and it really didn't boost sales that much. What did not work there? Maybe how could that have been avoided?

Okay. Let me start first with the overall strategy and then I'll come back to the cinnamon sticks. I think it's a very good question, Janice, so you're definitely on your game.

Number one, when we look at our business, customers really telling us that we have three things that we need to take into account strategically. One is we have the power brand in the category. We're the brand that everybody grew up with.

It's the brand that when it comes to family sharing, you know, we're the brand you really want to be with. And so it's a great place to be.

We have an edge now on our quality measures, which is something we didn't have five years ago. When we go out and talk to customers, they're saying, you know, you really have your product right. You've got a brand heritage that nobody else has. So we really want to leverage that in a family sharing context.

Second thing is, is that value is a big driver of the off premise category, which is where the growth of the category really lies. And where we feel we have not really been on the mark is really giving the value that the customer is looking for in the off premise occasion, which is more bulk value. They want a lot of food for a lot of money.

So you can actually take -- they want a lot of food for an affordable amount. So you can actually take your guest check up and the customer can feel good about it as long as they're getting a lot of food for it.

And where we think we've really missed is we've been focused more on single pizza, medium pizzas at good prices, or large pizzas at a good price, without taking into account that the multiple pizza occasion and added values with either wings and/or breadsticks. These are the things that customers are really looking for. So we're definitely examining how we can do that in a differentiated way.

Third thing that we know is that one of our biggest barriers is just serving our customers better, improving operations. Taking care of phones, going store by store to understand what the customer issues are. One of the things that Aylwin is really leveraged this year is store by store operating plans where we're really putting very specific tactical plans together in each one of our Pizza Huts to get our same-store sales up.

There's no business that we have that is more responsive to what the local operator does than pizza because you can go out into the trade area and get business. You can go out and get it. You can get outside of four walls. So we have very specific 2% same-store sales plans being developed at Pizza Hut which we think will make a difference as we go forward.

Finally, the other thing that customers tell us which is an advantage that we have going forward, is the customer is telling us that they love our innovation. They like us to excite them with new products.

But we have to balance that with the fact that we need to offer just your basic pizza and these new products and we think we've been a little bit out on the fringe in terms of bringing forward specially products without reinforcing our core product as much as we'd like to, our pan pizza, our thin and crispy, our hand-tossed. The tradition segment. So you'll see as we go forward, a balance on that as we move ahead.

I think Pizza Hut; the new team I think is doing a great job of diagnosing the problem. We're putting a lot of programs together that will really come to place in the second half, so you'll see the strategy coming together as we move forward. It's all based on consumer research.

We have a new management team at Pizza Hut, which is given us a fresh set of eyes on the business, Peter Hearl is doing a terrific job. We brought in a new marketing person who's really an expert at positioning and we think we're on the right track. I'm very enthusiastic about what we can do with the Pizza Hut brand.

Now, the $11.99. We introduced cinna-sticks. I think one of our problems with cinna-sticks is we were last in. We were like the fourth to come in with cinna-sticks and we were too late of a follower so it was not that big a deal, frankly.

The second thing we made a mistake on is we had an $11.99, a large pizza for $11.99 with three toppings. We wanted to really leverage that versus a lot of the $9.99 large pizzas that were being offered up there with the fact that we were offering three toppings versus what you typically get when the competition is offering up something for $9.99, then when you add up the topping prices, it ends up being well over $11.99.

So the problem was, is we didn't do a good job of communicating it. When you go on air with an $11.99 price point when everybody else is out there at $9.99 and you don't communicate that you've got three toppings and the difference of the offer, you look like you don't have the best value of being offered at that point in time. So we missed on that promotion, frankly.

And even within that framework, I think we basically outperformed competition during that period of time. That's because we had the best brand.

So that's kind of where we're at right now. Lot of things are in the works that I think people will see and the other thing, longer term, when you look at Pizza Hut, we also have Pasta Bravo, which will be exploring multibranding with Pizza Hut, and we're also looking at options for our delivery carry out units which I don't want to talk about right now but we're pretty enthusiastic about.

Janice Meyer, CFA: Thanks so much.

Amy, next question, please?

Yes sir, your next question comes from Joe Buckley with Bear Stearns and Company.

Joe Buckley, CFA: Hi. A question on the multibranding presentation by Aylwin. It sounds like a number of things are taking place that might improve the margins. I know that's been one of the challenges, the dollars are obviously a lot higher, but some of the margin information in the past has shown some erosion. I know you mentioned a labor cut and a hundred basis points, some soft space constraints and things like that also factor into the margin. And then just a second one. You sound a little bit more optimistic on Taco Bell for the year, and given the tough comparisons they have, I'm curious what's driving that.

I guess we can start out with Taco Bell. The reason why we're enthusiastic about Taco Bell is number one they have momentum in their business but for a reason.

Taco Bell today is a very, very well positioned brand. We're positioning Taco Bell as the bold choice in a category where we have a 75% market share and there's nothing like Taco Bell. So we literally have -- we're the number one variety brand in the category and what we're basically doing is, we're bringing that variety forward in new and innovative ways with the "think outside the bun" campaign. You will see a lot of product innovation continue to come out of the Taco Bell brand.

And that Taco Bell innovation coupled with the continued improvement that we're making in operations, I think is a powerful one two punch that allows us to feel confident that we can get on at least a 2% same-store sales growth track as we go forward. So I think we got one of the industry's best advertising campaigns, we've got innovation that has worked for us in the past that we can go back to, plus we have new innovation going and we have operational improvement specifically with our focus on speed of service that are the three things that make us confident about the second half of the year.

Admittedly it's a tough category. We know that it's a slug-out category and sometimes we'll do promotions, like I talked about with Pizza Hut, where we don't hit the way we wanted to. But we think in the retail business you're not going to hit it every time out of the park, but we think we're going to win more times than we're going to lose.

On the multibrand margin front, obviously cash flow per restaurant is a huge measure. But as we've always done, Aylwin and I always talk about margins; I'll take a crack at some of the things we're working on. If I miss anything, I'm sure Aylwin will jump in. On the margin side, especially as we're getting critical mass in these restaurants, we're able to learn how we can improve not only speed of service and service quality but also our P&L.

The first area is in labor, in management deployment and Aylwin talked about that. The second area is in our building costs and negotiations and getting standard costs in our buildings. In building a standard building. I think there's an opportunity there. And the five foot deployment opportunity that Aylwin talked about is an example of that.

Then third, the food costs management is an important part of what we can do. Importantly, cash flow per restaurant is a major driver of investment decisions. We think we're going to continue to pursue the margin opportunities and we want to do it with the customer in mind.

There's not a lot to add. The good thing though is the software that we bought specifically for labor takes the guess work out of where the opportunities are. You're able to simulate customer orders using real life examples and then you can take that to the operators and show them in a very emphatic way where their opportunity is per restaurant. That's a -- that tool is different than what we've done in the past.

We've always used benchmarking of our best restaurants to try to drive that improvement. But this is a scientific way to lay it out to the operators, say, "this is where your improvement is based on your actual sales". And the transactions flowing into the restaurant. So we're very committed to continue to chase down not only labor, but also food and semis and the other part of P&L.

Joe, I'm glad you brought up that question because it really lays out what we're really focused on in the company. We borrow the phrase the magic of the and. We know that we generate incremental cash flow from these multibranding units.

And what Aylwin is really going on is the magic of the and with margins for comparable buying levels that are equal to our stand alone units. And that's what we've driving up against. We've got the team on that to make that happen. Because we know that the higher the volumes are, typically your margins go up.

What we're going through the learning curve right now is to try to get us to the base where the multibrands are equal to the base. And then as we grow off of those higher volume bases, we want to have better margins. Because why can't we?

What we're really representing is branded variety, branded authority when we introduce these new product lines. So we're going through that learning curve, but over time, we don't think there should be a trade off between a stand alone restaurant versus a multibranding restaurant. That's the magic and that we're going for, cash flow plus margin.

Joe Buckley, CFA: Thank you.

Your next question comes from Mitch Speiser with Lehman Brothers.

Mitch Speiser, CFA: Two questions. First on the dual branding at the beginning of the year you mentioned about.5 percentage points of comp improvement will come from dual branding. Just like to know where that stands today and if it is more of a backend weighted forecast. And secondly, on the contingency, you mentioned that you have dug into the contingency and have increased the contingency. Can you give us a sense of how deep the contingency is and how much you have actually dug into it, and how much that you have more to dig into this going forward?

I'll take the contingency question first Mitch, and rather than give specifics on exactly how much dollar we have, because it is a flowing thing, let me talk about what some of the up sides of the year have been and some of the things that have been down sides. Four ex has been an opportunity for our company. The first half of the year, our four ex will be up to 8 to $9 million year-on-year. Our interest costs are favorable slightly and we are running favorable in our overhead plans.

Some of the things that have provided some challenges to us the first part of the year is our Q1 sales and we documented that, especially with some of the impact in weather. We've talked about today on the call the SARS situation and utility costs are slightly higher in the U.S. So this will ebb and flow during the year and we've got some ups and downs going on out there.

On the multibranding question, we still feel comfortable with about a half a point or so in the year from the multibranding situation and then like multibranding, like all new unit development, it tends to happen later on in the year as restaurants get added and built. So we feel comfortable with where we're at but we also know that it will be later in the year as our development timeframes layout.

Thanks, Mitch. Amy, next question, please?

Your next question comes from Coralie Witter with Goldman Sachs.

Coralie Witter, CFA: Could you talk more about KFC? More specifically, you talked about driving better consistency with improvement on the drive-thru doing what you did at Taco Bell. Can you walk through where you are in the implementation process at KFC and how long it took you to get that kind of progress at Taco Bell so that we can compare?

Well, in our company owned restaurants, we have completely implemented the program from Taco Bell. We've currently seen about a 36 second reduction in our overall service to order time, order to drive-thru time, the first three months of that. Still got a long ways to go with it, but is is in.

And we figure by the end of this year we'll have about 50% of the franchisees using the same program around speed of service. We have a new COO at KFC and he's very driven to drive this process. It is making a difference. It's going to take a little bit of time.

But our goal, we have the same speed of service standards for KFC that we're using for Taco Bell. And it took us about 18 months to get the tremendous improvement at Taco Bell and you know, we're going to try to shorten that with KFC, but it will be a similar process. But the operators have adapted it, we're definitely using it, we're beginning to see a speed of service culture grow there at KFC and we expect the same type of results.

I was in KFCs last week and Coralie, the training has been done. The biggest thing I can tell in this business, people are much more aware of speed. And that awareness. You have to paint the reality before you can see change.

Then you've got to get people disturbed enough about what that reality is. And I can tell you we're disturbed, we've painted the reality, you'll see that. We have targets being set in each store for speed of service, we're getting rush ready, we'll be changing our equipment.

You can now go into the back of the house and you can see how we're doing, the timer's going to green when we're doing well, then they turn red when we're not doing well. We're really to the point in labor where it needs to be deployed so that we can make this steady progress. I think you'll see something as we go forward.

Coralie Witter, CFA: That's what's driving the confidence in your targets for the year more so than new product introductions?

It's sort of like, I think what we look at is a one two punch. What we're trying to do is we've evolve our company is we want operations to be the first punch. We want operations to get better and better so we can get 2% same-store sales growth just from ops alone. Then we want the innovation to come in and be the gravy on top.

Now obviously, that's work that we've got to do. But that's how we're approaching it from a mindset. But we're looking at ops improvement as a major driver of success this year. And we also are moving to a restaurant quality at half the price value positioning off of our core products that is we think redimensionalizes our business in a pretty impactful way based on some of the tests that we've conducted.

Coralie Witter, CFA: Okay. Then one quick financial question. How much should we be factoring in for refranchising losses for the full year?

Our target's the same. It's flat for the year.

Basically a neutral impact.

Coralie Witter, CFA: So we should be no losses for the year?

Right. As we laid out last year, we expected our refranchising ups and downs to about equal out. It all depends on how the timing goes. But it should be about flat for the year.

Coralie Witter, CFA: Okay. Thanks.

Thanks, Coralie. Amy, next question, please?

Your next question comes from John Ivankoe with JP Morgan Securities.

I think David Deno mentioned that the first quarter margin environment in the U.S., which was obviously down, was much worse than you even wanted it to be down. What do you think you could have controlled in the first quarter that you didn't and I guess more importantly, what could change going forward? That's the first question. The second, if I may, it sounds like you're going through a qualitative evaluation of a number of managers in your systems to determine whether they're better for multibranding or single branding. Are you getting any surprising answers in kind of doing this process of maybe being fit for neither? Is this something that could possibly even maybe bring some forced turnover in the future. Just a curiosity on that point.

Good questions, John. Margins. On the things that we could control in the restaurants, the labor deployment, semi's and things, when we didn't get surprises in sales we did a good job. We did get some surprises in sales in the down side and we got some deleverage in our labor line. I'm not here to be the weatherman, but that did impact things just a little bit in the quarter.

But the one thing I think we learned from a company management standpoint is, I think we need more discipline around some of the discounting that we choose, primarily Pizza Hut. I think that was happened in the first quarter and I think we've done a very good job laying out how we can create price value for the customer but also have a process in place that we do a good job of managing our discounting.

That primarily, John, was local discounting at the local level, not the advertising stuff that we do on TV. We've got to do a better job watching that, weighing the positives and minuses from a sales building standpoint and also what the customer sees and also looking at our margin.

Relative to the multibranding tool, like I expressed, it's hot off the press. We have just started to process using the tool. We don't anticipate massive turnover because part of what the tool will do is identify the skill deficiency, if any, and the timeframe we believe people can improve those skills to be multibranding ready. So we will have a read on our management population by the middle of the year.

We've asked each of the companies to go through and look at their populations and then we'll deal with the results. We have good people so we don't anticipate that we'll have to force a lot of turnover. As we do this thing over moderate timeframe, [INAUDIBLE] we'll be able to provide people the time to enhance their skills so they can be multibranding ready. That's a great question.

Thank you.

Thanks, John. Amy, next question, please?

Your next question comes from Andy Barish with Banc of America Securities.

I guess on the international side of things, taking system growth down from say 10% to 5 6, is that what you're seeing in period four that you just reported from the kind of the SARS impact, or are there some reporting differences there? And how do you drive mid teens profit growth if that's the case or you don't expect that to continue?

Andy, very important, I want to jump in right away. The 10% was not our forecast. We had looked at 7; we're looking now at 5 to 6. That's a very important thing I want to drive in. So we continue to expect mid teens profit growth from growth in our base business, through new unit development, and also we've got the benefits this year, somewhat of which I laid out earlier, but importantly, we did not expect a 10% -- and you look at our communications, we did not expect a 10% growth in constant currency.

You can drive mid teens profit growth with 5 to 6?

In that particular quarter we can because we've got the upside of four ex but also some new unit development going on, Andy. Then going forward obviously, then going forward we expect our systems sales growth in Q3, Q4 to be stronger. Also remember period four last year was a monster period for international.

Then a quick KFC question. I may have just misunderstood your verbiage, but it sounded like you were talking about continuing to test products in the second half instead of rolling out products such as non-fried. Is that a shift that's going on or did I misunderstand the way you were talking about it?

No, I think we're testing the non-fried options. We think that the national roll out of that is basically up in the air depending on the learning that we have right now. So we really don't have anything to report at this point in terms of when those products would be launched.

The main thing that we're really focused on is doing it right, okay? We want to make sure that if we're going to bring a new product on and into our menu, go through the extent of training something that we've got the thing operationally ready and marketing ready and it takes time to do that. We don't want to rush a product into the marketplace and frankly, we don't think we need to.

I assume that's because you're somewhat comforted by the change in trend recently at KFC?

Well, that always helps, but that doesn't mean we don't have a sense of urgency around here. I think we feel very good about boneless wings staying on the menu in all our company stores.

We've got an opportunity -- we're basically looking at our product development on two fronts. One is everything that can be fried and tastes delicious and it's portable and can reinforce our meal, we're going to fry it love it. We love fried chicken. Nothing wrong with it.

Consumer loves it, they eat a ton of it, and that's what we're really good at. So we're innovating on that front. Plus we're looking for new ways, and I think you'll see these on the back half, on ways to dimensionalize the value that we offer versus our competition that the customer is tells us is pretty powerful. So we feel very good about that.

The second area that we're really trying to innovate off of is this whole non-fried platform. I think that's going to take us longer than obviously staying within the fried platform. But we've learned that in the past you can rush new products in and you really don't really help yourself over the long term.

What we want to do is build this business right over the long term and make these things stick when we introduce them.

Thank you.

Thanks, Andy. Amy, next question?

Your next question comes from Brian Neffer with Columbia Management.

Good morning, gentlemen. Just another quick SARS question since you guys seem to be disproportionately exposed. Can you give a little background on what drove the down 20% and two to three month duration assumptions in you discussion about SARS? Is that simply just a maximum that your contingency will allow? Or do you have some other information?

It's pretty much everything that we know right now. We're just trying to provide the best estimate as to what we believe. If things change, obviously we'll get back to our investors. But that's our best estimate.

Okay. So that's your assessment of the situation now, but it's safe to say that it's not your estimate of a worst case scenario?

It's our most accurate estimate of what we have today. We'll update our investors going forward on our sales growth.

Brian, we've looked at -- we've talked to all our people on the ground in all these markets. This is based on everything that we know of as of like yesterday.

I think you get in trouble when you try to forecast God's behavior. I think what we have done is looked what we learned today, try to apply that and try to take the timeframe. And I think that timeframe basis what we know today is very conservative.

And we're trying to provide a hypothetical example and provide that information to our shareholders to the best of our ability

Why do you think two or three months is conservative?

It's a hypothetical example of what we think is out there today. That's the best thing I can say.

Perfect, thank you.

Thanks, Brian. Amy, next question?

Your next question is from Mark Kalinowski with Salomon Smith Barney.

Hi, two things to ask about. First on the Pasta Bravo, assuming that your tests of that continue to go well, how quickly can you ramp that up over time? When do you see that possibly becoming a material effect on your financials? And then second, just wanted a general update on where Yan Can stands. Customer acceptance, what some of the challenges there are going, how many of those units could be up and running by the end of the year.

Pasta Bravo, I think we have two restaurants right now, we're opening up a third one. It's a long way from being a ramp up. This is a long term opportunity for us and we're very excited about making it a long term opportunity for us. But we take the sequence in the proper way. Ramp up would be the wrong way to be thinking about this. That's not how we're really thinking about it.

And we have a very disciplined process on how we take these concepts from inception to ready to ramp up. So we're going to do Pasta Bravo the way we've done the other multibrand combinations and really let the consumer guide our actions and then how we manage the business.

And Yan Can, we don't really as an executive team talk about Yan Can. Because it's so small on our daily thought process and the impact on our business, we don't spend a lot of time on it. But it's a joint venture for that reason. And we have a joint venture with one of our franchisees. I think Dave -- I couldn't tell you exactly what the most recent --

Mark, our sales trends are tracking about where we expected them to be. We're looking at building some more, but as far as the material impact on our company today and in the future, there really isn't any. But we remain excited about the possibility, no doubt. We have a very focused management team up against that and we're up against our other strategies that we've been talking about.

Thanks Mark, Amy, next question?

Your next question is from Karen LeMark with Merrill Lynch.

Hi, I've got one question on international and one on domestic. On international, you said that you continue to be very disciplined with respect to your capital allocation and opening up restaurants, but I'm wondering if you could give us some color on how you do that when you're opening a thousand stores or so a year and how you monitor on an ongoing basis the quality and the same-store sales growth of the existing units. Then I'll follow up with the domestic question.

Sure. We open a thousand new restaurants each year internationally. Three hundred or so are company and 700 are franchise. Doesn't mean we don't pay very close attention to the franchise openings, but that involves other people's capital.

And then we have a very, very, very experienced team in our development and our finance functions both in the center in Dallas and in the markets overseas, and we pay extremely close attention to how we're doing. We followed up every quarter and then we readjust our capital spending as appropriate depending on where the returns are going. Whether it's terrific, we'll spend more, or if returns are not there, we will redirect our capital overseas. It is a huge priority of the finance function and the development function and our management teams to make sure this is being spent the right way.

Let me give you an example. I was just talking to Pete Bassi this morning before the call. Steve Bassi runs our international division. He's down in Mexico.

Our KFC right now is a little soft, and you know, one of the reasons why it's soft is where we've opened up a lot of restaurants, there's been some absorption or cannibalization of our existing same-store sales in Mexico in a few of the markets. So we scaled back in a few of those markets.

On the other hand, for Pizza Hut, we've opened up 8 Pizza Huts, [INAUDIBLE] in the last year they've all exceeded their capital hurdles and we're going to open up more as we go into the future. That was sort of a lucky strike extra that we weren't counting on. But we look at each country. We understand what's going on in each country and then we try to adjust very quickly to make sure that we are moving forward with the returns in line.

And the other thing too as we know, we really try to focus our capital. So our 300 new openings are focused in our market. The U.S. question?

With the U.S. Company owned stores becoming smaller and smaller percentage of your total domestic store base, can you share at least relative to those U.S. comps, what your franchisees are doing and tell us whether or not you have or plan to raise franchisee fees?

Yes, it's in our earnings release.

They were one point better.

So the franchisees were one point better than the quarter. And then we have contacted our franchisees and Chris Campbell, who is our Chief Franchise Officer relates to contracts is working with our franchisees going forward. We're working our multibranding contracts. But the other fees that are in place in our concepts are set.

So you're saying the multibrand contract might be at the higher rate?

We're still working that through right now.

Thanks.

Thanks, Karen. Amy, next question please?

Your next question is from Peter Oakes from Merrill Lynch and Company.

Good morning. Actually I have a few. I was curious first on the tax rate. It was a couple hundred basis points lower than what you thought going into the quarter. What drove that Dave and what's the sustainability?

It was a foreign tax credit opportunity in the -- in our business that we were able to recognize, and what we certainly had planned this year for the tax rate to be on plan. And it's on target and it's going to be equal or slightly higher than last year. That's foreign tax credibility or credit is a sustainable upside. Then we do provide guidance every quarter as to where our tax rate is going to be, and we expect to be on our tax plan for the year.

On multibranding front, if I calculate correctly, it now represents about 10% of the total U.S. unit base. Could you remind us as to how the comps perform once you anniversary the introduction of the multibranding?

Yeah, what we have is typically the comps, depending on concept; they perform very well the first year. When they last the honeymoon period, typically they are negative. After the honeymoon period, those first few months of opening are over, they generally sustain into performance equal to or slightly better than what we're seeing right now in our base brands.

We're in the process of developing new multibrand combinations and we're following that as we speak. But that's the experience that we're seeing so far. We do see when they're initially opened, we see a very big opening, and then when we lap that for the first few months, we are negative.

And as far as the three domestic brands, can you share with us a little bit as to how the average check trends have performed here lately?

We have gotten check opportunity in transaction growth at Taco Bell and I think we've gotten -- Tim, correct me if I'm wrong -- we've gotten some check opportunity at KFC.

Yeah, Peter, the brands in the first quarter, looking at the first quarter basis, they range from 1 to 2 points positive benefit in price and mix.

Okay. And just moving on here, two more real quick. The pizza category as a whole is definitely hit a bit of a speed bump here not only the last quarter, but it's been going on for a few quarters. I'd be curious if David Novak would have any insights as to what seems to be going on with [INAUDIBLE].

I think we've done analysis in the past to look at sort of the macro factors, and if you look at the economy, when there's been recessions in the pizza category or whatever, we really haven't seen much of an impact at all. So we think we're pretty resilient in most economic factors.

What we have done regression analysis on that shows that the category is more responsive to, or higher corelation to is consumer confidence. I think frankly, what I think is going on is we all know that consumer confidence is low right now. We've been going through a war, you turn on the tube, you're looking at war. Pizza's fun. It's a fun get around the pizza, have a good time kind of occasion.

I think consumer confidence is more closely related to the pizza category than the other food categories. I think that's driving some of the category softness that you're seeing.

But it seems like the war and the confidence issue have been more recent, where the category's obviously been struggling here for the better part of a couple years.

I think the consumer confidence has been down since middle of last year. I think that's a factor. I think that's one factor. And if you have another one, I'll be happy to hear it.

Well, yeah, lastly, I do, but we'll talk about that later. Would you care to take a stab at what the weather and the war's impact was as far as first quarter performance on comps?

We will, but one thing I want to say up front is we don't like to get too much into the weather and that kind of stuff. It was widely reported in period two that we felt that on a blended basis that it was about a point or so in period two. You can argue somewhere between a half a point to a point for the quarter depending on the momentum of marketing programs et cetera, but we're well beyond that. We've got our own programs in place. We're moving forward and that's pretty much the read on the quarter. That's how we're trying to run the business with our teams.

All right, thanks.

Thanks, Peter. Amy, next question?

Your next question is from James Borges with Wachovia Securities.

James Borges, CFA: Thank you. My question relates to your second quarter outlook. In there, you include in that outlook is U.S. blended same-store sales for company units up 2%.

Uh-huh.

James Borges, CFA: Given where you tracked in April and over the last couple of quarters, could you highlight a few points that lead you to believe will accelerate in May and June.

Sure. For the quarter Taco Bell led and we have good momentum at KFC. And we pretty much forecasted our existing trends at Pizza Hut. P five is an easier lap than P six. Clearly if you look at our sales laps from prior quarters, Q1 was a very difficult lap along with some unusual factors that Peter talked about. So we think we're off to a good start in Q2 and those are the things that are driving it.

James Borges, CFA: Okay, thank you. And secondly, in your target to reduce related to the KFC initiatives and drive-thru to reduce drive-thru time 30 seconds, could you tell us where you are now at the KFC drive-thru time and also for Taco Bell, please?

Total time at Taco Bell is under 230 and 230 is our target. So Taco Bell company restaurants are right at that target. For KFC, we're around, we're a minute higher than that. So we've shaved 36 seconds off and that gets us to about 330. So we're a full 60 seconds below where we need to be at KFC.

James Borges, CFA: You're saying your target is 300?

No. 230.

We're a minute off.

We're a minute off. 60 seconds.

We want to go from next day service to same day service.

We started around 4 at KFC and they shaved 36 seconds off in the company owned restaurants.

James Borges, CFA: Good, thank you.

We have time for one more question, Amy.

Thank you. Your last question is from Howard Penney with SunTrust Robinson Humphrey.

Thanks very much. Aylwin, in the past you've characterized the popcorn chicken promotion at KFC as a great promotional but not building customer loyalty. Does the current KFC promotion build that kind of loyalty that you're looking for? And the second question is on the international business your hypothetical example didn't include any franchise support that might be needed in those markets which are not company owned. Can you characterize the franchisees or the franchise base in those other Asian markets? Are they larger operations or are they single unit operators? And do you expect to provide any franchise support if cash flows are down?

They are large, very strong, very [INAUDIBLE] franchisees that will not require financial support.

Relative to the popcorn chicken question, popcorn chicken, we've never been able to keep it on the menu long term because it was very difficult to make. We would prepare it fresh in restaurants, and when the mix gets down low it's very tough for the operators.

The difference with the boneless wing product, it's freezer to fryer, it's an easier product, has a long holding time. So we believe this product has an opportunity to earn its weight on the menu long term and it's a great quality product. I mean, popcorn, you get near the end of some of those, and you don't get full chicken. But with this boneless wing, it's an awesome chicken product, whole chunk chicken, all white meat, premium white meat. The initial read on it the customers really love it and the operators love it because it's easy.

Thanks, Howard. Amy, thanks for monitoring the call and to everyone on the call, thank you for joining us. We'll see you on the next conference call.

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