百勝餐飲集團 (YUM) 2006 Q2 法說會逐字稿

Good morning.

My name is Matthew and I'll be your conference operator today.

At this time I would like to welcome everyone to the Yum!

Brands Incorporated second 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 session. [OPERATOR INSTRUCTIONS]

Thank you.

I would now like to turn the call over to Mr. Tim Jerzyk, Vice President of Investors Relations.

Tim, you may begin.

Thanks, Matthew, and good morning, everyone, and thanks for joining us today.

Before we begin, I have one reminder.

September 7th and 8th this year, the Yum! team will host the second China investor conference in Shanghai, China.

Investors and analysts are invited to attend this two-day meeting with the Yum!

China management team.

The event is only seven weeks from now, so if you are interested we do need to hear from you right away if you plan to attend.

Please contact us at 888-298- 6986 and ask for Donna for details of the trip.

Now back to today's agenda.

This call is being recorded and will be available for playback.

We are broadcasting the conference call via our website, 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 that this conference call includes forward-looking statements that reflect management's expectations based on currently available data.

However, actual results are subject to future events and uncertainties.

The information in this conference call related to projections and other forward-looking statements may be relied on subject to the Safe Harbor statement included in our earnings release from last night and may continue to be used while this call remains in the active portion of the Company's website, www.yum.com, which will be until 5:00 p.m.

Eastern time on Friday, July 28, 2006.

On our call today you will hear from David Novak, Chairman and CEO, and Rick Carucci, our CFO.

Following remarks from both, we will take your questions.

And now I'll turn the call over to David Novak.

Okay.

Thanks, Tim, and good morning, everybody.

As you may have seen from our Q2 release, we reported outstanding results for the second quarter, with 18% worldwide operating profit growth and 15% EPS growth.

Importantly, each of our business contributed operating profit growth and margin expansion to this performance.

Our growth this quarter was led by our high return China division, with across-the-board strong growth in units, sales, and profits.

We are particularly pleased that we are expanding in China at a rapid rate and driving record margins.

Looking ahead to the full year 2006, we are very confident that we can grow EPS by at least 11%, which is ahead of our annual target for at least 10% growth for Yum!

Brands.

In fact, I'm pleased to report that on the strength of our second quarter results in China and favorable trends we carry into the second half of the year at YRI, we have raised our forecasted EPS for 2006 to at least $2.83.

In the United States, we see a significant improvement in commodity costs after the two previous years of major increases.

This will help offset what we believe is short-term sales softness currently at Taco Bell and KFC.

We are confident of the positioning and programs for each brand and expect to see overall positive same-store sales growth for the second half of 2006 at both Taco Bell and KFC.

Our portfolio and diversification continues to provide us with opportunities to offset the inevitable ups and downs that occur in a global business with three major brands.

And what makes us really unique continues to drive the Yum! engine: The scale and growth of our China and international businesses, which continue to grow with high returns.

We expect this will be our fifth straight year where we demonstrate the strength of our portfolio to deliver our annual target of at least 10% EPS growth.

Now I'll review what we see in each of our businesses and talk about our plans and trends.

Let's look at the U.S. first.

First, some perspective on Taco Bell, our biggest U.S. business.

For the second quarter, Taco Bell delivered an exceptional plus-5% growth in same-store sales, lapping plus-5% a year ago.

As you saw in the release last night, period 7 sales were down 3%.

While we were disappointed, let us put period 7 into perspective.

We are lapping one of the most successful new product launches in recent QSR history, the Crunch Wrap Supreme, which generated 10% and 9% same-store sales growth respectively in periods 7 and 8 of last year.

As a result, our two-year growth is still among the best in the industry.

We are very confident in every aspect of our Taco Bell Brand.

The fundamentals are strong: Brand positioning, our TV ads, new product news pipeline, our Big Bell Value Menu, and our improving operations.

Importantly, we believe we have great product news that has been proven in test markets for the rest of 2006 and into 2007.

We also will have double-digit growth in media wage for the balance of the year.

Our national media spending will benefit from several factors, including growth of the system in terms of units and strong sales for the past year, highly effective media buying, and the shift of some ad spending from local to national.

Speaking of growth, we expect Taco Bell will have net and unit growth of about 1% for the first time in several years, opening over 150 new units this year.

We know we have tough comparisons for the rest of the year at Taco Bell.

However, we are confident sales will be positive for the second half overall.

With great year-to-date results and very favorable commodity costs combined, we expect this to lead to another very successful year for Taco Bell.

Now, on to KFC.

KFC continues to make steady progress with improving operations, new product development, and excellent advertising behind the Chicken Capital of the U.S.A. theme.

We had an excellent first quarter, with same-store sales growth of 5%, and 2% in the second quarter lapping 8% last year.

Particularly impressive for KFC was period 6, with a lap of plus-12% growth in same-store sales last year, with plus-5% growth this year.

This absolutely stellar performance was driven by the launch of KFC Famous Bowls.

It was an exceptional new product launch with great acceptance of the product by the consumer.

Importantly, the national launch even exceeded great test market results.

We're already working on a pipeline of news that we believe will build Famous Bowls as a new incremental sales layer for KFC.

We're excited with the opportunity of another sales layer at KFC, after successfully adding several last year: The Snacker Chicken Sandwich, the Variety Bucket, and Flavor Station.

We believe that Famous Bowls has the potential to be just as powerful for KFC as Chicken Strips when we launched those years ago.

You will be seeing news on all three of these platforms plus Famous Bowls during the balance of the year.

In period 7, sales were flat versus last year, plus-7% growth.

Our calendar was clearly not as strong as in period 6, with the new product launch of Famous Bowls.

Additionally, we were in a local option window versus national media last year.

Looking at all aspects of brand fundamentals, we are confident of the positioning of KFC, our TV ads, and our new product pipeline.

Operations are improving from a low base, but are steadily progressing.

As a result, we are confident KFC U.S. will have positive same-store sales growth for the second half of 2006.

So to summarize, in period 7 we were a bit of a victim of our own success with the tremendous programs we had last year at both Taco Bell and KFC.

Both brands are well positioned with good marketing programs for the balance of the year.

Now, Pizza Hut is another story.

The picture hasn't changed, even as we have begun to lap weaker performance versus a year ago.

Our sales are down and sales are down for the category.

As you know, the Pizza category, with its higher guest check, performs more like casual dining, which is also struggling due to high energy prices and higher consumer credit costs.

We believe this impacts discretionary weekend dinner occasions.

In addition, our strength is in specialty pizzas, which are premium priced to competition at a time when consumers are cutting back or cooking at home more frequently.

The good news is the team has been working through a problem detection analysis in Other category and brand research to develop a road map to a turnaround plan.

I can assure you we are putting a full court press on making progress at Pizza Hut.

As the year progresses we will begin to implement our turnaround plan and we believe you will see improved results in the fourth quarter.

In the China division we're back and booming once again.

Overall, the picture for our China business looks good.

The macros of the market, our brand positions, the cost environment, and, most importantly, our development pipeline.

With KFC we are moving at an aggressive pace in mainland China, with development growth of 20%, even with the significant scale we have now, over 1600 restaurants.

Returns remain strong and we continue to expand into more cities.

KFC is the leading restaurant brand in China by a wide margin and the lead widens further every day.

We open on average nearly one new KFC every day.

As of the end of Q2, we had more than 1600 KFCs in over 350 cities of mainland China.

The summary for KFC is we're on the right track and moving full steam ahead.

Even more good news continues to come from our Pizza Hut Casual Dining business in mainland China.

We've now reached major scale levels with well over 200 casual dining restaurants, and the development is strong with excellent returns similar to KFC.

We're excited because Pizza Hut Casual Dining is growing units at a 21% rate with solid same-store sales growth.

We're in over 50 cities and clearly the undisputed leader in the casual dining category.

The summary line for our Pizza Hut Casual Dining business in mainland China is we are meeting and even exceeding our high expectations for this brand.

Now, let's talk about our third brand we have been working on developing for full-scale expansion: Pizza Hut Home Service.

We have 31 units currently in five cities with good unit economics.

We're excited as we're now on TV in Shanghai with our first ad campaign to drive this business.

Early results look good.

There is no doubt the Home Service market is emerging in mainland China and we will be there to capitalize on the huge opportunity.

To summarize, our China business had a great second quarter.

Second quarter profits was 60% higher than two years ago.

Our target is for 20% growth per year. 20 plus 20 is 40% growth.

We did 60%: That's pretty good.

And we're up 46% year-to-date, so clearly our two-year trends are excellent.

Importantly, we are opening another 400 new restaurants and achieving record restaurant margins, even while we're developing two additional new concepts: Pizza Hut Home Service and East Dawning are fast food Chinese restaurant concepts.

We think these are strong results and good reason to be as bullish as ever on China.

As we've said before, we continue to believe that KFC ultimately has the potential for 14,000 locations like McDonald's does or has in the United States, and that we ultimately have the potential for about 2,000 Pizza Hut Casual Dining locations, similar to Applebee's in the U.S.

Anything else we do with Pizza Hut Home Service and East Dawning will be icing on the cake.

Our China business clearly separates us from the pack.

Now, on to our Yum!

Restaurant International division, or YRI.

We are very pleased to see solid performance from our YRI portfolio, which I will remind you is about 90% franchised.

For the second quarter, we achieved 8% growth in system sales on a local currency basis.

Importantly, this business continues -- very focused on generating growth for both KFC and Pizza Hut from our substantial franchise infrastructure in place around the world.

YRI opened 152 new restaurants in the second quarter, and virtually all of these, or 92%, were by our franchise and joint venture partners.

Most significantly, franchise fees grew by 10% in the second quarter to a new record, and our overall operating margin improved versus last year to another record for Q2.

YRI generates solid consistent growth that is geographically diverse with high returns and generates plenty of free cash flow, substantially sourced from franchise fees, which, by the way, will approach $500 million this year.

On the Company side, we are seeing improving trends in our equity markets.

As we've said previously, we were struggling with one of our large businesses, KFC in the United Kingdom.

The good news is that this business has begun to show positive same-store sales growth.

We are confident of continued improvement with the KFC U.K. business based on the strength of the turn.

We are very focused on turning those businesses around and expect to see continued improvement as the year progresses.

Our only soft big business is Pizza Hut U.K., which has major news planned for the balance of the year.

We remain optimistic of the improvement with this business as the second half progresses.

Most importantly, for YRI our new unit pipeline looks very good, and we expect to likely exceed our expansion plans for 750 new restaurants in 2006, with over 80% of those coming from our franchise and joint venture partners.

So for 2006 our continued profitable international expansion remains more than on track.

The fact is, YRI continues to build one heck of a track record.

That would be seven straight years of opening over 700 new restaurants -- repeat: seven straight years.

The even better news is the pipeline for 2007 new restaurant development is looking good for an eighth straight year.

In terms of continued growth over the long-term for YRI, we are also pleased to report progress in Russia, one of our emerging markets.

In Russia, we completed our transaction with Rostiks during the second quarter and are now on our way to converting those restaurants to Rostiks/KFCs.

The early results are good.

As a result, we can see a clear path to having about 100 new Rostik/KFC locations in Russia in the near term, something that took us ten years to do in both China and India.

Last but not least, the power of our portfolio in international scale and growth makes us not your ordinary restaurant company and a cash-generating machine.

We continue to invest company capital in key high growth, high return markets, like mainland China.

Overall, our returns, as you know, are very good, which enables each of our businesses to generate free cash flow.

We will continue to build a stronger balance sheet, buy back our own stock at great prices the market offers us, and you may have seen, we just increased our dividend again, this time by 30%.

Over the long term, we expect to continue to grow our EPS at least 10% and build value by executing against our unique growth strategies with high returns that differentiate us from other global consumer companies.

Specifically we will focus on four key strategies: Building dominant restaurant brands in China; driving profitable international expansion; steadily improving our U.S. brands and operations; and multi-branding category leading brands.

Short-term, we obviously had an excellent second quarter and fabulous first half of the year.

Our China and YRI growth engines are now firing on all cylinders.

The U.S. business has now softened after a string of very strong comps.

But we are confident Taco Bell and KFC are in good shape, while we are focused to turn Pizza Hut in the U.S. around.

The good news is that commodities have come down to earth after two tough years and we expect to achieve above-target profit growth in the U.S. for the year.

Now let me turn it over to Rick Carucci, our CFO, who will take you through the numbers.

Rick?

Thank you, David, and good morning, everyone.

I'm going to review four items today.

First, Yum!'s second quarter results; second, important trends in our full-year 2006 outlook; third, an update of our refranchising program; and fourth, an update of our cash flow expectation.

Let's now talk about our second quarter, which, again, was a high quality quarter.

You will recall back in April I was pleased to talk about our strong first quarter and start to the year with 12% growth in worldwide operating profit supported by growth at all three of our businesses.

Well, I'm pleased to report Q2 is even better, again supported by profit growth from all three businesses.

This resulted in a high quality performance quarter with worldwide operating profit growth of 18%.

Operating margins at all three businesses also improved nicely.

Now, let's look at Q2 in a little more detail.

As David said earlier, of our three businesses, China clearly led the way this quarter with 136% growth in operating profit.

Not only a solid recovery from a challenged quarter last year, but strong two-year growth as well.

The good news is this quarter, which is March, April, and May for mainland China, likely still has some lingering effects from Avian flu earlier in the quarter that have since tapered off.

And yet, our results were still excellent.

China division restaurant margin was up about five points versus a year ago.

Year-to-date margins are at 20%, which is two points higher than last year and above 2004 levels.

We are very encouraged by this result and this performance.

Yum!

Restaurants International had a better Q2 than we had expected and discussed during our April earnings call.

As you can see from our release last night, our YRI franchise business continued to perform extremely well and is the key driver of long-term performance for this division.

YRI franchise fees were up 12% in local currency.

This was led by a solid 6% expansion of new restaurants and by 4% growth in same-store sales.

Further expansion of the franchise system base from refranchising also helped to grow franchise fees.

The strongest performing franchise markets were South Africa, Caribbean/Latin America, and Asia.

These strong franchise results led to an increase in operating margins in Q2.

YRI's company same-store sales were slightly positive, but our restaurant margin was down, driven by our performance in the U.K.

Our Pizza Hut U.K. business remains our primary struggling business for YRI.

We expect performance here to improve as second half progresses.

For the U.S. in Q2, we benefited from substantially lower commodity cost following two tough years of commodity inflation.

The commodity favorability in Q2 was $16 million and largely explains why profits were up 5% versus last year, with system same-store sales growth at 1%.

U.S. revenues declined 4% in the quarter and 2% year-to-date, as refranchising or shifting company restaurant ownership to franchisees continues to progress.

You can see that reflected in our USP&L as company sales declined while franchise sales increased.

U.S. restaurant margin improved significantly, by 1.7 percentage points, reflecting the substantial reduction in commodity costs from the high levels of the past two years.

The second quarter restaurant margin of 16.1% gets us closer to our prior best second quarter level of 17% in 2002.

Finally, utility costs contributed to a modest drag on these margins, up almost 50 basis points versus last year.

To summarize, the second quarter was again a high-quality quarter, driven by 18% growth in worldwide operating profit.

This outstanding quarterly performance was led by China, after the U.S. business led our strong performance in Q1.

In the financial area, we saw a higher tax rate of 29% versus last year's unusually low 23% rate.

We also had a $6 million increase in interest expense.

This increase was driven primarily from higher rates on the variable portion of our debt and also reflects slightly higher debt levels this year versus last year.

And finally, we continue to make very good progress in reducing our share count, now down to 272 million shares at quarter end and a 7% reduction in average diluted shares year-over-year.

All of this resulted in EPS growth of 15% against the second quarter last year.

This wraps up Q2.

Now, let's review our business as we look ahead to the balance of 2006.

First, let's talk about our China division.

The key to our continued success in China is development.

I'm pleased to report the new unit development pipeline looks very good.

We are still on pace to achieve our substantial new unit development targets for China, with 400 new restaurants expected to open.

We remain extremely confident of this business and raised our operating profit growth for this year to at least 25% on local currency versus our ongoing target of at least 20% growth.

In terms of how the year stacks up for China, I want to remind you what we said in the past regarding China's quarterly performance for 2006.

For Q3, the lap versus a year ago is closer to normal and our Q3 operating profit last year included $14 million of a supplier financial recovery and other income.

In Q4, we will be overlapping $10 million in additional supplier financial recoveries last year, which is offset somewhat by weaker sales from Avian flu effects.

We therefore expected reported Q3 profit growth, when compared to last years actuals with the $14 million of other income, to be below our annual growth target and Q4 profit growth to be above this annual target.

For YRI, we continue to expect a strong second half as we laid out to you during our call in April.

We expect continued strength in YRI's franchised business and we expect improved company performance, particularly in the U.K.

That includes both our KFC and Pizza Hut businesses there.

The U.K. businesses are lapping particularly weak second half results last year.

In the second half of 2005, U.K. businesses experienced an 8% decline in same-store sales growth.

Profits were down $17 million versus prior year.

We are confident we will positively overlap these weak results in 2005.

As David mentioned earlier, the KFC U.K. sales have already turned positive.

Finally, please keep in mind that YRI's fourth quarter reported growth rate will be negatively impacted by the lapse of 53rd week last year.

We now turn to important trends for the U.S.

We had a great first half from Taco Bell and KFC, with same-store sales up 6% for Taco Bell and 3% for KFC.

However, period 7 sales were soft and we expect overall blended U.S. sales in period 8 to be broadly in line with period 7.

For the balance of the year, we expect modest same-store sales growth as we lap stronger numbers at Taco Bell and KFC.

Pizza Hut remains ground under repair for much of the year.

We do believe that the combination of product news and values will drive somewhat better results for Pizza Hut in Q4.

When you put this all together, this leads us to a flat to slightly positive outlook in U.S. blended same-store sales for the balance of the year.

As David said earlier, that would be with positive performance for Taco Bell and KFC offset with negative results for Pizza Hut.

We are confident of our brand strength at both Taco Bell and KFC in this tougher macroenvironment.

Importantly, within our U.S. company restaurant cost structure, we expect the commodity cost impact in the second half to be favorable by an additional $10 to $15 million compared to last year, with the majority of this benefit occurring during Q3.

And finally, for the U.S. business, please keep in mind that the 53rd week lapse from last year will adversely affect growth rates for Q4.

For the year overall, the really good news is that we expect solid margin and operating profit growth in all three businesses.

In addition, our growth rate for all three businesses is at or above our annual target levels.

We expect at least 25% growth in local currency in China, 10% growth in local currency for YRI, and 6% growth in the U.S.

Keep in mind that the YRI and U.S. growth rates include the 53rd week benefit from last year.

Based on this operating profit strength, our full year EPS guidance increases to at least to $2.83 or 11% growth.

With our global portfolio, we have a track record of consistently achieving 10% EPS growth despite soft results in any quarter or two from any of our businesses.

Specifically for 2006, we are very confident we can easily absorb a tough sales quarter in the U.S.

Our growth model is working this year, and we have confidence in it in the future.

Now I would like to provide you with an update of our refranchising progress.

You may recall that for our YRI business we have noted in the past some opportunities to refranchise our company unit in some smaller scale businesses, namely Pizza Hut businesses in Canada, France, and Australia, and some selective refranchising of our KFC U.K. business.

We continue to make progress in these efforts and you can see we are currently at 88% franchised and joint venture ownership for YRI.

We have refranchised 103 YRI company restaurants in the past four quarters.

Just as a reference point, our company ownership for YRI was 25% at our spin-off and now is down to 12%.

We continue to like our current franchise dominant business model for YRI, where we do invest our own equity and run company restaurants, we generally look for three things: One, potential for significant scale; two, strong growth potential in that market; and three, strong return.

We will sometimes compromise on one of the first two points, but not on the third, the high returns.

Over the next year you should expect us to continue this lower level of refranchising at YRI.

In the U.S., we continue to make progress against our two-year plan of refranchising at least 1,000 company-owned restaurants.

We have refranchised 107 U.S. company-owned restaurants year to date.

As we previously stated, our target is to reach 20% blended company ownership in the U.S. from about 26% at the beginning of this year.

We expect to reduce our U.S. company restaurant count from about 47% at the end of 2005 to about 3700 by year-end 2007.

This represents a 21% reduction in U.S. company-owned restaurants.

The good news is our two-year U.S. program is progressing well and is currently expected to be completed on time with a large pool of capable buyers.

We are at least on target in terms of the positive financial impact to restaurant margin, operating margin, and ROIC, driven by this refranchising.

Overall, by the end of 2007, our company ownership for all but our China business will be about 15 to 16%.

Now, let's talk about cash flow.

We continue to expect to end this year with another record of about $1.3 billion in net cash provided by operating activities.

We will invest about $625 million in our business for capital spending during the year, a reduction of $50 million from our previous forecast.

This will result in about $700 million of traditional free cash flow.

We are fortunate that even after we invest capital, our China, YRI, and U.S. businesses each generates free cash flow.

We now expect additional cash flow of $250 million from refranchising proceeds, another $150 million in employee stock option proceeds, and $40 million-plus from sales of surplus property and equipment and other items.

When you add it all up, that's over $1 billion in available cash.

Consistent with our recent past, our stated approach is to give our cash back to shareholders in the form of share buybacks and a dividend.

We believe we are continuing to get a great value in our own stock buyback, and in the release you can see the year-to-date purchases.

For Q2, our diluted share count decreased by 7% to 272 million basic shares.

This is the lowest level we have experienced as a public company.

For the full year, we expect our diluted share count to decrease by at least 6%.

In addition, we now pay shareholders a meaningful quarterly dividend which we recently increased by 30%.

We are currently at the high end of our payout ratio target range and we agree to review this payout target during the next 12 months.

We continue to feel very good about our balance sheet and the substantial amount of free cash flow we are generating, while comfortably funding all of our growth and maintenance capital needs.

With our capital investment needs for the business unlikely to change from the $600 to $700 million range for the foreseeable future, our free cash available each year should remain substantial.

We also believe that our international growth and overall refranchising efforts is building a foundation which will allow us to consistently generate lots of cash for years to come.

In summary, we expect 2006 to be another successful financial year for our shareholders because we expect to deliver first 2006 EPS of at least $2.83, or at least 11% growth versus last year.

We've already taken up our forecast based on outstanding U.S. performance in Q1 and outstanding performance by our China business in Q2.

We expect another year of record cash flow and returning cash to our shareholders, with an increase in our cash flow versus previous guidance.

Basically, the latest summary for 2006 is higher earnings and higher free cash.

And finally, we expect to continue building long-term value in our international businesses, YRI and China.

YRI, through high return franchise expansion and the development of emerging mega-markets like India, Russia, and France, and in China, with high return company restaurant expansion of at least two brands.

We believe we have the opportunity and the capability for long-term growth with annual EPS growth of at least 10% year after year.

That's it for me, David.

Back to you.

Okay.

Thanks, Rick.

Any way you look at it, we had a great quarter and first half.

The good news going forward is China is back and YRI is set for a strong second half and another good year.

U.S. profit growth for the year will be the best we've had in four years and we're absolutely confident both Taco Bell and KFC are well positioned, in spite of the recent softness.

Pizza Hut needs work and we expect you will see progress beginning in the fourth quarter.

In total, we expect EPS to be up at least 11%.

We're pleased to be raising our number as we deal with our opportunities.

So with that, we'll open it up for any questions that you may have.

[OPERATOR INSTRUCTIONS] We'll pause for just a moment to compile our Q-and-A roster.

Our first question comes from John Glass with CIBC.

Thanks.

Good morning.

How much overlap do you think there is between the Taco Bell user and the heavy QSR burger user?

I guess specifically I'm thinking, do you think that the recent improvements maybe at Burger King and Wendy's and McDonald's strengths is impacting that business?

And have you ever dealt with a situation in the past where all three of those burger guys were comping positively and you also prospered?

Well, I think the heavy user -- there is a strong interaction between the Taco Bell user and the sandwich chains.

That's basically why we have positioned ourselves as the number one variety choice with the "Think Outside the Bun" advertising campaign, which has really separated us from the other guys.

You know, I would have to go back and look and see when all three of the burger chains were positive to see how it really impacted us.

So I really can't answer that off the top.

But clearly, there is interaction between Taco Bell and the sandwich chains.

And do you think that was present in the PP7 this year?

I think it is present every day we wake up.

Basically, I think that, basically, I think when we look at Taco Bell performance, just to kind of put it into perspective -- you mentioned the burger chains.

Let me just talk about McDonald's for a second.

They were up 5% on top of 5% growth last year.

Taco Bell was up -- was down 3 on top of 10%.

So we've got two-year growth in the 3 to 4% range for Taco Bell, which is pretty much in line with McDonald's.

So we think our overall performance is very strong at Taco Bell.

The other thing that -- when we look at period seven, we asked ourselves, what could we have done better at Taco Bell.

I think the two things that we would in retrospect go back and rethink a bit is that we would have launched our Spicy Chicken Crunch Wrap in conjunction with the Big Bell Value Menu so we'd have had more of a one-two punch.

The other thing is that when we look at the advertising, we don't think we necessarily communicated the Spicy Chicken news of the Crunch Wrap.

But those are two things that, in retrospect, we would have liked to have done better.

And as we go forward, we feel good about Taco Bell because we've got tested product news in the wings.

As I mentioned in my report, we've got double-digit growth in terms of our media waits [sic], and we've got a better balance between the heavy user focus with the Big Bell Value Menu and the product news.

And we think while the overlaps are strong, they are certainly softer than what they are in period seven and eight.

So we just think Taco Bell, a power brand, very well positioned.

When you put the growth in perspective and what is going on, it is strong.

There's no real reason to panic at Taco Bell, and we feel very good about the programs ahead.

I've talked to Emil.

He feels very good about it.

And we're confident that you'll see some recovery and we'll be positive overall for Taco Bell in the second half.

Thank you.

Thanks, John.

Next question, please, Matthew.

Our next question is from Rachael Rothman from Merrill Lynch.

Hey, guys.

I just have a couple quick ones if I could.

Could you talk about the U.S. labor margin?

It seemed like you guys were able to get a bit of margin expansion despite kind of more modest in-store sales.

Is there any Workers' Comp or any nonrecurring issues or anything we should be aware of there, and how should we think about that going forward?

There is modest -- still continuing modest inflation in labor.

We did see some improvement in some of the insurance costs.

But nothing major.

Even with zero or flat comps, we did get some leverage.

It was three tenths of a point, so it was nice to get something like that, but it's nothing -- there's nothing that significant going on there.

And then can you just clarify for me -- I may be confused.

The system sales growth of 36% that you guys are showing, it's in the China division table but it's listed under mainland China.

Is that for the China division or just for mainland China?

And if it is just for mainland China, can we get the figures for the China division as a whole?

We reported the China division system sales growth in the period 6 sales release.

Okay.

And what is in that bottom half of the table is just for mainland China.

We're just trying to give you additional transparency into what is going on in mainland China.

Yes, I just wasn't sure if I was interpreting it correctly.

Yes, it's mainland China in that table, but we did report the division system sales growth in the period 6 --

In P6.

Thanks.

And then, just lastly, could you guys help us think about the tax rate for the back half of the year?

I know you didn't move the full year tax rate.

But given the big swing that we saw between your estimate of 32% plus or minus one, down to 29 just in the last couple of weeks, how should we think about the allocations going into the back half of the year?

Let me first cover the Q2 piece, and probably reinforces to me why we are not providing quarterly guidance any more, is that we have a hard time in today's environment predicting our quarterly tax rate, even though we thought we had it right in Q2, when we provided the update in period 6 we came in about two points off of that.

It was really the tax team continuing to work to provide savings and they were able to generate some savings between then and when the quarter closed.

It was a combination of new savings and bringing things forward from previous -- from the balance of the year.

So we're still on our full-year tax number, about 26 to 28% for the full year.

So we're still holding to that full year number.

And as far as allocating it between the quarters, the best thing you can do is just whatever you decide to use for your full-year tax rate, net range of 26 to 28, just back into the second half equally.

That's the best we can tell you at this point.

Perfect.

Thank you so much.

Thanks, Rachael.

Next question, please, Matthew.

Our next question is from Steven Kron with Goldman Sachs.

Hi.

Good morning, guys.

A couple of questions: David, you talked about the additional or double-digit growth in media weeks for Taco Bell during the back half.

I just want to make sure I understand.

It is just additional media weeks, which obviously is going to have additional incremental cost associated with it on a year-over-year basis.

But it is also a shift to more national versus local, if I heard you correctly.

I'm just wondering, is this a change in strategic effort?

Or is there a change in the message, value message, or anything like that?

First of all, it is not an addition of weeks, it's an addition of media waits [sic].

So we're actually going to be -- it's the same amount of weeks, but when we're on air we're going to be up double digits in terms of wait [sic].

In terms of the media strategy, our strategy has been to shift from local to national.

So that's nothing new.

And it is also not an increase in cost, because basically what our media is driven off of is the leverage we get from the increases in sales which we've had, which is continuing in making the brand stronger and stronger, because as the sales go up we have a more fixed contribution into the advertising budget.

And the other thing is I think Debbie Myers and the Taco Bell team have done a great job with really leveraging our strength and clout across Yum! to get us more effective and efficient buys.

Okay.

The next question I had was on the U.S. product pipeline across your brands.

You seem to be pretty enthusiastic about what is going to come through in the back half and your ability to drive modestly positive same-store sales.

But are you moving anything that would have otherwise been in the calendar for the beginning part of '07 up into the back half to try to combat the current environment?

No, we aren't.

Frankly, we feel very good about our plans.

They've been tested.

I think both Taco Bell and KFC, in period 7 they overlapped some pretty strong results.

But there's -- we're very confident in the businesses.

We've gone through -- we just had our monthly business reviews at each one of the brands, and we feel very good about what we've got in the hopper here.

So I think the worst thing we can do is over-react and start moving things forward at a time when what we've done is we've really tried to put a lot more discipline into our marketing processes the past couple of years.

And that's what we're leveraging now.

We hope it will pay off for us.

So we feel good about the news that is ahead because it isn't a flip of the coin.

We've worked hard to test our initiatives and understand what they can do in the marketplace.

So we're confident that they will perform well.

If I could just ask one more.

Sure.

Rick, it seems like this is the second quarter in a row where the commodity cost benefit was better than expected.

And you guys -- you updated your guidance on a go-forward basis.

I guess given the contract you guys do, can you just put some context around what is shifting greater than expected?

And how much visibility you really have into the back half, given that these things seem to be moving around on us?

Okay.

Again, just for everyone's benefit, our commodity costs, a benefit we had of about 8 million in Q1, $16 million in Q2, and we've said roughly about $40 million for the full year.

And again, it has been a little better than expected.

It has been the beef in the cheese, in terms of how that flips to the balance of the year that we mentioned before as well.

We expect a little bit more of that upside in Q3 versus Q4 for the balance of the benefit.

But there is no change in any contracting or anything like that?

No.

Okay.

Thanks.

Thanks, Steven.

Next question, please, Matthew.

Our next question is from David Palmer with UBS.

Hey, guys.

Congratulations on a good China profit number.

But don't worry, I won't linger on that one.

I'll quickly get over to your weakness!

I didn't think you would!

It feels comfortable doing so --

But I wanted to harp on the U.S. business.

Dave, you've tried to instill an expectation in each of your brands to grow on growth.

In other words, if you have a tough comparison, you're planning -- one of the reasons you have a pipeline.

You try to plan to grow against the growth.

And you saw the tough comparisons.

Your brands had the tough comparisons at KFC and Taco Bell.

And you had products.

And it seems that we've had these big products, Famous Bowls and perhaps local marketing, depending on Variety Bucket.

And then of course you've got on the Taco Bell side, you've got the Spicy Chicken Crunch Wrap, and these were things -- when you think about it, there was a lot of hope placed in these platforms to work.

And I guess second and third, you can see perhaps the industry slowed one, maybe two percentage points during June, and some of your big competitors, to John Glass's point, seemed to slow down less, maybe even accelerate, McDonald's, Wendy's, maybe even one of your pizza competitors.

So when you think about the fact that four or five months ago you were planning on lapping these things positively, internally --

Right.

-- and your reality today, can you talk to what is kind of the external competitor?

External industry?

And then maybe even your own internal execution didn't quite work out.

Well, I think there is no doubt that there is a slight slowing of the economy and the macros are not exactly as positive as everybody would like to have in retail these days.

And in our business, I think it is affecting more the high end of the business, casual dining, pizza, high-end chicken, in terms of higher guest checks.

And I think that's just a fact of life.

As you know, David, we don't really believe in giving weather reports or gasoline reports or economic forecasts.

We're focused on getting better and better.

And I'm glad that you brought up the fact that we're very focused on beating year-ago.

And we have a beat year-ago process and every period we expect to beat year-ago.

That's just the basic expectation that we have as we run our business.

You know, I think what happened in period 7 is -- I think in a retail business, you're not going to be right every time.

And we've been more right than wrong.

And we continue to expect to be more right than wrong, given the discipline that we put in place.

I already explained why I thought we were a little soft in period 7 at Taco Bell.

You know, I think at KFC we're very positive about what is going on.

We just launched the Famous Bowls and the results exceeded test market.

But we had a local media window versus a national media window.

Just because of the economics of our business we couldn't afford to be on national and we think that had an impact in terms of our ability to overlap.

So I think that our processes are in good shape, David.

We feel good about the pipeline, as I talked about.

I think the one place where we are struggling is Pizza Hut.

And I think that you'll see some progress in the fourth quarter there.

But I think that we're not whining about the economy or the macros, and I'm not going to give you a song and dance here.

I think we got our brands, particularly KFC and Taco Bell are well positioned, strong.

We're confident we're going to have solid results for the balance of the year.

And I think as I mentioned, we've got some work to do at Pizza Hut.

Just let me put that, again, into some financial context as well.

We said at the beginning of the year we wanted to grow U.S. at least 5%.

We are still confident, we think we're going to actually grow 6% in the U.S., and that's despite some softening that you saw in period 7 that you may see in period 8.

We still feel good about the overall balance of the year on sales there.

And again, what drives our profit equation is China and the international growth.

So we've had a lot of great years when we haven't gotten 5% in the U.S., and this year we are going to get more than 5% in the U.S.

So I feel good about our overall U.S. performance for the year and I feel great about our overall portfolio performance.

By the way -- Go ahead.

I want to ask you a quick one on refranchising.

You said you were on track with 1,000 by the end of -- I guess it's '07 or -- or much of it is going to be done through the middle of '08.

But you only got done -- you say you're ahead of schedule, but yet you've done about 100 or so now.

Can you give us a sense of the pace we might see in the second half and the amount of cash and into '07, how that can play out?

Well, again, just again for background, what we said we would do is we'd sell 1,000, as you mentioned.

We said we'd have ROC positive of 75 basis points, a margin of 50 basis points, and we said we would get sales proceeds of $300 million.

What we've said is just for 2006 we're going to get sales proceeds of $250 million.

So that's driven by both the mix of the restaurants that we think we're going to be able to close this year, as well as a bit higher pricing than what we were expecting.

In terms -- and we have some fairly decent sized deals in the pipeline right now.

So again, like I said, we're going to be 250 of the 300 that we promised in cash will come through this year.

Now, likely that 300 we'll take a look at as we get deeper into the year, and that number could easily go up.

So again, what we feel good about, as I mentioned in the speeches, we've got good buyers lined up.

We have decent people looking at these.

So that's why we feel confident we'll be able to complete it on time.

Thanks.

Thanks, David.

Next question, please, Matthew.

Our next question is from Jeffrey Bernstein from Lehman Brothers.

Great.

Thank you.

Just had two questions.

One is just a follow-up on David's prior question on the refranchising.

I know it is difficult to forecast based on timing of deal closings, but it looks like you guys reiterated guidance for flat to 15 million in gains.

The other night you had 15 million in gain in the second quarter.

Just wondering if you could give us some insights into -- does that mean you don't expect really any gains in the third and fourth?

Or is it going to be totally offset by expenses?

And then I had more of a broad follow-up.

Thanks.

It is very hard to predict, as you mentioned, because it depends which deals get closed, and we have deals that are decent sized that are both gains and losses.

But clearly, we're probably gaining more confidence.

We'll be at least at the upper end of that range, based on what we know today.

Okay.

And then just more broadly speaking, on the Pizza Hut category.

David, I know you guys have spoken in the past few quarters of a great balance for '06 related to the price value offerings.

It seems like [inaudible] execute or at least deliver the value.

We haven't yet seen it with your national ads.

I know you mentioned a slow recovery.

I'm just wondering if we could dig a little deeper in terms of an update on your assessment of the business.

I know you said you've done some research and you have a road map for a turnaround.

I'm just wondering what that road map is and why, perhaps, it can't be pushed along a little bit quicker.

Thanks.

Well, I can assure you we're working on pushing it along a little bit quicker.

I'm always very open in these calls and I try to give you every bit of information that I can give you.

But one of the challenges that we have in this category is that we've got Domino's and we've got Papa John's, we've got two national competitors.

So I'm really not going to map out what our plan is.

And we know that this category is driven on a combination of product news, price value, and improved operations.

And we're focused on all three of those.

And I really don't want to go into the tactics.

I can tell you, we have done a lot of research to get at what the issues are, and that the biggest thing that we have going forward is that our brand is preferred.

We have the strongest brand in the category and we're going to leverage that as we move ahead.

We don't have a problem with the brand.

The brand is extremely strong and is stronger relative to our major competitors in every segment of the segmentation study that we did, which only tells us that we can do a lot better job marketing the brand and operating the brand.

And we are very committed to doing just that.

If I could just ask one final question, just on G&A.

Seems like on an overall dollar basis you were able to get some leverage down about $10 million.

Obviously, sales were a little bit disappointing.

I'm just wondering if we could look a little bit into the G&A, the drivers of that leverage, and whether you can see further going forward.

Thanks.

Well, two things.

One of the things that helped drive the performance this time is we actually had a legal charge in last year's second quarter of $10 million.

On a go-forward basis, as we do refranchise, we have said that we will -- they'll be able to be profit neutral from that, which will require us to continue to make progress on the G&A front and we're working and confident that we'll be able to offset the refranchising profit loss, because you move from company margins to a royalty through further reduced G&A.

Thanks.

Thanks, Jeff.

Next question, please, Matthew.

Our next question is from Joe Buckley with Bear Stearns.

Thank you.

I had a couple of questions.

If period 8 is going to look a lot like period 7, it sounds like to get positive comps out of Taco Bell and KFC, you've got a pretty strong result for the balance of the year.

Can you just talk a little bit about the products that you're going to feature and how they did in test markets versus maybe how the Spicy Chicken Crunch Wrap did in its test market that gives you that kind of confidence?

Joe, we're just not going to give everybody our future marketing plans.

I mean, you know, people already talked about the interaction that we have with the burger boys.

We're just not going to get into the specifics.

I think what you've seen at KFC and Pizza Hut is a steady stream of product news and improved marketing around pretty solid positionings.

We've had very solid positionings.

You're going to just see more of the same and hopefully even better executed.

So we're going to just continue to pursue the same basic brand strategies that we have as we put a full court on turning Pizza Hut around.

Pizza Hut is definitely a damper on our blended same-store sales this number, but we expect, in total, Taco Bell and KFC to have very solid years.

So I think you're -- just putting that in perspective, we've got one major problem at Yum!, in my opinion, okay?

And that is Pizza Hut.

And we're all over that in typical Yum! fashion.

And meanwhile, Joe, the thing that we have that I think makes us not your ordinary restaurant company, is we have a China business that nobody in the world has.

And we have a franchised international business that nobody in the world really has, with the exception of Mcdonald's.

And we've got that with two brands, not one.

And we see that being a big driver for us and has been a driver for our profitability over the years.

And the good news, even in the U.S. this year, our profits are going to be up at least 6%.

So that's better than our historical performance in the last five years.

So we're making progress.

And I realize that period 7 was not our best performance in the U.S.

But I think when you look at our business in the long-term and you look at all the progress we've made in process and discipline in both the marketing and operating front, we're going to continue to be able to deliver on our consistency and the goal of at least 10% a year for a long time to come.

So that's kind of how we feel about it.

You're not going to get a whole lot of -- any more chagrin and angst out of me than what I've already conveyed here.

We're on the case here.

Okay.

Just two other quick ones, if I could.

Commodity costs really coming in very well for you.

Can you lock some of that into '07?

Do you have any visibility into '07 commodity costs at this point?

We have done some, Joe, on the chicken side.

But just as a reminder, what we do on the U.S. food cost side, chicken is the one that we are most contracted on.

We do do some various things to try and lock in cheese, but not a very high percentage.

Really what you're seeing, which is what Rick said earlier in terms of the up side in commodity costs and favorable surprises, has really been in cheese and beef.

And both of those, we really don't do that much contracting.

And to a certain extent, pork for Pizza Hut.

So it has pretty much been an across-the-board upside, and where we can, lock some things in for next year.

We have started the process, but only some things on chicken, really kind of in the dark meat area, and that's about it.

Okay.

And then to switch topics for a moment, a question on YRI, your full year operating profit forecast of 10%, the first half I think you're up 5.

So, 5 is a pretty strong second half performance.

What sort of changes that more of the sales growth comes down to the bottom line at YRI in the second half?

Joe, we always have a lot of moving parts in YRI.

But this one is pretty simple.

This is really the U.K., first half, second half, and compared to last year.

Again, last year we had 8% negative same-store sales growth.

We're confident we could overlap that.

This year in the first half of the year our profits were down $17 million versus a year ago.

So we think just erasing that in the back half of the year is worth about 13% to our growth rate.

So really, that's what is going to drive the strong second half.

Okay.

Thank you.

Thanks, Joe.

Next question, please, Matthew.

Our next question is from John Ivankoe with J.P. Morgan.

Hi.

Thanks.

Question for you, David.

Let's just assume that I guess the economy and whatever is causing the issues, I guess, facing much of the restaurant industry stays like it is today.

Philosophically, do you think it is more important to protect market share or margins?

I think people go down the rat hole when they go after market share.

I've never been fixated on market share.

I think what you have to do is protect your brand strength, okay?

Make sure that you really reinforce what makes you different and unique in the marketplace and continue to build your brand image so that you have something to build off of in the future.

You know, this is not like Coke and Pepsi, where everybody is fixated on a tenth of a point in terms of market share.

I think what people need to be fixated in this category on, in my opinion, is your brand strength and unit economics.

And I think the way, how you grow in this category, is relevant news plus improved or inside driven advertising, plus improved operations equals maximum growth.

And we're just kind of focused on those things.

But we really are not, as a company, fixated on market share.

Never have been.

And never will be.

We are fixated on continuing to grow our average unit volumes every single year.

And there's so much -- you know, the share of stomach that's out -- I think Yum!'s market share is probably 12 or 13% of, I don't know, $120 billion category.

I can't keep track of all of that.

What I can really keep track of is our average unit volume is going up every year.

Our margin is solid.

Can people afford to open up new units and remodel and do the right things because of the unit economics?

And that's what I'm really fixated on, on that.

So it is a combination of sales and margins.

I know that you've said you've seen some recent weakness on the higher end of some of your concepts.

Do you think it is more important to develop products to go after getting that sale back?

In other words, maybe even some trade down from casual dining like we've maybe seen at some other concepts?

Or is it more important to really tell a solid value message?

I think what we believe in is what we call two-tier.

We are fortunate enough to have brands that have a lot of advertising dollars.

And we think we're able to advertise both segments.

In the past, one of the mistakes we made at KFC, for example, is we would launch sandwiches and we wouldn't have anything on the high end of the business to protect our chicken on the bone and family meal business.

And so what would happen was is that the individual transactions meals would go up and then our family meals would go down and we would have a trade-off.

What we're trying to do is get a better balance of both.

So I think balance is really the word that we're really focused on.

And we, frankly, think that that's one of the opportunities we have at Pizza Hut, is to get a better balance between product news and value as we go forward.

Okay.

Thanks.

Thanks, John, Matthew, next question, please.

Our next question is from Andrew Barish with Banc of America.

Hey, guys.

Two quick ones on Taco Bell, first of all: was there a timing difference on the ad waits [sic], like the last few periods a little bit lower, which gives you more waits kind of moving into the back half?

Or is it just picking up and year-over-year was fine previously.

And then on Pizza Hut, any differences that you guys have seen that may be showing through in the negative comp numbers on the red roofs versus delivery that you're sort of digging into a little bit more?

The year-over-year media waits [sic] at Taco Bell are basically the same.

A little bit higher, so it basically wasn't a problem.

Yes, in period 7 we had very high media waits [sic] both years, but the percentage increase was lower than what it is for the balance of the year.

Andy, can you repeat your second question on Pizza Hut?

On Pizza Hut, are you seeing any differences in the comp trend at red roofs versus delivery, kind of looking at that more casual dining sort of red roof experience hurting more than your delivery sales?

Actually, our delivery sales are the issue right now.

The primary issue.

Yes.

Dine-in is performing a little bit better than the overall number.

And actually, that's why you noticed -- I think we mentioned the franchise side of Pizza Hut is actually performing a little bit better, and they have more dine-in assets.

Okay.

Thank you.

Thanks, Andy.

Next question please, Matthew.

Our next question is from Jeff Omohundro with Wachovia.

Thanks.

Just one left, and that's on India.

I wonder if you can just give us an update on plans there.

Well, India is -- like everybody else, we view our international business to have three huge emerging markets: China, India, and Russia.

India continues to perform very well at Pizza Hut.

We have over 100 restaurants in India.

With Pizza Hut, we'll have about, I think, 25 to 30 KFCs by the end of the year.

And we see that as a big growth opportunity.

The business and the unit economics, we're making a lot of progress there with KFC, so we're very bullish on KFC.

And the third opportunity that we're exploring this year for potential introduction into India is Taco Bell.

So we think that if you look down the road, we're hopeful that five years from now we'll have that base set up in India that will provide us the nucleus to create another China-like business with India.

So we're trying to build all the infrastructure and build the brands the right way so we can be in that position.

So it is still a big developmental opportunity for us.

And we're building the brands.

Pizza Hut in India is the most trusted brand in India and I think is getting to the big brand status there.

So we're very bullish on Pizza Hut.

Thanks.

Thanks, Jeff.

Next question, please, Matthew.

Our next question is from Glen Petraglia with Citigroup.

Good morning.

Just following up quickly on that India comment.

Is that an equity market or is that a franchise market?

And then I have a follow-up.

The pizza business is franchise.

We envision the KFC business to be a combination of franchise and equity.

And we're evaluating what is the best way to go with Taco Bell.

There's lots of franchise interest for both KFC and Taco Bell, as you would expect.

Okay.

And then building on what I thought was a comment that you made earlier, but at at KFC have you seen a decline in the average check with the pressure on the consumer today?

Are you selling less buckets and more of your bowls and lower-priced items?

The average check has not declined overall for the business.

But we did see, over the last few months there were some -- we need to go back to the -- period 5, when we had the high-end promotion.

There was some under-performance in that particular performance, which was a high-end meal and free mashed potatoes to go with it.

That's basically what we're addressing.

Okay.

The one thing I would want to emphasize on the call, we really feel like the Famous Bowls represent a concept layer that will be permanent over time, based on everything we've seen.

The consumer response to that product is absolutely outstanding.

So that's some really great news for KFC going forward.

Are you getting return customers for the bowls?

Or did you lose some of the momentum here?

Yes.

Excuse me.

We had a local window in period 7, but the bowls response has been overwhelmingly positive.

Thanks.

Thanks, Glen.

Next question, please, Matthew.

Our next question is from Mark Wiltamuth with Morgan Stanley.

Hi, good morning.

Wanted to focus a little more on the turnaround in same-store sales you're expecting in the U.K. company-owned stores.

I know you mentioned that you'll be lapping your year-agos, but is there anything else going on there in the macro-environment or in the market in general?

Because we have seen some better performance out of some of the other QSRs in the U.K.

Well, again, if you go back over time, we've had great long-term performance in the U.K.

So we've generally done very well and above the market.

To be honest, I've not seen competitive same-store sales from other QSRs.

We did mention in the call that our KFC business has turned around and is now running positive.

So I would be surprised if the market is ahead of us on the KFC brand at this point.

Again, we sort of feel the market -- hopefully it is going to get better.

Get more lapping of period last year when retail really declined, post the terrorist activity.

Okay.

And you mentioned it is not just lapping, you're going to have some new menu news coming up in the second half.

Yes.

And that's really already started on the KFC side of the business.

And that's what has turned us positive there.

Okay.

Thank you.

Thanks, Mark.

Next question, please, Matthew.

Our next question is from Joe Buckley with Bear Stearns.

Thank you.

I was curious if the CHAMP scores you've seen across the concepts tell you anything about the business.

You know, if those CHAMP scores have stayed high, if they've deteriorated a little bit with sales, or -- just what you've seen.

I've just reviewed our progress with the Board on that a couple weeks ago.

We're up slightly, so there's no real significant change one way or the other.

Okay.

Thank you.

You bet.

Thanks, Joe.

Any more questions, Matthew?

There are no further questions at this time.

Okay.

Well, thank you very much, and I think to sum it up, we've had an excellent first half.

We expect to have another year of at least 10% EPS growth.

Right now we're projecting at least 11%.

We took our number up in a challenging time.

Not many companies are doing that.

And I think as you go forward, you can look at our overall growth equation: it's intact.

China is back, YRI looks very, very strong, and we're actually achieving more profit growth in the U.S. than we have in recent years.

So business is solid and we feel very good about it and it is a challenging environment right now.

But that's just the fact of life and we're on to executing.

Thanks, everyone.

We'll talk to you on the next call in October.

This concludes Yum!

Brands Incorporated second quarter earnings conference call.

We thank you for your participation.

You may now disconnect.