百勝餐飲集團 (YUM) 2009 Q3 法說會逐字稿

Good morning.

My name is Ashley, and I will be your conference operator today.

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

Brands 2009 earnings conference call.

All lines have been placed on mute to prevent any background noise.

(Operator Instructions).

Thank you.

I would now like to turn the conference over to Tim Jerzyk, Senior Vice President of Investor Relations and Treasurer.

Sir, you may begin your conference.

thank you, Ashley.

Good morning, everyone and thanks for joining us today.

This call is being recorded and will be available for play back.

We are broadcasting the conference call via our website at www.yum.com.

If you ask a question it will be included in both our live conference and in any future use of the recording.

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 or other forward-looking statements may be relied on subject to the Safe Harbor statement included in our earnings release last night and may continue to be used while the call remains in the active portion of the Company's website at www.Yum.com.

In addition, we would like you to please be aware of two upcoming Yum!

investor events.

December 9th, we will host our conference in New York.

Registration is required and will you be receiving more information on the conference very soon so keep that date on hold.

Second, our next earnings release, Wednesday, February 3rd, 2010, will be for our fourth quarter earnings and will be released that day after the close.

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

Following remarks from both, we will take your questions.

Now I will turn the call over to David Novak.

Thank you, Tim.

Appreciate it very much.

This is a big week at Yum!

Brands.

This is our Founders Day week that we're celebrating our 12th anniversary since we were spun off from PepsiCo.

I'm very pleased to report that our global portfolio delivered a 15% increase in operating profit for the third quarter, before special items, including impressive 32% growth in China and 18% growth in the United States.

As a result of our year to date profit performance, we are raising our full year 2009 EPS growth forecast to 12%.

Our growth this quarter was driven by continued development of high return, new units in China and cost savings in our US business as well as substantial commodity deflation.

These factors more than offset generally sluggish same-store sales performance.

Importantly, our China and Yum!

Restaurants International business remain on track to open over 1400 international new units this year.

We believe this development will continue to lead the industry and provide us with even stronger competitive positions in high-growth developing markets.

Now, let me take you through our key strategies and trends for each of our divisions.

First, I'm obviously very proud of our China team's performance.

Our China Division generated operating profit growth of 32%, and margins over 23%.

We remain on track to deliver at least 475 new units in mainland China this year.

Remember, our new unit development provides a cash payback of less than three years.

Let me share with you a few highlights from each of our leading brands in China.

KFC continues to be the largest western QSR concept in mainland China, with over 2700 units in over 600 cities, and average unit volumes of $1.4 million.

Importantly, China continues to be a leader in executing our long-term strategy to develop new incremental sales layers.

We have established new proteins beyond chicken to now offer fish and beef.

We're also steadily expanding KFC into new day parts, including breakfast and delivery.

We now have a national breakfast offering that features western and typical Chinese items.

This gives us a great base to establish a whole new day part.

We intend to win at breakfast and drive sales mix from 5% today to at least 20% sales mix over time.

We have also established KFC delivery in over 90 cities and nearly 600 units.

This sales layer gives us the ability to grow our catering and dinner day part, which typically have a higher ticket average.

We're confident we're on the ground floor of both of these big opportunities.

Importantly, our KFC consumer brand position has never been stronger.

We lead in important measures like value for the money, great taste, convenience and speed, as well as variety of choices.

No question, KFC is in the enviable position of being a leading brand, growing in both stature and size in this all-important China market.

Many of you may be surprised to learn that our Pizza Hut casual dining brand is the number one casual dining chain in China, and also outside the United States.

We continue to build a significant lead in the western casual dining category, with 442 units in over 100 cities.

A new enhanced menu has helped us increase average unit volumes while driving margins to record levels.

The improved menu includes new entrees with beef, chicken, and shrimp, along with a wide variety of appetizers, beverages, and desserts.

Additionally, we improved our pizza value on the low end to provide broader appeal.

Our tea time beverage and dessert program continues to drive snacking and mid-afternoon sales.

This is consistent with our goal to use the asset throughout the day, which will ultimately include breakfast.

We also continue to invest behind the development of our emerging brands in mainland China.

Pizza Hut Home Service now has 87 units in 11 cities.

We will grow as consumer demand for convenience is inevitable in this segment.

East Dawning, our Chinese fast-food brand with 19 units, is now generating sales that are at roughly 85% the level of a typical KFC, which means we have a powerful concept.

We are excited about the recent opening of our first central kitchen, which will help us get to scalable economics.

We'll keep you posted on both of these emerging concepts.

Bottom line, I couldn't be happier with the progress we're making executing our China strategy to build leading brands in every significant restaurant category.

Next, Yum Restaurants International, where we are aggressively driving expansion and building strong brands in the more than 110 countries that we're in.

Here's why we're so excited about YRI.

Number one, over 85% of the nearly 13,000 restaurants in this division are franchised units, which generate a steady growing stream of franchise royalties.

Number two, this business is a consistent development machine.

This will be the 9th year we've opened more than 700 new restaurants, and this year, we'll open at least 900.

And number three, we are the overall market leaders in the high growth developing economies and our lead is increasing every year.

While our long-term growth prospects have never been better, our third quarter sales did slow down.

Operating profit growth for the quarter was flat, excluding foreign currency translation, driven by poor performance in two company markets, Mexico and South Korea.

Just like China and everywhere in Yum!

, we are aggressively going after sales layers.

In particular, KFC, our largest concept in Yum Restaurants International, is making major progress on Crushers, our proprietary line of frozen beverages.

We entered the year with just 100 test units having Crushers, and we will exit 2009 with at least 2,000 units.

We expect to expand to 5,000 units by the end of the year.

At that point, our new highly incremental beverage sales layer will be in over 60% of Yum Restaurants International's KFC units.

KFC also continues to develop other new incremental sales layers.

We already have individual markets successfully executing non-fried chicken, breakfast and seafood products.

We are committed to making each of these initiatives global over time.

Pizza Hut is pursuing the same strategy as China to broaden and enhance our casual dining menu in Yum Restaurants International markets.

We've seen the benefit of this initiative in several countries in southeast Asia, the Middle East, and Central America.

We are definitely in the process of elevating our positioning to become a true mainstream casual dining brand around the world.

Yum Restaurants International has a great base business and we are bullish about our new unit opportunities in developing economies like India, Russia, Brazil, and Vietnam.

I'm heading off in a couple weeks to India, where KFC is starting to take off and Taco Bell is getting ready to open the first unit.

We will tell you more about India and these countries at our annual investor conference in December.

But today, I would like to simply highlight South Africa, a country I recently visited.

In this country, KFC has a significant brand leadership position, with a 4 to 1 lead versus western competition.

It is an all-franchise business with over 550 units.

Our unit economics are similar to China, and the brand is arguably the strongest consumer brand in the country.

South Africa is a great example of how much our Company has changed over the past 12 years.

South Africa wasn't even on our radar screen when we made roughly $4 million when we started this Company.

This year, we expect to make over $40 million.

And when I was there, I saw new units in downtown Johannesburg, suburban areas, townships and rural areas.

It's so inspiring to see these beautiful new KFCs and the job we're doing in this developing country.

We're also building franchise relationships to expand beyond South Africa to countries like Nigeria, Kenya, and Tanzania.

It's easy for us to envision that we will one day make more profits in countries across Africa than we do in KFC in the United States.

In summary Yum!

restaurants growth is on track.

We have strong unit economics.

We have substantial runway for growth.

I'd like to take a moment to thank our franchise partners for partnering with us to build such a fantastic global business.

Before I move on to our US business, I'd also like to send my heart felt support to our teams in southeast Asia as they have faced significant natural disasters in Indonesia, the Philippines, and Samoa.

Our thoughts are with the families that have been impacted by these tragic events.

Only a few of our restaurants were impacted and we're working with our franchise partners to get them reopened as quickly as possible.

Next, on to our US business where our focus is to improve our brand position, consistency and returns.

Our US business achieved strong operating profit growth of 18% with substantial improvement in restaurant margins and significant G&A savings.

This has more than offset a 6% same-store sales decline.

The US team's focus on proactive restructuring and productivity, along with lower commodity costs, fueled this profit growth.

Taco Bell and KFC same-store sales were down two points, roughly in line with the industry.

Pizza Hut had a tough quarter with same-store sales down 13%.

Taco Bell, our largest and most profitable brand in the United States continues to have the leading value position.

We will continue to play to that strength with more exciting news on the Why Pay More menu with items like Blackjack Taco at $0.89.

We believe the brand sales are soft because everyone is now focusing on the value game, and customers are obviously cutting back across the board.

Nevertheless, we are confident our brand proposition has never been stronger, and we are improving our operation measures.

Everything from speed of service to order accuracy.

We will kick off 2010 with our first national advertising of our Fresco line of products, nine great tasting product with nine grams of fat or less.

Believe me, we're going to have some fun with the marketing we're going to be doing and we'll definitely break through the clutter.

In addition, our pipeline of new production for 2010 is full.

Longer term, we are most excited about breakfast, which is off to a great start with our current test.

At KFC, Kentucky grilled chicken has been an unqualified success.

It started the process of transforming the brand by overcoming KFC's biggest barrier to frequency, people looking for more balanced choices.

While our same-store sales were down 2% this quarter, we made major progress on building awareness and trial.

We've driven awareness to 75% of quick service restaurant users and 60 million people have tried the product.

We also continue to get rave reviews from customers who have enjoyed the product.

So continuing to drive trial is our top job as we entice people to join what we call the Grilled Nation.

We have he brought back the $3.99 two-piece meal, arguably the best value in the category for a complete meal.

In summary, Kentucky Grilled Chicken was a major step in the right direction.

The investment we have made in Kentucky Grilled Chicken will help us be much more competitive in 2010 and beyond.

We needed to broaden the appeal of this brand, and we've done it.

Pizza Hut in the United States is obviously struggling with the same-store sales decline of 13%.

As you know, higher ticket premium products are under pressure in all categories.

Pizza Hut is clearly premium priced in its category and is definitely paying the price for it.

However, we believe the Pizza Hut brand is too good a brand to be performing this poorly.

We need to offer better value and get more credit for our high quality offerings.

We intend to get more price competitive at the local level.

We will also continue to transform the brand from just pizza to pizza, pasta, and chicken.

As a matter of fact, we just launched our first national advertising for our WingStreet brand of flavored wings and we'll grow this segment over time.

Going forward, we are confident in our strategy.

The reality is that we have a lot of wood to chop as we establish our pizza value and make pasta and chicken incremental occasions.

This is a big challenge.

We're not happy with where we're at, at Pizza Hut, but we have a great team and we think they're up to making progress.

So let me wrap up the Yum!

Brands performance.

This is a very difficult economic climate.

So generating sales growth has been tough and may stay that way for awhile.

But in total, the profitability of our business is rock solid as you've seen from our year-to-date results.

In fact, if someone would have told me at the beginning of the year that our company would end up with 12% EPS growth, open over 1400 international new units, improve our margins around the world, drive profit growth in each of our divisions, make strategic progress developing new sales layers, and increase our dividend 11%, I would have said, count me in, book it.

Well, that's exactly what's happening in 2009.

This performance gives us solid footing going forward and builds on our track record of at least 10% earnings per share growth that we've enjoyed for the last seven years.

Now let me hand it over to Rick to give you more

Thank you, David, and good morning everyone.

I'm going to comment on three areas.

First, our third quarter results and balance of year expectations by business segment.

Second, our full-year outlook and our overall Yum!

business.

Third, an early perspective on 2010.

As we review our business segments, let's start with China.

China Division operating profit grew 32%, and system sales grew 11%.

This sales growth was fueled by new restaurant development as mainland China same-store sales were flat.

We saw growth in the central and western provinces offset by weakness in export impacted coastal provinces with a difference in sales comparisons of about five points.

Restaurant margin was over 23% in the third quarter or 2.3 points above last year.

This was driven by about $20 million in commodity deflation.

As a reminder, we experienced high chicken commodity inflation in the third quarter of 2007.

At that time, we took a price increase which only offset a portion of the cost increase because we expected prices to come back down.

While it took longer than originally expected for these costs to decline, we are very pleased that China margins have returned to 2007 levels.

Now on to YRI.

System sales growth was 4% prior to Forex translation driven by new unit development.

In 2009 we have seen strong same-store sales in most of the developing markets.

This was generally true in the third quarter when as an example KFC India was up over 20%.

However, overall YRI same-store sales growth was flat, due to a general softening of sales across most regions.

We were disappointed with flat operating profit growth, excluding ForEx in YRI during the third quarter.

We experienced weakness in the company opened market of Mexico and South Korea.

In addition, third quarter profits were affected by the timing of division overhead expenses.

During the fourth quarter of 2009, we expect similar sales, but improved profits at YRI.

YRI has not yet experienced the benefit of commodity decreases.

We expect to see some benefit in the fourth quarter as some of our longer term contracts get renewed.

In addition, we expect to benefit from timing issues on facility actions and overhead expenses.

While ForEx translation continues to negatively impact YRI's reporting results, and growth rate in the third quarter, we actually expect little or no impact from ForEx in the fourth quarter.

Now to the United States where our same-store sales performance was lower than expectations and declined by 6%.

Taco Bell and KFC both saw declines of 2% and Pizza Hut declined 13%.

Despite a decline in US sales, we saw third quarter restaurant margin increase by over three full points.

Commodity deflation was the primary driver with the $16 million reduction in the third quarter versus last year.

Beyond that, each of our brands has been aggressively deriving productivity initiatives in the stores.

This includes going after the basic blocking and tackling like more efficiently opening our restaurants in the morning with reduced labor and energy consumption.

I would like to thank the operations team for their cost focus.

These savings do add up.

As previously communicated, US profitability in 2009 will benefit from the restructuring completed in late 2008 and early 2009.

There were $16 million in G&A savings for the third quarter, which was on top of $38 million of savings in the first half of the year.

We remain on track to deliver at least $60 million for the full year.

We are quite proud of the efforts of our US teams to achieve restaurant margin improvement and G&A reductions, which led to Q3 operating profit growth of 18%.

With that said, we expect weak fourth quarter profits in the US.

The sales trends have not gotten better and we anticipate less benefit from price and commodities than we experienced in the third quarter.

These are items all put downward pressure on our margins and we don't anticipate the improvements we have seen in the past fourth quarters to continue.

We'll get a benefit from G&A cost reductions in the US, but the remaining benefit will be less than in the third quarter.

So we now expect the fourth quarter to be the low point of the year for our US business.

Prior to closing the books on the US, I would like to mention that our refranchising program has continued to move forward.

Although tight credit markets continue to slow transactions, we have refranchised over 350 restaurants as of today and remain on pace to achieve our full year target of 500 units.

To summarize the third quarter for Yum!

, we had outstanding profit growth in China and the US.

The EPS growth, excluding special items of 21%, benefited from new unit development in China, G&A savings in the US, and lower commodity costs in both China and the US businesses.

This helped offset approximately $0.02 per share of negative ForEx translation impact for the quarter.

In this tough environment, we were quite pleased with our third quarter results.

Now let me give you a few thoughts of our full-year results.

Overall, 2009 has been a tough year to forecast and that theme continues.

Nevertheless, our strong year to date profit performance has allowed us to increase our full-year guidance.

Let me put our year-to-date results in perspective.

Year to date our operating profit growth before special items is 8%.

This includes a ForEx downside of $53 million.

Without this ForEx downside, our year to date operating profit is 13%, a result we are very proud of.

While we are benefiting from commodity up side in 2009, let's remember that these are off of record increases in 2008.

In the US in 2008, we experienced about $120 million in commodity inflation.

We expect about $20 million of deflation in 2009.

These two years combined provide average inflation of about $50 million per year while a typical year of 2.5% inflation would result in about $30 million of inflation.

We increased our EPS guidance for the year to $2.14, or 12% growth based on the strong year to date profit performance along with the lower than expected full-year tax rate.

We expect 2009 will mark our 8th straight year of double-digit EPS growth.

When we look back upon our track record, each year has been unique.

In any one year we meet or exceed expectations in many areas of the business and we usually face opportunities and challenges that we did not expect.

However, I think it's fair to say that we consistently benefit from a resilient global business model led by strong management teams around the world.

Our leaders feel a high degree of accountability to deliver both annual financial performance and build long-term business value, and that's exactly what is happening in 2009.

Finally, a few initial comments about 2010.

By many people's estimations, 2010 will be another challenging year for the consumer.

Whether that proves true or not, we are certainly planning our business as if that will be the case.

However, Yum!

has a number of strengths that give us confidence that we will be able to extend our track record of strong financial growth.

Let me talk about a few of these advantages.

First, as a company, we deliver a significant amount of growth from high-growth new unit development in China and YRI.

This has proven true for many years and 2010 should not be an exception.

Our 2009 development of at least 1400 new units outside the US will provide a full-year benefit to profits in 2010.

In addition, our development pipeline for the next year looks similar to what it looked like at this time last year.

Second, we just have a great business in China.

China is a long way from the US, and I know that many people have not been able to see it with their own eyes, and therefore may doubt the strength of this business.

There's some who may also doubt our ability to continue to grow it.

However, let me summarize a few characteristics of our China business that are unique.

First, we have a huge presence advantage.

KFC is the only western QSR brand in the vast majority of the 600 cities in which we have restaurants.

Second, our competitive position continues to improve in key growing parts of the country.

In 2009, we will add 140 KFC units in the central and western regions of China.

More than half of our new unit KFC development will be in tier 3 through tier 6 cities.

In the central and west regions, and in smaller tier cities, our lead versus competition is even greater.

In these parts of the country, our cell phone distribution system, our large seasoned development team, and our strong regional operations leadership provide significant and ongoing strategic advantages.

Third, our economics in China are excellent.

As we have previously discussed, we have strong margins and great new unit economics.

Fourth, while I don't know when the China economy will improve, my guess is that it will strengthen before the rest of the world.

And our YRI business, you can look at the fact that earnings from our franchise business provide a very predictable profit stream and have a strong history of growth.

When you put China and YRI together, we have a unique powerful global growth model.

We believe we are very well positioned the drive growth in 2010 and beyond.

In the US, we have a cash machine that has been strong and steady.

We are also looking to improve sales performance at each of the brands.

At the same time, we'll continue to manage costs title.

For 2010, we have already taken actions on our G&A cost structure.

The cost savings we have already identified are enough to offset the roughly $20 million negative impact from refranchising as we move from the restaurant margin to a royalty.

We may have difficulty lapping the 2009 tax rate.

However, we don't expect as much head wind from foreign currency translation in 2010.

While it's difficult to forecast, we would actually see a benefit in 2010 if today's spot rates continued.

We are in the early stages of building our plans for 2010 to deliver 10% EPS growth.

We will share these plans with you during our December 9th analyst meeting in New York.

To wrap up, we expect to deliver another successful year in 2009.

We are well positioned in 2010 when once again we expect to generate consistent financial performance, impressive global growth, strong free cash flow and substantial return to shareholders.

Back to you,

Oh, let's just turn it over for questions and get in the groove.

Ashley, let's open up the queue for questions.

(Operator Instructions).

Our first question comes from the line of John Ivankoe of JPMorgan.

David, I was hoping you could comment on your view of the YRI business in general.

The conversation that we've had many times over the years is a stubbornly low and quite frankly declining store margin in that business.

And what would increasingly be suggesting that there probably aren't very many stores or certainly very many markets where Yum!

as a corporation has earned the right to own, to use a phrase of your own.

So if you can put into context expectations 2010, 2011, one, significant improvement in YRI company store margins, or second, if you're considering a major plan of refranchising to get those stores to franchisees and presumably might even look like a neutral to earnings or accretive earnings transaction.

Well, I think, first of all, when we think of our Yum Restaurants International business is an absolute powerful gip for us going forward.

The big driver that we have is abs here that is almost owned and operated 90% by franchisees, opening up close to 90% of this year will be about 900 new units that we open, and that's the big driver of our overall profitability.

Longer term we're very excited about the fact that we're pursuing the strategy of developing major new sales layers.

So we expect to get even more profitability and more cash flow for our franchisees out of these units as we go forward with the launch of the beverage program, Crushers.

We're testing breakfast.

We think that will be a long-term opportunity for us because there isn't a whole lot of competition other than McDonald's outside the United States in terms of western brands.

So we think the new units and the sales story over the long term is really tremendous for us, and also, we have a tremendous lead in the emerging markets.

In terms of the ability to look at our portfolio, in terms of what we should own or franchise, we constantly do that.

We look at that every year, and I cap only tell that you we do have an earn the right to own mentality and we do have some markets that could potentially be refranchised, and we're looking at.

That.

And how much of a near-term priority is that for you, either improved company store margins, what to me would suggest hundreds of basis points, or sell them to franchisees?

Is that something that could happen in the next 12 months?

How front burner of an issue is it for you?

Why don't I talk a little bit about margins, John.

I'll try to answer that question as well.

To your point, we're not very happy with our margins at YRI this year, and it was led by Korea's Mexico, as we sort of sudden our release and in our speeches.

I do want to emphasize that YRI has not gotten the benefit from commodities that we've seen in China and the US.

And that's due to long-term contracts.

We signed long-term contracts really before commodities went down at YRI, and quite a few places, and those are starting to roll off now.

So we do expect some commodity deflation in the fourth quarter, which will help margins then and hopefully into next year.

So right now, in terms of YRI, I would also like to emphasize, while we care a lot about the mar against, and we're focused on that that's not the main driver of profitability at YRI.

We're mostly a franchise dominated business, and what we care most about our equity is when we're starting up in these markets that we think have huge potential for us.

So for example, we have equity in France right now, and while we have decent margins in France, they're not as high as they expect them to be, given those high sales levels, because we're still not at scale yet, but we expect to get there.

India, we're starting to have equity there as well, and we think we have huge potential to grow those businesses.

YRI primarily, we believe equity is more of a tool to get us started into high-growth countries than a profit driver in itself.

As we look at our portfolio, this is probably not the greatest time to make moves on it, but it's something we'll consistently look at, as David mentioned.

Thank you very much.

Thanks, John.

Next question, please, Ashley.

Next question comes from the line of David Tarantino with Robert W.

Baird.

Hi, good morning.

Just a clarification on the 2009 guidance.

It looks like a pretty pessimistic view on operating income for Q4.

Is that all related to weakness in the US, or is there something else going on, and perhaps you can reconcile a little bit better your expectations for Q4 versus the year-to-date performance that you've seen.

Yeah, I think if you the look at it versus year to date, and obviously I'll preface this again by saying it's a difficult environment to forecast, but we probably expect similar type of results in China for the full year as we've seen year to date.

On the YRI side, we said we probably expect to see slightly better profitability in the fourth quarter than we've seen year to date.

And the US, we expect to see probably significantly weaker profitability in the fourth quarter than what we've seen year to date.

That's driven by really the seams trends.

If you look at the sales trends, we sort of said they haven't gotten better.

In the third quarter you saw those were fairly weak across the board fours.

Okay.

And if I can just ask a follow-up, given the view related to Q4 based on the sales trends, what type of sales trends might you need to deliver that 10% income growth in 2010?

We haven't really put that all together yet.

My guess, it will be in about the 2% range, but we have a lot of work to do before I can give you a better handle on.

That one thing I would also like to mention regarding the fourth quarter is we benefited in the first three-quarters by share repurchases which added a couple points to our EPS growth.

And we expect that to actually work against us in the fourth quarter of 2009.

Again, the other piece that makes it challenging is we believe there will be some sort of correlation between sales growth and commodities.

So we don't know yet exactly what that will look like as we get into 2010, but my suspicion is that if we have higher sales growth, you'll probably see firming up of commodities.

If sales growth is weak, we'll probably continue to benefit from commodities.

Okay, thank you.

Thanks.

Ashley, next question, please.

Our next question comes from the line of Steven Kron with Goldman Sachs.

Thanks.

Hey, guys, one question, and I guess one follow-up.

The question is on China.

I was hoping you can maybe dive a little bit more into what you're seeing from a sales perspective.

It seems as though consumer confidence there has stabilized and maybe ticked back up and the savings rate, which had been rising, is maybe stabilizing a bit.

What are you guys seeing, how did it track throughout the quarter?

Maybe you can reconcile that with your fourth quarter expectation which Rick I think you just said would be pretty similar to what you've seen year to date from a profitability standpoint but that would be I guess better than the established guidance of about one point in restaurant margins.

So am I thinking about that right?

Are you thinking that the year will now be much better from a restaurant margin perspective than what you guys had originally outlined?

Again, a couple things on China, we're not going to update all of our segments for the full year by line item, but regarding sales, we haven't seen any -- there weren't any major significant trends versus the quarter that provide insight.

We really are going to repeat to what we've said pretty much on the last call, and that is that we saw the China consumer getting weak with the global financial crisis in around November, December last year.

We haven't seen a lot since then, either direction.

We've seen forecasts go up and down, but we've sort of seen no real major change in the consumer, and we think our results are more a reflection of what we're lapping.

So we still see a fairly relatively weak consumer to what it was before November of last year.

Having said that there are some signs that the China economy is getting better, and as I said in my comments, I believe it will get better before the rest of the world.

We don't know exactly when the consumer will follow that trend and start to spend more, but we think we're well positioned for when they do.

All right, and my follow up is in the US and on the sales side of things.

I think, David, either you or Rick put out a number that category sales, QSR sales for the category were down 2% and two of your brands were in line with.

That maybe you could just talk about how that is different from category sales trends in the prior quarter and maybe -- you're in kind of a unique position to maybe talk about what's working in QSR today because your brands kind of serve various constituents and are positioned pretty differently.

So can you just talk a little about -- we hear value all the time.

What is working out there today and given that your brands haven't really seen any improvement to date, despite your expectation that WingStreet launch, Pizza Hut, I would expect you are going to expect that it's going drive incremental same-store sales and you are going back in a bigger way to grilled chicken which you guys have said at KFC is a big driver.

Why is it that you don't think you're going to get a little bit of an uptick as we move through the rest of this year?

First of all, I think we have to deal with the macro situation that everybody's competing in right now.

I don't think -- I've never seen a softer US consumer than what we're seeing today, in my career.

You got unemployment almost 10% all-in, 17% surveys say 35% of consumers think they he could lose their jobs in the next 12 months.

Consumer confidence is weak.

People are saying that they're going to be cook more at home.

It's the first time where I've actually seen research show that people are actually cooking more at home than what they say they intend to do.

So, I think this is a very, very challenging macro environment that everybody is dealing with.

Now, what works, okay, first of all, I think value is something that works in this category.

And I think what happens right now in the category, though is everybody is doing value menus.

So it's really hard to differentiate yourselves.

The thing that has worked most this year in the category I think has been Kentucky grilled chicken because it was the most innovative new product that has been introduced in the category.

During the introductory period we saw a he tremendous turnaround in KFC.

But I think in this category if you historically look at what innovation, it's innovation, it's significant predict innovation, and it's also -- you have to have the strong value prop sir, and you have to operate your brands.

I think it's been true in the past and I think it's even more true during this period.

But the consumer is really under pressure.

So even though you might be doing a good job in these areas, it may not be paying off for you it has historically.

So I think as we go forward, we're going to focus on making sure we're value com pet tie active.

Frankly, we haven't been value competitive at Pizza Hut, and I think we're paying the price for it.

We're going to push for much more innovation as we go ahead, and more significant innovation.

Thank you very much.

Next question, Ashley, please.

Next question comes from the line of Jason West with Deutsche Bank.

Just on China if you could talk about the new store productivity that you are he seeing in that market.

We've seen a bit of a delta between the system sales growth in mainland China and the unit growth for a while now, and just wondering if that's related to going in some of the smaller cities or if you're just seeing a little bit slower opening volumes given the environment out there, and how that sort of colors your outlook for next year.

Do you expect to open the same number of absolute units or keep the growth rate at the same pace?

Thanks.

Regarding, first of all, the difference between sales of new units versus existing units, in broad terms, existing units are about $1.4 million of average unit sales.

New units, this has been for awhile, are more in around the $1.1 million range.

That hasn't changed a heck of a lot.

That's based on two things.

One is within existing cities we obviously start with the best locations.

So when you are adding the next wave of restaurants, they are going to have lower sales.

And secondly to your point, as we go to smaller cities, we've generally started at lower sales levels.

I want to remind folks that at those lower sales levels we also have lower cost structure, and therefore our margins and returns are similar to the major cities.

So we feel pretty good about our new unit economics.

We expect that differential to continue going forward.

Regarding number of units, we haven't yet put our -- seen the detailed plans for 2010, but my best guess is you'll will see what has occurred over the last several years, and that will be he that the growth rate may marginally go down and the absolute number go up.

Thanks, Jason.

Next question, please, Ashley.

Our next question comes from the line of Jeff Omohundro with Wells Fargo.

Looking for a little more color on the KFC comp in Q3.

From the standpoint of the grilled chicken rollout, just some details perhaps on the grilled chicken sustaining mix.

Is it in line with your expectations?

And should we expect further line extensions around grilled chicken in the near future?

Thanks.

We've got our mix on Kentucky grilled chicken continues to be very strong, well over 30%, and we've got a full line of Kentucky grilled items that we're developing in the pipeline.

We believe that Kentucky grilled chicken was a major step forward in giving us the ability to two -- to do two things.

Broaden the appeal of the brand, and also increase frequency.

One of the things we're seeing with 60 million people trying the product, people are coming back into KFC again, and I think that this brand really needed a major shot in the arm, and that's what this product has provided for us.

What we have to do going forward is make sure we win in this segment, own the grilled chicken segment, which we definitely intend to do, with not only different forms, but also different flavors.

So the team is all over this, and I'm just glad that we've made the investment in the ovens, and our franchise system seems to be committed to winning in this segment, because it's critical to our success going forward.

Thank you.

Thank you.

Thanks, Jeff.

Next question, please, Ashley.

Next question comes from the line of Jeffrey Bernstein with Barclays Capital.

Thank you.

Actually, one follow-up on a comment earlier, then a question.

Follow-up is just related to the G&A cost savings.

I know in your press release you said you were close to $55 million year to date, and the target is $60 million.

Wondering if you could give a little bit more color on 2010.

I thought you mentioned something about you had discovered 20 already.

Just wondered if that's primarily US and whether you see similar initiatives perhaps at either YRI or China to perhaps see more significant G&A savings in 2010.

Separately, on YRI, I know you mentioned Mexico and South Korea weakness.

Just wondering whether you can give a little more color in percentage of contribution what the recent trends have been and or what your response is going to be to offset some of that weakness.

Let me handle the G&A piece first before, we get into YRI.

Year to date, our G&A has been over $50 million.

We've said it will be over $60 million for the full year.

So the one thing that's different is we do have certain G&A expenses that are a bit back loaded this year and that's why you're not seeing as big an increase in the fourth quarter as you saw in the third quarter.

But it's basically -- reflects actions we've already taken.

For 2010, in the US side, we will continue to see some savings as we just continue the refranchising.

As you reduce restaurants that automatically reduces some of your G&A expenses.

Beyond that, we've also proactively looked at ways to manage costs in 2010, including, for example, reducing some of our meetings, et cetera.

So that's how we were able to get the combination of refranchising and project spending, those types of initiatives is how we're able to get a further reduction of at least $20 million which would offset the refranchising piece of .

Regarding YRI in China, what we would like to do, we'd like to get on the G&A side, we'd like to get some leverage on G&A.

If you look at China historically, our G&A has pretty much grown in line with our revenues, system sales.

We're starting to get a little bit of progress there and would like to get more in 2010.

Similar at YRI it's market by market.

We have very high-growth markets, then we obviously have less developed markets.

Our goal in 2010 is to try to get some leverage on the G&A line.

We don't want to get our costs out ahead of the business in this type of environment.

But we're going to continue to invest in growth initiatives, so we try to balance that effectively.

Regarding YRI, again, on the margin side of it, Mexico and Korea, they're pretty small markets for us.

If you look at, ut right now we're not making a lot of money in those marks, so it's a small part of the total YRI profitability.

So they don't have much impact on total profit.

That's more driven by our franchise growth businesses, but they do have significant impacts on our margin pieces of it.

So as we look at that business, as I said before, we're really focusing more on how we're doing in the growth

Thanks, Jeff.

Next question, please, Ashley.

Our next question comes from the line of Joe Buckley with Banc of America-Merrill Lynch.

Thank you.

Couple questions as well.

Could you comment on the visibility for food costs across the three businesses?

Do you think you have several quarters now of favorable food costs?

I think it's hard to say what the environment is going to be like going forward.

Certainly in the fourth quarter, we'll have some reductions.

Not as high as we had in the third quarter, because we saw some of the decreases starting in the fourth quarter last year.

Right now, our initial forecast, we're seeing some modest decreases in the first quarter of next year in the US.

That's about as far out as we have visibility right now.

That will depend on probably cheese and beef are the swing factors on the commodity side for what will occur in first part of 2010.

Beyond the first quarter, as I said before, it will depend on the environment.

I think if demand stays weak, then we'll get more up side, and if demand side strengthens, you may see it come back up.

But we don't have a lot of visibility beyond the first quarter.

Right now, it costs you more than it typically does to lock in costs, so the spot costs right now, if those were to continue, would get us benefits throughout the first half of 2010.

But obviously we can't adequately predict that.

Rick is that true in China as well as the US?

In China we do have visibility to price about that same time frame.

We would expect -- in China we expect a similar commodity cost reduction in the fourth quarter as we saw in the third quarter, and haven't seen detailed projections yet in 2010, but I would suspect we are going to see decreases at least in the first quarter.

Question on China from a sales he perspective.

You've said for a couple calls now that you saw the consumer pull back and basically stabilize.

As we lap that initial pull back, is it reasonable to expect to see better sales results year-over-year in China?

I think that's a very plausible scenario.

As I said this environment is very difficult to predict, Joe.

But, we're well positioned there.

As I said, my personal belief is that the China market will bounce back before the rest, but I don't know when that will be.

Joe, I think when you look at our average unit volumes in China, we're at $1.4 million.

we've got a McDonalds-like franchise in China.

There's no reason why we can't do over $2 million average unit volumes in China some day.

As the economy comes back, the way we're leveraging every day part, the up side with the multiple proteins, breakfast down the road, home delivery, as this economy comes back, we think that we will ultimately be able to grow same-store sales at a moderate level and do what we know is the number one driver of our long-term profitability is to open up a lot of units.

This year, the reason why I'm so happy about China, it's nice to have our unit growth go up 16% even with flat comps.

I'll take in that bad year.

I think as we go into next year we're going in with stronger capability than we've ever had before and we continue to do a couple other things that I think are pretty excited about.

I think we're very excited about East Dawning.

We're very excited about Pizza Hut Home Service These are down-the-road emerging categories that will come along with the Chinese customer.

This is a year where we've been able to batten down the hatches pretty well, exceeding most people's profitability targets coming into the year.

One more question on the US business.

The margins in the quarter, I understand the food costs, but you got improvements on the labor line and the restaurant expense line with down comps that's unusual.

From your comments you sound like you don't expect that to continue in the fourth quarter.

Was there something unusual in the third quarter, or do you think perhaps you are understaffed a bit in the quarter, and you have to beef that up going forward?

The biggest impact is the impact on pricing.

Again, remember what happened in 2008, Joe.

We had commodity inflation throughout the year, and we were always chasing, what I will call chasing that commodity inflation.

So we kept take prices increased throughout the year.

The last set of those price increases really occurred in the third quarter.

So it's happening towards the end of the third quarter.

So we were getting benefits in Q3 of 2009, where our pricing was higher than previous years levels.

At the same time, we had the commodity piece that we talked about.

So the biggest impact going in from the third quarter to the fourth quarter is that we're getting a little bit less benefit from commodities, but we're also not getting the benefit that we got from pricing.

On some of the other lines, there's not as much big change from quarter to quarter, although there are some timing things that may make it a little rougher in the fourth quarter.

But the biggest impact is probably the pricing side.

Okay, thank you.

Thanks, Joe.

Next question, please, Ashley.

Next question comes from the line of Greg Badishkanian with Citi.

Great, thanks.

Just a little bit of color on the US business.

You had mentioned that things didn't get better in the US.

Just wondering, is that pretty consistent throughout the quarter and in September, or was there any kind of discernible trend there, either US business overall from the same-store sales perspective, or if you want to get into a little bit of color on different concepts.

I want to make sure I clarify what we said.

You talked about overall third quarter results, and we split it by concept.

We didn't give trends during the quarter but so far what we've seen in the fourth quarter is consistent with what we've seen in the third quarter.

We're not really going to amplify it by concept.

That's helpful, thank you.

Then just on the promotional environment, would you say that the -- and you talked about things getting a little more promotional in value.

Have things intensified in the third quarter and into the fourth quarter versus what we saw in the second quarter?

Is it pretty consistent?

I think it's tough to generalize on this, but I think you certainly couldn't say it's gotten less.

I mean, I think you're seeing a lot more burger competition the dollar arena, dollar whoppers, junior whoppers that kind of stuff.

Wendy's is doing the same thing.

I think competition is intensifying.

Thank you very much.

Next question Ashley.

Next question comes from the line of Tom Forte with Telsey Advisory Group.

Two questions.

First, are you seeing differences as far as consumer usage on the Why Pay More menu?

I think before you have talked about how it's been an effective add on.

Are you seeing a big change in mix?

Then given the next couple quarters, the positive environment for commodity cost what are your thoughts on pricing over the near term?

I honestly don't know the answer on the mix, on the why pay more.

When we've looked at it traditionally it hasn't changed a lot but I don't have anything recent on that.

If demand stays soft, com, commodities stay where they are, I'd expect no pricing in the near term.

Thanks.

Next question, please, Ashley.

Our next question comes from the line of Rachel Rothman with Wedbush.

Hi.

Just wanted to circle back, a few of the other questions from kind of a 30,000-foot view.

It seems like you're calling for -- let's call it a sequential decline in the fourth quarter, or a moderating in the commodity benefit, but obviously sales trending in line with where they had been, yet the outlook for 2010 seems pretty confident in at least hitting the 10% EPS growth.

Can you talk about what you think is going to inflect between the fourth quarter and 2010 to drive the sequential uptick in the business trends?

Is it sales, or is it margins despite the big commodity benefit, or is it G&A cuts?

Or how should we think about what the key drivers of that would be and where the inflection would be coming from?

Thank you.

Well, I think that overall as you look at our model, it's very dependent on China and YRI.

We continue to see the strong unit development there, he et is tray.

We haven't detailed modeled out our 2010 in enough detail to share with you, but my suspicion is clearly that China and YRI are going to be big drivers of that growth as they've been in the past.

So a lot of our growth there, as we said enter, development oriented.

A lot of that stuff is on the ground.

On the US side, we sort of talked about the cost approach that we're taking.

So we're trying to be prepared for a potentially tough consumer environment, at least in the first half of 2010.

The margin side of it is very hard to gauge at this point, because you don't know the dynamics between the demand and the commodity piece of it.

So in terms of the fourth quarter what we're seeing is we benefited from very low cheese cost so far this year, especially in the -- for is he second quarter, third quarter.

We see those ticking up a little in the fourth quarter.

Hard to predict that going into the year, but that's why -- one of the reasons why you're seeing less commodity benefits in the third quarter.

One of the things that Rick talked about in his comments, we've had, in our history, we've always had had challenges.

But this will be the eighth straight year that we will exceed our at least 10% target.

And I think it just comes back to the fact that we do have a portfolio, and it's a global port foal years and we can compete in the real growth market.

So I think we have a track record for getting to the goal line, and we fully expect to be able to do it in 2010.

Next question, Ashley.

Our next question comes from the line of Larry Miller with RBC.

Thanks.

I just wanted to circle back to the weakness in Pizza Hut.

And specifically, maybe you can give us a little more detail about the business.

The core pizza business, the pasta business, which I think you targeted to be $1 billion, and how WingStreet is performing.

Maybe just the general thought about whether the focus on some of these adjunct product lines have maybe cost you some focus on the core piece of business.

Thanks.

First of all, I want to say that we're not happy with the Pizza Hut business.

There's no question that we think we have the best brand, and we think we ought to be doing a lot better job.

Our analysis of the situation is our single biggest problem is that we need to improve the value perception of our base pizza line.

We are the premium pizza in the category at a time when obviously people are looking more for price than ever before, and I think we're definitely paying a price for that.

Our strategy to include both pasta and chicken into the mix, we couldn't be more convinced of.

Right now pasta is about 10% of our mix and it's in 30% of our transactions.

So we have a big business to move forward on.

We're just in the midst now of advertising, building awareness of our line of wings.

So we think what we have to do is do a lot better job of communicating, leveraging our quality, our variety, and the scale, the fact that we have 7,000 points of distribution out there.

So we think we should be doing a lot better job.

One of the things we think we can do is we have hired -- we're in the process of hiring a new advertising agency to give the brand a fresh, more differentiated positioning because we think we need to do a much better job of getting credit for the fact that we have the pizza, the pasta, and the chicken.

Going forward, I love having that arsenal.

I really can't see us winning in this category without having more variety, and we think we're making the right strategic investment to get the variety in place, so that we can leverage it going forward.

Thanks.

Thanks, next question, Ashley.

Next question comes from the line of Mitch Speiser with Buckingham.

First on the US business.

In particular, on Pizza Hut, I guess maybe more broadly for the three US brands, can you discuss your customer satisfaction scores?

I know Champs was a big topic a few years back, and supposedly the customer satisfaction scores may have slipped at Pizza Hut.

I was wondering what your Champs scores show for the three brands, given that Pizza Hut is underperforming, Taco Bell and KFC are in line, but I would think with such advertising you should be outperforming there.

If you can comment on the satisfaction side of the business.

Taco Bell, our consumer attribute measures are stronger than year ago.

Our ops measures are up pretty much across the board.

Champ scores are up.

Really proud of the great performance of the Taco Bell team.

In addition to that, our margins have obviously improved.

So I give the Taco Bell brand high March as you know, Mitch, I don't think there's a more charismatic brand in the United States than Taco Bell.

Taco Bell users love the brand.

You go to the cocktail parties, and everybody tells you how much their kids love Taco Bell.

Our research basically confirms that.

Pizza Hut, our Ops measures are slightly better than what they were last year.

No big major improvements.

So can't point to that being a big plus or a negative when you look at the performance.

KFC is making significant strides, cleaning up its system.

We need to get much cleaner stores, and we need to do a better job of speed of service.

Our champ scores are not statistically different than what they were a year ago.

So what we've done at KFC is we've invested in the field, put more resources up against our franchise system to make sure that we raise our standards and I think Roger Eaton and the team there are doing the best job we've done in a long time to put more heat on not only our company stores but the entire system to step up on the operating front.

So I think our operations are getting better.

And the most progress has been made at our most profitable brand, Taco Bell.

Thanks.

Just a separate question on China.

I believe the last year you took about 3% pricing beginning of September.

That's now lapped, I believe, and given that the trends are the same in the fourth quarter versus third quarter, does that mean there was a mix improvement or a traffic improvement or maybe I have my price timetable a little bit off.

If you can discuss that thank you.

Mitch this is Tim.

The pricing was 2.5% of rolloff in July-August time frame.

So right now we are running with no pricing.

So you have to keep that in mind.

But really, as you go back to what Rick said, there hasn't been any significant change in the turns at all.

Okay.

(technical issue)

Hello?

the trends are the same, does that mean the other components may have improved a little bit?

If trends -- if the overall comp number would stay the same, which we clearly haven't reported that yet, that would show some improvement, slight improvement in transactions, if that were the case.

Okay, thank you.

Thanks, Mitch.

Next question, please, Ashley.

Our next question comes from the line of Jeff Farmer with Jefferies & Company.

Big picture question on China.

On past calls you have pointed out that KFC provides strong everyday value.

Is that relative to other western QSR concepts or does that include the local Chinese competitors as well?

Our research is primarily up against the big chains.

So that's where we win on the value scores that we always cite.

Okay.

Then I guess unrelated --

Street food is significantly cheaper than ours.

Then in reference to the $300 million share repurchase authorization what's the expected timing of the repurchase?

I know you can't be too specific but is this mostly a 2010 event, and do you plan to fund that repurchase with operating cash flow?

Yeah, Jeff this is Tim Jerzyk.

It would certainly be operating cash flow, and we'll be opportunistic with it.

As you said, we can't be too specific.

For the most part it is going to be targeted towards 2010 for sure.

Thank you very much.

Thanks, Jeff, next question, Ashley.

Our next question comes from the line of [John Cowher] with Morgan Stanley.

Good morning, guys.

Quick question on China, two quick questions.

Can you comment on the competitive set in China, specifically any new concepts that have come to market that you can speak about what you're seeing from them?

Secondly, in the US, just seeing how weak Pizza Hut has performed over the past few month, few quarters, can you talk about how comfortable you are with hitting some of your refranchising goals over the next couple years?

Yes, this is Rick.

Nothing really new on the competitive front in China, on the QSR side.

You're seeing some more dine-in competition that's local in nature, in the major cities only.

So that's probably the one change that's occurred in the last nine months or so.

Regarding the refranchising, we're still on track to hitting the five hup number we talked about.

As of today I think our number is about 355 units that we've done.

If you look at it by brand we're done with Long John Silver's.

We've done a lot of progress with Pizza Hut.

We're sort of behind on the KFC side, but we're starting to put more effort behind that.

So you've probably seen in our releases the year to date number of 286 units.

Between the close of the quarter and today we've done another 69.

That gets us to 355 as of today.

Hard to know exactly when deals will close but we still feel comfortable with our target vat least 500.

Thanks.

Next question, please, Ashley.

Our next question comes from the line of Sara Senatore with Sanford Bernstein.

I wanted to, I hope not nitpick but ask you about China.

I think you said payback period is less than three years, and it sounds like the language has changed from two years to three years, I think you said even the smaller unit -- the small volume units still have good ROICs, but are we seeing anything incrementally in terms of lower returns as you expand into smaller cities or as the environment gets more competitive?

Not really.

We are continuing to see very good results as we go into more and more cities.

We're also continuing to see good growth rates in those cities of the units we've put in there.

So we've talked about different types of returns.

The investment costs have gone up a little bit, certainly in dollar terms because of the strength of the local currency.

That's probably really the only change that we've seen in the economics over the last nine months or so.

Okay, thank you.

Next question, please, Ashley.

Our next question comes from the line of Matthew DiFrisco with Oppenheimer.

With respect to the outlook for comps to still continue to be in this trend across all the brands domestically down, do you think looking longer term 2010, 2011, you have the brand portfolio to compete if we continue to look for this consumer that's looking for value?

Is this maybe an opportunity also or what is your appetite for being an opportunistic acquirer for more brands or brands that might have a better value positioning than what you have in your stable, domestically with respect to the US?

us.

We're an optimistic grower of our existing assets.

Okay.

We really believe in our existing assets.

We don't think there's anything we can't do with them over the long term, and we think we've got the power brands in the categories we're in and we've got to do a better job of taking advantage of the fact that I think our biggest asset is we have 35,000 underutilized assets.

And that's why we're so aggressively pursuing new sales layers from breakfast to beverages and to proteins.

We really think that we have significant up side.

Realizing the US a lot of proof is in the pudding there.

But I really feel good about the fact that Pizza Hut does have pasta and chicken now going for it.

I think we have a much better chance to win with Pizza Hut in the US, and KFC is much better off with the grilled product.

Having said that, KFC and Pizza Hut in today's portfolio, Yum!

Brands portfolio, only 15% of our profits.

That's in the US.

So when we look at our business, we are really focused on, from a long-term perspective, the international business that I've talked about.

China, which is a big opportunity, and also Taco Bell.

When you look at KFC outside the United States, the only competitor we have is McDonald's.

So why can't we do breakfast?

Look at all the concepts here in the US.

Who is closer to the egg than Kentucky Fried Chicken or KFC?

It's like we are committed to getting into that business over the long term.

That will leverage the asset base.

Taco Bell in the US, which we think is our biggest growth opportunity, and by far and away represents most of our profits, vast majority of our profits, we really believe we can do longer term everything with our asset base that McDonald's is doing, or something close to it okay.

There's no reason in the world why we can't have breakfast.

There's no reason in the world why we can't have a bigger beverage program, and we're working on these kinds of things.

We just went back into test with a breakfast program for Taco Bell, which takes into account all the learnings we had from phase 1 and we're optimistic that we'll be in the breakfast business.

And, by the way, we don't have Taco Bell International.

We don't even have a global brand with Taco Bell.

If there was one brand you could acquire in the United States to take global and leverage our international infrastructure, it would be Taco Bell if you didn't own it.

Well, we own it.

So we really believe very much in our existing asset base.

We believe very much we can leverage our existing assets.

We think that we will add sales layers over time, and I think when you wake up and look at what Yum!

Brands has done five years from now in terms of our average unit volumes, I think you are going to be pretty impressed.

It's tough to see right now in this tough environment, but the good news, with our company is we're making strategic investments in developing these new layers that we think will allow us to get a lot more sales down the road.

So love our portfolio.

Love the international opportunity.

Through fact that Taco Bell isn't even that well-known outside the United States.

So plenty of runway for growth down the road.

I understand and appreciate the international opportunities.

I guess I'm just looking back on, is it easy -- it's not an easy road to move over a brand reputation and to develop those lines when maybe there could be -- I use the word opportunity just because I figure this is an opportunity where you could take on some brands that are primarily breakfast or primarily beverage rather than trying to change impressions, as it's tough to do with a very successfully well developed brand of the KFC, Taco Bell, or Pizza Hut, as you've experienced.

I was just curious if there was something could you answer.

Hey, we're definitely one company that could do it if the we want, because we have the financial power, the cash flow.

We can acquire something that's great, if it comes along.

We constantly look at things.

I'm just telling you that I've looked at a lot of things and I like what we have relative to what's out there.

If something comes up, we'll obviously take a look at it.

We always will reserve that right.

But I agree with you, it is tougher to change the perceptions of KFC.

it is tougher in the US.

It is tougher to change the perceptions of Pizza Hut in the US.

But, you know, we think we can do a better job, and we will.

And the only reason why I point out the international opportunity and the China opportunity and the Taco Bell opportunity in the US is that we have those.

And we don't even think we're close to scratching the potential of those brands.

just, again to put international into context and why we're so excited there, we've said this before, but we have over 18,000 traditional units in the with U.S.

a population of over 300 million people.

That's 60 restaurants per million people outside the US.

We have fewer restaurants than that where there's well over 5 billion people.

That comes out to less than three restaurants per million people.

We have a huge amount of runway outside the US.

Generally speaking we've generally not been interested in buying a US concept because that makes us longer in the US versus trying to grow our international business.

So we'll never say never to that stuff, but we're very happy with what we've got.

Understand.

Thank you.

Thanks.

Next question, please, Ashley.

Our next question comes from the line of Howard Penney with Research Edge.

Thanks, Tim, I'm good.

Appreciate it.

Okay, thanks.

Next question, Ashley.

Our next question comes from the line of Keith Siegner with Credit Suisse.

we talked earlier about YRI company-operated store base but I had two quick questions on the YRI franchise side which we haven't talked about in quite as much detail.

Both relate to top line.

The one on units is really this quarter we saw a dramatic pickup in unit closures.

In fact, the closures actually outpaced the openings by a decent amount.

Can you give us some color on those franchisee closures and maybe how we should think about that going forward?

I understand it might have been one large franchisee that contributed to that, the second piece on the comp, if you could help us understand a little bit about how you get to a flat comp in YRI, maybe what's going on with pricing versus transactions or traffic, how that's playing out so we can think about the outlook there as well.

Thanks.

Well, to your point, the closures were driven by one market where we closed the Pizza Hut business there.

So that was -- our contract came to an end and we agreed to go separate ways.

So that's really what drove the closures at YRI.

Nothing systemic going on there.

If anything, our net numbers have been improving over time except for that one event.

Regarding the sales at YRI, we sort of gave you, in the release, the split by geographies, I'd say nothing major to report there.

In general what we've seen recently is we've seen our transactions, in the first part of the year, we had more ticket growth.

And again, people had taken pricing, et cetera, based on the inflation that they had seen in 2008.

More recently, we've seen less impact from that.

So the numbers are flat or fairly close what our transaction result is in the third quarter.

We expect that probably to occur in the fourth quarter as well.

We don't have visibility beyond that .

in

Thank you.

Thanks, next question, please, Ashley.

and there are no further questions at this time, sir.

I will now turn the call over to Mr.

Tim Jerzyk.

Okay, thank you very much for being on the call.

Just let me wrap it up very briefly.

Our global portfolio of brands and business remain strong.

We are very pleased with our third quarter results, including the 15% operating profit growth, excluding the special items, despite the tough economy environment that we've talked about.

China and Yum Restaurants International continue to drive industry leading new unit development, and they constantly fuel our growth year to year, and we're pleased with raised our full-year growth forecast to 12%.

We expect 2009 to be our eighth consecutive year of meeting or exceeding our annual target of 10% growth.

The fundamental opportunities for our global portfolio remain solidly in place.

I think if we've done one thing today, hopefully we've convinced you how much we believe in what we already have on hand.

We think that we will continue to grow our global business, increase the sales in our existing business, drive significant free cash flow, like we have in the past, and continue to be the industry leader in return on invested capital.

So we love our business.

Tough year.

But pretty good results.

Thank you, Ashley.

And this concludes today's Yum!

Brands 2009 third quarter earnings conference call.

You may now disconnect.