百勝餐飲集團 (YUM) 2009 Q4 法說會逐字稿

Good morning, my name is Kristen and I will be your conference operator today.

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

Brands 2009 fourth quarter earnings conference call.

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

After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions) I would now like to turn the conference over to Mr.

Tim Jerzyk, Senior Vice President, Investor Relations and Treasurer.

Please go ahead sir.

Thank you Kristen, and good morning, everyone.

Thanks for joining us today on our call.

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

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

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

Would also like to advise 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.

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

In addition we'd like to make you please be aware of the next earnings date which is Wednesday, April 14, which will be our first quarter 2010 earnings will be released after the market close and our earnings conference call will follow the following morning at 9:15 AM.

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.

Thanks, Tim, and good morning, everybody.

Given the tough macro environment, I am especially pleased to announce that 2009 was another strong year of performance as we continue our quest to make Yum!

Brands the defining global company that feeds the world.

We reported 13% EPS growth marking the eighth straight year that we exceeded our annual target of at least 10% and achieved at least 13%.

As I look back on the year, I'm really proud of what we accomplished in 2009.

In a very tough year, we opened over 1400 new restaurants outside the United States while making major progress on our incremental sales layers in each of our businesses.

We improved our worldwide restaurant margins by 1.7 percentage points and operating profit grew by 9% prior to foreign currency translation.

Importantly, we maintained our return on invested capital of 20% and continued to be an industrial leader.

In China, we grew our profits by a whopping 25% in 2009 on top of 28% in 2008.

That's over 50% growth in two years.

The good news is that we achieved these impressive results even though our same-store sales were slightly negative as the consumer has lagged their recent economic trends.

We added a record 509 new units and now have nearly 3500 restaurants.

KFC added 428 new locations and made progress adding home delivery and building breakfast.

Pizza Hut casual dining added 55 new locations and is generating positive same-store sales results by adding a wide variety of appetizers, beverages, entrees and desserts.

We also made progress with our two newest brand's, Pizza Hut Home Service and East Dawning.

Overall 2009 was another great year of growth for our China business.

Next, Yum Restaurants International continues to produce solid results with 5% system sales and profit growth excluding foreign currency translation.

Driven by our franchisee development machine, we opened nearly 900 new units in over 75 countries.

Our strong network of around 1000 franchisees opened over 90% of these new units.

Importantly we made major progress creating new growth vehicles by investing in France, India and Russia, and beginning to develop Taco Bell into a truly global brand.

Yum Restaurants International made significant progress on sales layers as well.

KFC aggressively expanded our Crusher line of frozen beverages to over 1500 units in over 25 countries up from around 100 units in seven countries at the beginning of the year.

Pizza Hut is following China's successful strategy of offering more casual dining variety.

In the United States, Taco Bell delivered solid margin and profit growth which was offset by weak performance at KFC and Pizza Hut.

We continued to invest in and expand our sales layers even though the benefit of these efforts was not yet visible in our same-store sales performance.

Taco Bell has fortified its value positioning and has a full arsenal of news ready for 2010.

I am very optimistic we will have another good year at Taco Bell.

Pizza Hut has recently addressed its biggest problem, value, with a successfully tested $10 anyway you want it everyday promotion launched in earlier this year.

KFC made an important long-term investment by adding Kentucky grilled chicken, providing a balanced option and eliminating the veto vote.

All in all, the US business generated significant margin improvement in a challenged sales environment that led to weaker than expected 2009 profit growth of 1%.

And importantly, each US brand goes into 2010 better prepared to beat year ago.

For those of you that missed our annual investor update meeting, we showcased our three largest sources of profit.

China, Yum Restaurants International and Taco Bell US.

These three businesses together generate 85% of our worldwide profits and will be the key drivers of our future growth.

I'd like to thank all of you who attended for the positive feedback from that meeting, but I would like to address two of the biggest questions we have been asked since then.

First, is Yum's weak same-store sales performance in main land China an early indicator that something is wrong with the business or that Yum is growing too fast?

we believe the answer to the question is definitively no.

First, let's look at 2009 and put the facts into perspective.

We added over 500 new restaurants, we held our transactions flat for the year, and we have near record restaurant level margins of 20%.

Yes, same store sales did decline 1%.

Considering that, like I said earlier, we still grew our profits 25% on top of 28% growth in 2008.

All in what most would call an off year for the Chinese consumer.

Now, as problems go, I'll take it.

For a little more perspective, let me step back to 2005, a year where we saw same store sales decline 3%.

That year we opened 379 new restaurants and made $211 million.

Now, I remember some people question our pace of development and the state of our business as a result of our negative same-store sales.

Since 2005, we have added over 1800 restaurants and have tripled our profits to over $600 million.

We now have $1.4 million average unit volumes at KFC with margins of over 20% and $1.2 million average unit volumes at Pizza Hut with margins of 19%.

Our foundation for growth has never been stronger.

Today, just like in 2005, China is, and is predicted to be, the fastest growing major economy in the world.

In fact, it's expected to grow its middle class from around $300 million today to $500 million to 2020.

Like I said in the past, we will no doubt have some bumpy years.

Unquestionably we will have some ups and downs in China but I wouldn't trade our position in China with any consumer company.

That's enough history.

Suffice it so say we still believe China holds great potential and we are clearly in the early innings of building our business in this massive and growing economy.

Having said this, we constantly, and I mean constantly monitor our returns and are committed to never building ahead of our people capability and unit economics.

Our goal is to build a quality, long-term business and that's exactly what we are going to do.

Next, while investors seem to understand our long-term growth strategy around our three largest businesses, China, Yum Restaurants International and Taco Bell US, they are asking what are we doing to manage the short-term downside risk from our Pizza Hut and KFC US brands?

This is more than a fair question because we made the conscious decision to not even cover Pizza Hut and KFC US at the December analyst meeting as they represent only 15% of our Yum worldwide profit.

Instead, we intentionally chose to highlight the 85% of our profits generated in China, Yum Restaurants International and Taco Bell US.

In particular we wanted to drive home the fact that Taco Bell is our big US growth engine, accounting for over 60% of our US profits and is a net grower of new units with lots of potential.

That said, I want you to know that we are absolutely passionate about addressing the challenges of both Pizza Hut and KFC and turning around those businesses.

At Pizza Hut our long-term strategy is to transform the brand from pizza to pizza, pasta and wings.

However, our biggest short-term issue is the need to shore up and grow our pizza sales.

Here the consumer has told us frankly that we are simply too expensive, basically they are saying we love your pizza, we are America's favorite pizza but I can't afford you.

Well, going into 2010, the vast majority of our system has responded by making carryout pricing more competitive and we have rolled out our successfully tested $10 Any Way You Want It promotion.

We are pleased to say we have already seen a dramatic improvement in sales and traffic.

More importantly, our system has seen the power of being value competitive and we will continue to focus on everyday value throughout the year.

We also have more successfully tested value initiatives in our pipeline along with premium pizza innovation that will command premium pricing.

Simultaneously we have successfully tested and will be rolling out new ways to drive incremental occasions with pasta and wings.

Pizza Hut is also focused on improving its speed of service and executing its Heart of the Hut program designed to improve hospitality.

With these strategies and programs underway, we are confident that Pizza Hut will have a much better year in 2010.

Now, KFC, there's no question we have our work cut out for us.

However, we have an absolutely great leadership team addressing issues our customers have been asking us to do for a long time.

First, our customers have been telling us that we need to offer more balanced choices and our answer here is Kentucky grilled chicken.

This product receives rave reviews and represents around one-quarter of our chicken on the bone business.

And the fact is we hate to think of where we would be without it.

In 2010 we will have more new product news and we will be able to serve consumers Kentucky grilled chicken and our world famous original recipe chicken.

We no longer have the fried veto vote because we now are the only brand to offer real chicken on the bone choice.

Second, our KFC customers have told us we need to give them more value, so in 2009 for the first time in our history, we launched a nationwide value menu.

We also brought the value message to our Kentucky grilled chicken launch with our $3.99 two piece meals, offering everyday value will continue to play a critical role in moving this brand forward in 2010.

Third, our customers have asked us to improve our operations, particularly around product availability and speed of service.

So we have actively pursued raising our game by aggressively pushing for higher standards by investing in more franchise field support, increasing operational audits and racking and stacking and publishing performance in our system, a tool used by all great operating companies.

So in 2010, KFC is better prepared to offer the consumer more choice, better value and better service, but like I said, we have more to do.

Our goal is to stay focused on building the business back the right way and we are confident you will see steady progress.

But I want to be clear, we have not yet turned the corner and we expect KFC sales will be tough in the first half.

Now from a financial standpoint, remember, we are in the midst of a multi-year program to reduce our Company ownership to around 5% from 21% ownership at Pizza Hut and 18% at KFC at the end of 2007.

This will give us an even more significant and more predictable stream of franchise revenue.

And simply by reducing the G&A from company operations we expect to generate at least as much profit with no capital expenditure by putting these restaurants in the hands of our good franchise operators.

When you look at all our efforts, we are confident our US business is heading towards more reliable and a more predictable earnings and cash flow.

So in 2010, here's what we expect our divisions to deliver, China will grow profits by 15%.

Yum Restaurants International will grow profits by 10%.

The US business will grow profits by 5%.

These are all reasonable targets and not a stretch from our perspective.

Now, remember, international unit development of about 1400 new units from China and Yum Restaurants International drives six percentage points of our EPS growth.

We expect the balance of our growth to come from our base business through overall global same-store sales growth of 2%, productivity initiatives and G&A leverage along with an expected benefit from foreign currency translation.

When you add it up, we intend to extend our track record to nine consecutive years of meeting or exceeding our target of at least 10% EPS growth.

Now let me turn it over to Rick Carucci, our Chief Financial Officer.

Thank you, David and good morning, everyone.

In this section of our call I'm going to comment on our key themes from our 2009 results as well as our outlook for 2010.

Yum had another successful year in 2009.

We grew earnings per share by 13% and for the first time achieved over $1 billion of net income.

I would like to provide some context for our 2009 results around the following four themes.

Continued strong international new unit development, weaker than usual sales, strong productivity gains, and continued investment in growth initiatives.

So I'll start with the first one, strong international development.

We had a record year of development in China and another strong year of YRI franchise led development.

Our 2009 results again demonstrated that international new unit development is a significant and proven driver of Yum's profit growth.

Second, weaker than usual sales.

Our sales results were below our targets as a globally weak consumer environment led to lower ticket averages.

We had an especially weak second half of the year in 2009.

There were some pockets of strength, our UK business, YRI developing markets such as India and Pizza Hut casual dining in China to name a few.

Third let's talk about productivity.

Hats off to our teams in China and Taco Bell in the US who drove substantial margin improvement in 2009.

Both China and the US saw dramatic commodity inflation in 2008 followed by deflation in 2009.

For the China division, the 1.8 point increase in restaurant margin during 2009 more than offset the margin decrease in 2008 despite net commodity inflation of $17 million over the past two years.

In the US, total net commodity inflation over the past two years has been about $90 million.

During this time, we improved our margin from 13.3% in 2007 to 13.9% in 2009.

We also dramatically reduced our US G&A cost structure, generating a $65 million benefit in 2009 which exceeded our $60 million target.

Fourth, we continued investment in growth initiatives.

During 2009 we continued to invest in future growth through emerging concepts, developing countries and incremental sales layers.

One example was our investment in breakfast.

We tested breakfast in KFC in the UK as well as in Taco Bell in the US.

In China we expanded the number of units that serve breakfast and increased our breakfast hours.

In our New York meeting, we highlighted the dramatic growth of our KFC France and KFC India businesses.

We ended the year with new unit growth of 33% in France and 60% in India.

We are nearing the 100 unit mark in these two countries, the point at which we have been able to scale our businesses in other markets.

We grew in other developing countries as well, almost 60% of our YRI new units were in developing countries in 2009.

When you combine this result with our continued expansion in China, we are able to extend our global lead in growing, developing economies.

Next, I would like to give you an update on refranchising.

We continue to manage our business with the earn the right to own philosophy.

When we don't see high growth or high returns, we often refranchise units and hand them over to strong local operators.

Refranchising brings greater stability to our earnings, reduces our capital and ultimately improves our returns.

In 2009, we sold our KFC business in Taiwan to the Jardine Restaurant Group, one of our key franchise partners in southeast Asia.

In the US, we continued to make steady progress towards our goal of reducing US company ownership to 10%.

In 2009 we sold 541 units exceeding our goal of 500 despite the challenges of its of a tight credit market.

We made substantial progress at Pizza Hut where we sold 427 units and reduced company ownership to 11%.

In 2010 we expect to refranchise approximately 500 units in the US, mainly Pizza Huts and KFCs.

In summary, we are proud of our chance for delivering in this environment.

We have a demonstrated robust business model that delivered 13% EPS growth despite $45 million of foreign currency headwind.

We raised our dividend by 11% and we improved our competitive position by investing this our future with new units, stronger brands and new sales layers.

Now let's look ahead.

In 2010 we do not expect a strong economic turnaround and have built our plans accordingly.

We are confident that we will deliver our target of at least 10% EPS growth.

Here's why.

First, let's remember that international new unit development will remain a key driver of our growth.

We expect to once again add 1400 new units outside the US in 2010 and as David mentioned, we expect international new units built in 2009 and 2010 to deliver about six points of EPS growth in 2010.

Second, although it is especially difficult to predict sales right now, we do believe we are better prepared for a tough consumer environment than we were last year.

First of all, we have another year of sales layer experience under our belt.

For example, at YRI we now have a Crushers beverage line in over 1500 stores in 25 countries.

In China KFC now offers delivery in 95 cities and has added protein variety with shrimp and beef as permanent menu items.

At Taco Bell, in the US we fortified our value position and continual product news around our Why Pay More product platform.

We also have a strong pipeline of new products such as soft corn shell cantina tacos.

Across all our Yum businesses we are focused on providing a stronger balance of innovation and value.

Overall, we expect our first quarter sales to be below our normal growth rates and expect stronger growth in the back half of 2010 and, yes, part of the reason for that is we lap weaker results from the last half of 2009.

Finally, we expect to see a tail wind from foreign currency translation at least through the first half of 2010.

For Yum, our strength is coming from our three largest businesses, China, YRI and Taco Bell in the US.

We believe that these businesses represent a powerful growth combination.

In China, we have high return and rapid new unit development with excellent economics.

At YRI, we have a mostly franchised business model with a strong track record for success that is poised to driveway further growth around the global.

At Taco Bell in the US we have a contemporary brand that is well positioned for sales layer growth.

As David mentioned, we will continue down this steady path of refranchising at KFC and Pizza Hut.

Once we complete our refranchising, we are confident that these brands combined will deliver at least as much profit as they did in 2009.

Together they will continue to deliver strong and steady cash flow for our shareholders.

In summary, I am very proud of our financial results in 2009.

I am excited about our future as we fully expect to continue to generate consistent financial performance, global growth, strong free cash flow and substantial returns to shareholders in 2010 and beyond.

David.

Okay.

Thanks, Rick.

I hope you can tell that we are very excited about putting 2009 to bed with 13% earnings per share growth, eighth straight year where we have exceeded our target of at least 10% and we are really delighted to be on with 2010 and looking forward to the year.

With that, what I'd like to do now is open it up for questions.

(Operator instructions).

We will pause for just a moment to compile the Q&A roster.

Your first question is from the line of Mitch Speiser with Buckingham Research.

Thanks very much.

My question, David, the Pizza Hut US business we know is just becoming a very small part of the overall profit stream and you did give us some insight as to why you think it's weak but I'd just like to ask you a different angle on it.

Do you think that the product proliferation has had any damaging impact and just as I think about the rest of the world where you are pushing a lot of different types of products, perhaps considered noncore products through the KFC stores and Pizza Hut, can you assess the risks perhaps of the product proliferation strategy outside the US?

Thank you.

Just for clarity, Mitch, when you say product proliferation, do you mean adding like pasta and chicken?

Yes, pasta, chicken, the US and then as we look outside the US, KFC does a lot more than chicken and there is breakfast and beef and at Pizza Hut in many markets just going way beyond kind of the core casual dining that we have seen in the US Pizza Hut business, just the product proliferation in general, which seems to be having a damaging impact in the US and if you could assess maybe if there's any risk of that big picture outside the US.

Okay.

Well fist of all, I really think that the addition of the pasta and the wings has actually strengthened our US business.

You know, two years ago we launched pastA & We had very strong sales with the pasta launch.

As we went into 2009, we all know we faced a much tougher economic environment and what pasta really served for us in 2008 was almost like the launch of a major new pizza, and what we had difficulty doing in 2009 was overlapping the success of pasta, primarily because what the research tells us is that we just weren't being value competitive.

And so our pizza sales declined, and that typically happens in the Friday, Saturday, Sunday period of the week and it was so clear, loud and clear the reason why it declined is not because we were focused on pasta, because we had a mix of both pasta and pizza advertising, it was because we were uncompetitive.

Consumers told us very clearly that we have got the pizza they want to eat but we were too premium priced and that we had to get more value competitive to win.

So, I think that as we go into 2010, the fact that we have learned as a system and I think our entire system has learned this, franchise, company, together, we have learned that if you provide great competitive value, we can win and what we are focused on doing is making sure that we provide that great competitive value on a pizza basis.

And what we want to do is win the weekend occasion with pizza.

However, we also have an asset that's basically not being utilized during the week and that's where we think we have the opportunity to drive incremental occasions with wings and pasta with Pizza Hut.

So we think our strategy is right on the money.

Last year we did testing on how to deliver better value.

We also did testing on both pastA & Wings on how to make it more incremental for us and use our asset throughout the week, and you'll see that as we go into 2010.

What we are really trying to do at Pizza Hut is change the game.

Our business has basically been relatively flat from a sales perspective over the last decade.

Our unit economics have been strong but we really haven't grown the business.

What we think we can do by being more value competitive on pizza, we can be more competitive, drive more pizza sales and we can also then leverage that asset throughout the week with pastA & Wings.

So we really think we have made substantial progress at Pizza Hut and what we have now, I think, is a much better balance and understanding of how to drive pizza, which is more on the value front and you will also see pizza innovation from us which is what we are famous for, which we think we can get more premium pricing on, and in addition to driving pizza, we can leverage our new items, the pastA & Wings to get incremental occasion during the week.

The big thing in food service is can you stretch your brand and can you have credibility to go into new segments?

Without question, Pizza Hut can clearly go into pasta, and wings is a basic add-on in almost every pizza chain in the United States because it just goes with pizza.

So there are things that people see totally synched up to the pizza occasion.

We think what we are trying do with our business is our biggest asset is that we have 35,000 assets that are underutilized and it's because we have primarily just been focusing on one thing and one day part, our biggest opportunity is to take these brands and leverage our assets throughout the weeks and give consumers more meaningful variety and there's no doubt in our mind that we are on the right track.

Pizza Hut in China, for example, added 30% more menu items to really compete in casual dining and we saw a significant turnaround, not only in terms of our same-store sales but also in terms of our margins improved as well.

So, we've got -- if you're going to be casual dining, which, by the way, Pizza Hut is the number 1 casual dining chain in the world and particularly outside the United States it's the number 1 casual dining chain, if you're going to compete on casual dining, you have to provide variety and our customers, they want to have pizza, they want to have pasta, they want to have chickens, they want to have salads.

If you come in to sit down, they want to be able to have some coffee and beverages and they want to have desserts and we've got that asset sitting there with the back of the house it certainly has the room to provide them and we want to be the number 1 casual dining chain and you're not going to be that by just selling pizza.

So, Mitch, we could not be more convinced that we are hunting in the right territory and we are moving in the right direction on Pizza Hut, and one of our big advantages with KFC is that we can stretch the brand.

In the United States we are primarily known as Kentucky Fried Chicken.

Outside of the United States we are known as KFC.

Just like McDonald's, McDonald's might have started out as McDonald's Hamburgers but outside the United States and inside the United States they are McDonald's today and they have been able to stretch that brand into eight different product categories, leveraging their asset throughout the day.

That's our strategy.

We think we can stretch KFC.

It's easier to do it outside the United States because we don't stand so much for Kentucky Fried Chicken.

In fact, our KFC business was built more with portable sandwiches, a much bigger business, has much less focus on chicken on the bone.

And there's none of them that's closer to the egg than KFC.

Okay.

So if anybody ought to be able to do a breakfast, it ought to be KFC.

And that's basically an opportunity that we think we can tap into.

And by the way, our most successful business in the world is KFC in China and KFC in China has taken the approach that we can do chicken, we can do beef, we can do fish, we can do breakfast, we can do beverages.

That's the same approach that McDonald's has taken, and I think the fact that we have been preemptive and proactive in doing that in China has been a big competitive advantage for us.

It's why we got $1.4 million average unit volumes in China.

It's why we are sitting here saying we are like McDonald's is in the United States in China.

It's why we think we can have so many restaurants in China one day, because right here, because McDonald's has leveraged its asset, they have got 14,000 restaurants in the United States.

That's only with 300 million people.

So 2020 is going to be 500 million in the middle class in China, we are going to have an asset that's going to be leveraged, we are going to have higher sales.

McDonald's has over $2 million average unit volumes in the United States.

You know, we've got plenty of runway for same store sales with KFC.

We are only at 1.4 million.

Breakfast is only 5% of our mix right now.

But the big thing that we are doing is we are leveraging the power of our brands, we are leveraging the power that we have in these assets and we are putting these building blocks in place, and, yes, it's hard to see that right now in terms of the same-store sales growth that we are getting but let's face it, this economy has not exactly been booming.

But our strategy for the long term is so right on, it's unbelievable.

So we are very excited about where we are at.

I'm sorry I'm going on on this but this is why I'm talking to our people about every single day.

I mean, this is like, we got opportunity, we got to go out with.

I would be worried if we have all these categories and we had already done all these things and we already had breakfast and already had late night.

We are not even open in some market late so we got a big opportunity and we are all over it and we can perform even in tough economies like we just had last year and deliver but the main thing is is we are working on a long-term strategy here to leverage these assets, leverage our brands, use our assets throughout the day, get those sales up, improve our unit economics and just keep growing.

Thanks, Mitch.

Thank you very much.

Your next question is from the line of John Glass with Morgan Stanley.

Thank you.

I wanted to ask Rick about your comment on the weak first quarter same-store sales.

Do you expect negative same-stores in all regions or is that a blended comment?

Maybe you could provide a little color on what you're expecting by region, and then can you talk a little bit about China specifically, McDonald's talked about their results being positive in December for the first time in many months.

Their comparisons are different, their situation is different but can you talk about if you've seen any encouraging signs in that market recently?

Thanks, John.

First, I would say that there are some challenges in reading the real trends right now because of whether not just in the US but offshore as well, also regarding China and our YRI Asia, we are probably not going to get a great read on that, John, until March, once the Chinese New Year impact clears.

Remember, the Chinese New Year was in January in 2009, but it's in mid-February this year.

Our general approach is that we don't provide comments in the middle of a quarter on sales trend unless there's a very significant change in results.

The recent focus on value at Pizza Hut in the US, the $10 pizza offer has had a dramatic positive impact to transaction and sales trends thus far in 2010.

Overall in the US, based on that Pizza Hut performance as well as our overall confidence on our Taco Bell initiatives we expect our first quarter same-store sales to be below our normal levels but significantly better than what you saw in the fourth quarter of 2009.

That's pretty much all we are going to comment about trends at this point, John.

John, this is Tim Jerzyk.

One other thing that you should be aware of, Rick talked about the Chinese New Year.

It will affect YRI in that the timing of it, while it won't impact China's results, it's same quarter this year, quarter 1 as it was last year but for YRI, because of our reporting differences, it will negatively impact quarter 1 but benefit quarter 2.

So that will affect your thoughts as well.

Did trends in December get better than the quarter overall in China?

Again, we only comment when we see dramatic changes within a quarter.

What we have said at the analyst meeting is generally still our position until we say otherwise and that is that we saw that China consumer really slow down towards the end of 2008 at that point and since then we haven't really seen much of a change yet.

Thank you.

Thanks, John.

Next question, please?

Your next question is from the line of Keith Siegner from Credit Suisse.

I'm going to ask a little bit more specific a question.

The domestic franchise and license expense has been climbing pretty meaningfully over the last two years and very significantly in this most recent quarter and there's not a whole lot in that line item.

So what I was wondering is if you could talk more about what might be the cause of the increase there.

Is it franchise marketing funding?

Is it uncollectible royalties?

Is it increases in things like audits for the KFC system?

If you could help us gain some understanding about what's going on on that line item, that would be great.

Regarding the increase in this quarter, that was driven by increases in our bad debt reserve for KFC primarily in Long John Silver in the US.

And the way we account for that, Keith, in our accounting policy, we think we are pretty prudent, we reserve the entire receivable if a franchisee is more than 60 days behind schedule.

Now, for KFC, 80% of our franchisees are on time but we have seen the percentage of people under pressure go up during 2009.

We are prepared for even a modest increase in that level in 2010 and also for potentially some more closures in 2010.

Having said that, I'm quite confident that anything along those lines would not have any material impact on on Yum's overall performance in the year.

Your next question is from the line of Steven Kron with Goldman Sachs.

Great.

Thanks.

Hi, guys.

Maybe one follow-up question in China.

Can you just maybe talk a little bit about some regional commentary like you typically provide, are the export driven regions as bad relative to the other part of the country, and maybe you could provide a little bit of color around that?

And then secondly, within the US, looking at Taco Bell down 5%, same-store sales in the quarter, seemingly underperforming in the category as a whole, Taco Bell known for its value, was just wondering if you can maybe comment as to what you saw out of that brand throughout the quarter and maybe talk a little bit about the early read on the drive-through diet at this point and how that's going.

And then lastly, Rick, cash building a little bit on the balance sheet, didn't repurchase any stock again this quarter.

Can you talk a little bit about use of cash going forward?

Yes, let me answer, this is Tim Jerzyk, let me answer the last question first on the cash, there was a little bit of buildup at the end of the year, some of that was just offshore cash in terms of timing and bringing it back, and we do fully anticipate utilizing the $300 million share repurchase authorization we got from the board during 2010.

Okay.

Regarding China just to give you a little perspective, when look at China for the year we had basically flat transactions with all the economic challenges that we had.

The same-store sales were up 3% in low export markets while high export markets were basically down about 5%.

So what we are doing basically is we are focusing on developing a low export markets in central and the western parts of the country.

I think that there's some increased competition in Chinese QSR and catering service particularly in the tier 1 cities.

However, remember, Yum is in 650 cities and where there really in the vast majority of those cities, we are the only restaurant there, or quick service restaurant there.

We don't know exactly when the Chinese consumer will come all the way back, but when they do come back, we are better positioned for any kind of rebound than any other competitor due to our footprint in China so that's basically all I can give you on that.

As it relates to Taco Bell, we are very pumped up about what's going on at Taco Bell.

Our value image has definitely been strengthened.

In January we had the $0.89 value message out there in tandem with our fresco advertising.

The consumer today recognizes that no one gives you more value and that perception is stronger today than it's ever been, which bodes well in this climate.

What we did with fresco is we took the offense on nutrition because we think it's important for the long term to make sure that we communicate the fact that we have got balanced options out there for our customer.

We did that through the launch of the drive-through diet which was featured and talked about on the "Today" show just a couple of days ago where we got good mention on that.

Our fresco transactions will be and are climbing and we think that it will be a sizable move for us over time.

I think when you look at Taco Bell, the reason why we are confident is that we do have this value image.

Right now we are continuing our $0.89 products, which give you a ton of food for $0.89, it's delicious, okay.

And we have got the best pipeline coming up that we have had in a long time and longer-term our breakfast program continues to be promising.

We plan to expand it to more test markets this year.

We are hopeful for a national launch of breakfast in 2011.

And we have extremely good margins.

Our margins are very healthy, which allows us to grow new units.

We had net new unit development last year.

We think we have the potential to go from over 5200 units to Burger King levels of 7500 units over time and as we add breakfast, continue to develop new beverages, we think that that's going to strengthen our unit economics over time as well to facilitate that.

We are already the second most profitable brand in the US and our goal is to leverage our assets like McDonald's has done ultimately 24 hours a day.

I think last year, and the fourth quarter was no exception, you had a very tight, tough economy, you had everybody offering all kinds of value.

We are very pleased that when you look at the consumer research today, we improved our value proposition in that environment.

And we know that our brand is charismatic, we know we've got tremendous upside and stretch so we are very optimistic that we can have another good year at Taco Bell.

Thanks, Steven.

Next question please.

Your next question is from the line of Jeffrey Bernstein from Barclays Capital.

Great.

Thank you very much.

Just two questions.

One as it relates to the G&A savings opportunity.

You mentioned you hit the $65 million in 2009.

Just wondering whether you have kind of a set target, whether it be US, China or international, I should say YRI in terms of incremental savings that you think you can leverage in 2010?

And then separately, you mentioned in the release of the Long John Silvers and A & W multibranding is not really the strategy you're going to pursue going forward.

Wondering whether there's a potential sale of those brands or whether we will see those brands continuing to operate here as it relates to obviously generating incremental cash for the business?

And just as an aside to that, might some of the excess cash that we are talking about see further debt pay-down in 2010 or is the priority share repurchase at this point?

Thanks.

I'll answer that last part first, Jeff, on excess cash.

We are very focused on this year we will be focused on share buyback.

We did some things last year to reduce, you'll see our balance sheet long-term debt was reduced by about $300 million.

We really have no debt payable that we can basically can access with surplus cash this year.

Our next maturity is April of 2011 and we are focused on successfully getting past maturity and refinancing probably part of that.

So like I said earlier, we are expect to fully utilize the $300 million share purchase authorization that we have from the board and that's how we will be using the cash.

Regarding Long John Silver, A & W, our multibranding strategy is tactical because what we are focused on is our sales layer strategy that I've talked about.

Our goal with Long John Silver and A & W is to make those brands stronger and to build them working with our franchisees.

Regarding the question on the G&A, Jeffrey, this is Rick, in 2009 we took the big bite on G&A and that was beyond just sort of this store level stuff and payroll quirks et cetera that would be associated with refranchising.

In 2010 we expect some G&A savings but more the direct stuff that's related to refranchising so area coaches, payroll people, that type of approach.

What we said is we believe that amount will be around $20 million and will offset any profit tradedown from the rest of the refranchising program.

So we think that net refranchising will be roughly neutral to profits in 2010 because of a G&A reduction in the area of about 20 million.

Internationally?

Internationally, we just sort of said for 2010 and we are still sold on that plan is that again we are still growing a lot of businesses around the world but what we hope to get is some G&A leverage so that G&A grows at a lower rate than our revenues in 2010 so we are taking a little bit more prudent approach but we are continuing to invest in growth markets like India and China.

Thanks.

Next question please, Kristen.

Your next question is from the line of David Palmer from UBS.

Hey, guys.

My question is on investment.

You obviously let returns dictate your investment from year to year and you've obviously been refranchising and investing heavily in China but I wonder if there's something that you can do to be even more aggressive in repositioning your investment.

For instance, could you do something more dramatic about lightening up your company store investments in the US and YRI equity markets?

Does it make sense to perhaps think more aggressively, take one-time charges perhaps even to truly remove the earnings risk from a KFC US and equity exposure in the YRI division where the margins are frustratingly not getting better quickly and then conversely, maybe it makes sense to even step up investment in China through what could prove to be a trough period as the old Yum did in the past with China?

Thanks.

Well, David, we try to look at each market locally.

We look at obviously on a broad basis but if you go with the last piece of it, we tell China go as fast as you can as prudently as you can.

So, as David said, we never want to get ahead of our unit economics or our people capability and I think the team's has done a really good job of that.

The way we look at capital, and you probably know this but for some of the others, is that, we don't have a fixed number in the year so when we have a plan for China, if China can build more units, we don't turn them off.

We keep going.

Similarly, somebody else is not getting the returns that they need to get on new units, we will shut them off and they don't get to sort of spend their plan so we try to be very disciplined on those decisions.

Similar on the refranchising and you saw an example of that where we sold the Taiwan business this year.

We will always look at those opportunities and we will continue to do that on a go forward basis.

We put a lot of attention about making sure we are investing in places that could get high growth and high returns and similarly, pairing things back when we don't and I think the US refranchising, I've been pretty pleased with the pace.

I know some people question, can you get it done.

I sort of said I hope they keep questioning whether we can get it done up until the day it's done.

I think we are doing that at a good pace.

We are selecting the right franchisees and the right operators.

That's very important to us because, obviously, we are going to be running these brands for a long time and we need the right operators there.

At the same time, we are getting the deals done.

So I think we are getting that balanced pretty well and we are going to continue down that path.

Thanks, guys.

Thank you.

Thanks, David.

Kristen, next question, please.

Your next question is from the line of Greg Badishkanian with Citigroup.

Great.

Yes.

Just with respect to China, just wondering how maybe price sensitive you've noticed the Chinese customer versus the US consumer and would you consider offering more promotions to drive traffic and also on the competition front there, what are you seeing from sort of global restaurant chains within China?

Are they sort of becoming more promotional or what types of changes have you been seeing lately?

I think, first of all, we are already value competitive in China.

We offer good value.

Our consumer ratings say that we offer good value so we don't see any acceleration of our value proposition in China.

In terms of what are we seeing from global China competition, there isn't a lot of global China competition.

The only real global competitor we have there is McDonald's of any significance.

We are seeing some increase in just local chain development, Chinese in particular in major cities like Shanghai and Beijing but that's basically what we see on the competitive front.

What was the other question part of that?

Were those the two?

Yes, you -- that pretty much hit it.

That was great.

Thanks.

Thanks.

Thanks.

Next question please, Kristen.

Your next question is from the line of Mark Kalinowski with Janney Capital.

I'm hearing from some of my industry contacts that relations between Yum and KFC's domestic franchisees are getting a little bit tense.

Maybe you could comment on that situation and what might be driving that?

Thank you.

Okay.

Great.

Well, hey, listen, we have a phenomenal group of franchisees that are very committed to growing the business and we have great leader, Roger Eaton, who is working with the franchisees to get us through a really tough time right now.

And I think one of the things that we have been doing at KFC is we have been addressing three issues that the KFC system has really avoided too long--attacking the fried veto vote by offering customers the choice of Kentucky grilled chicken, attacking our value problem which is driven primarily by too high of local pricing which our franchisees control but we do have a national value menu for the first time in our history.

We also had very good pricing on Kentucky grilled chicken last year with our two piecemeal at $3.99 and then the third thing that we have been working on that's been something that we have needed to put more focus on and Roger Eaton and the team, in addition to launching Kentucky grilled, in addition to attacking value is to provide more reliable service so we have increased our investment in operations by having more franchise coverage, we have increased our store level operational audits, Mark.

We really started racking and stacking performance of our operators, and once we get good performance, we raise the standard, so we are constantly raising the bar on our performance.

These are very tough issues.

Not everybody, many of our more progressive franchisees have but not everybody wanted to launch a grilled product.

Not everybody wanted to do a value menu, but we did one.

Not everyone wanted to do $3.99 for the two piece meal, but we did it.

These were tough things.

And certainly not everybody enjoys seeing their operating performance racked and stacked publiced and published and not everybody enjoys that store audit where you go in and you know you can improve things.

Now our best franchisees, they are cheering us on.

Okay?

They are saying go get them, go get it.

Let's build a system together.

They are cheering us on.

But these are tough issues that Roger Eaton and the team are working with our best franchisees to address.

They are not popular with some of our franchisees, but I think the bulk of our franchisees know that it's important and it's necessary.

Running the KFC system is not for the faint hearted.

The marketing control is owned by the franchisees.

It takes tough minded leadership to make meaningful progress and our leadership, which by the way is some of the best leaders we have anywhere in the world and people I admire as much as I admire anybody in our company, they know that winning in business is not about winning a popularity contest.

What we are trying to do is win the hearts and minds of our customers and I'm confident that we have the know how and more importantly the perseverance to get this done.

We want to be so proud of KFC in the United States, we want to be so proud, we want KFC in the United States to be like it is in Australia and the UK and we've even had significant progress in Japan, which is a very, very immature and tough market.

We want to have our chest pumping at KFC and I think the things that we are working on, Mark, are, they are very tough issues to work through with any franchise system but it's the way how you turn a business around for the good.

And I couldn't be more proud of the KFC team and the franchisees that are supporting us in this effort.

Thank you.

Thanks, Mark.

Next question, please Kristen.

Your next question is from the line of Tom Forte with Telsey Adviser.

Great.

Thank you very much.

Two quick questions.

One, can you tell us the state of the financing market for the other parties engaging in these refranchising transactions, their ability to get funding and then second if you could give us some thoughts on 2010 margins, particularly what you're expecting in a commodities for the US and China and maybe on a first half and second half basis for 2010?

Thank you.

Well, on the financing for refranchising, I think it's noticeable that each of the last two years we have exceeded our targets and I think as someone mentioned earlier, right up until last minute, people have been questioning whether we are going to make it or not.

So deals are being done.

I think the important thing from what we have seen is that there is financing available for franchisees in our brands in particular that have good track records and have been in the business for a period of time.

They have good relationships with their lenders, good relationships with their banks and they have good balance sheets.

And that's where the deals are getting done.

We are also bringing in new franchisees where they obviously, to us they have gone through the process and we believe that they are going to be really great operators and they also have the financing capability so while it's a tough environment and it makes it more challenging, the team is very much on top of this and as you can see each year, they are getting it done, even in a very tough environment, so there is still financing out there but it is tougher.

Yes, regarding commodities, pretty hard to predict in this environment.

What we should have said in December is pretty much flat for the year.

Where we have visibility too is is probably the first half of the year, especially the first quarter, we do expect commodities to be down in the first quarter year over year and then our assumption is that they will go up a bit in the back half.

Hard to predict how margins will play out because obviously you have the interplay between the sales in the commodity side so obviously we are very focused on that as we were in 2009 and we will report those numbers as we see them.

Thank you.

Thanks.

Next question please, Kristen.

Your next question is from the line of Rachel Rothman with Wedbush.

Great.

It's actually Mike (inaudible) in for Rachael.

Could you guys talk about the impact of exing out Thailand and Taiwan on the China numbers, specifically as what it does to the 2009 margins and how much up and coming revenue dollars come out of the China numbers?

And then on YRI which came out slightly lower than guidance that you gave in early December, given that there were roughly three weeks left at the time and China and the US were roughly in line, could you talk about what happened there in mid to late December that led to the surprise and I guess whether that's continued in January?

Thanks.

This is Tim Jerzyk.

Let me answer that first part on the China division, the alignment piece where you have KFC Taiwan and Thailand moving to YRI during the first quarter, we will provide you restated numbers as we go and we can give you some ideas.

It's not that significant in terms of the revenues and profits.

Margins, I would suffice to say margins will be a little bit higher when you take those two businesses out but we will give you the restatements as the year goes on.

Yes, regarding YRI, I think what we saw in 2009 was that we had very strong sales in the first part of the year and gradually weakening with the global economy and so I don't look at it as a huge change in trends that occurred in the last month, but this has just been in general softening.

Again, hard to predict what's going to happen in 2010 and when the global economy is going to strengthen, but don't see any huge changes in trends at this point.

The biggest change in trend over the year actually if you look at it for YRI in particular was check average declined during the year and Rick mentioned this earlier in his comments that it was a lot of it was pricing rolling off and that was certainly reflected in the YRI sales earlier in the year there was still pricing by the end of the year that was pretty much gone and then also trade down by the consumer, so it was a fair amount of check average impact to that to YRI's growth as the year went on.

Thanks.

Next question please, Kristen.

Your next question is from the line of Sara Senatore with Sanford Bernstein.

Thank you.

I just had a question to go back to the US business, you mentioned that your margins obviously are up versus where they were a couple years ago despite the fact that we've had some on average negative comps over the past two years.

And then I know there was some commodity inflation but in fact it does look like your food and paper as a percentage has come down so I guess what I'm trying to get at is for your company operating margins, can you bucket out what piece of this is maybe just operational improvements versus mix, more Taco Bell if that's a higher margin versus what kind of benefits you get from refranchising, so to the extent that you refranchised some of the lower margin restaurants, has that been helping too?

Sara, this is Tim.

The refranchising piece on margins for the year was 40 basis points, four tenths of a point.

The rest of it was the impact of commodities, net of pricing and then productivity initiatives.

Yes, and that's the challenge, obviously, the pricing and the commodities pieces occurred at different points in time, so what happened in 2008 is we had rapid commodity inflation in the US, I think that number was $119 million for the full year, and it kept going up as the year progressed so we were sort of chasing, I'll call pricing in the US in 2008 and then we were getting rollover benefits in 2009.

But we are pretty much done with most of our pricing actions by the fourth quarter of 2008, so we got very little benefits--we got benefits from pricing through the third quarter of 2009 and then very little benefit in the fourth quarter.

Regarding mix, we are getting some favorable mix on margins first of all globally as China is becoming a bigger part of the mix and in the US as Taco Bell is becoming a bigger part of the mix as Tim talked about.

Thanks.

Thanks, Sara.

Next question please, Kristen.

Your next question is from the line of John Ivankoe with JPMorgan.

Great, hi.

Thanks.

You've already touched on the YRI part of this question but I was hoping that with your ability to really look into the China market to really explain the deceleration that we saw in the 2009 and obviously ending the year on a low note at down 3%, I mean the thought was we'd be lapping the economic slowdown in the fourth quarter of 2008 and especially the meaningful slowdown that you saw into December, so if you could just make some more specific comments in terms of maybe on a macro basis, what you think drove a slowdown in sales throughout the year and I know in the past we have talked about things like consumer confidence and savings rate and what have you but what do you think the best economic indicators are for us to look at to try to really say okay, well, if this is improving, then Yum's business should be improving as well?

I'll go first and then Tim could add to it, John.

I think it's not just one measure.

When we look at it and we are not economists, but when we look at measures, we tend to look at a portfolio so we are looking at consumer confidence, we look at the export markets and we look at sort of the GNP as some guidelines.

In terms of 2009, I just repeat, even though same-store sales bounced around a little bit we just sort of felt the consumer was pretty level the whole time.

It was bad and you had months where it looks better, worse, et cetera but I would just sort of categorize at least from our perspective, John, is the consumer was pretty much down a bit all year in 2009.

I don't think we are going to get a good read as we said earlier until after the Chinese New Year and that's because Chinese New Year overall is always very event driven and a bit like Christmas in the US.

You have sometimes where people will spend in holidays and then not spend in non-holiday periods so when we get into our second quarter, which is starting in March in China, that's when we will really have bad on bad economic numbers.

Again, the economy in China started weakening really around the December time frame but if you look at some of the measures around consumer confidence, et cetera, they really bottomed out really in the first quarter of 2009, so it will be interesting for us to see what happens when we sort of lap the bad economy and we get the noise out of the Chinese New Year so what we will be looking at is how do the measures progress especially as we get past February.

I think the only thing I would add to this, okay, is that what do we have in China in 2009?

1.4 million average unit volumes, 20% margins of KFC, 1.2 million average unit volumes, 19% margins at Pizza Hut.

That's pretty good base to build from.

That says you have a really, really healthy business and that we are well positioned.

I think the other thing I would say is do we think we are capacity constrained at KFC and Pizza Hut?

Absolutely not.

We have stores that do twice that volume, those average volumes.

So we can have $2 million average unit volumes at KFC over time, we can have $2 million average unit volumes at Pizza Hut over time so we become even more dominant in casual dining, so to me what do you have?

What do you have with KFC and Pizza Hut in China?

I think we have two consumer brands everybody wishes they had with unbelievable sales and unbelievable unit economics and I think we have a tremendous return that allows us to continue to grow with lots of confidence and that's the real name of the game for us, is to take advantage of the new unit and the development opportunity and grow KFC into well over 10,000 units and grow Pizza Hut as well.

I think that's how we look at the business.

We couldn't be happier with where we are at in China and I think a lot of investors feel the same way.

I know one measure that gets a lot of attention is the GDP and what happens to that growth rate and what does your business allow around that.

Again, I would say there's some analogies between what's happened in China GDP and in the US.

A lot of their GDP growth is based on their government stimulus, a lot of it was incentives for people to buy specific goods and people went and did that similar to the US but didn't buy as much stuff that wasn't being offered in incentive.

So if you look at the listed economic growth in the fourth quarter in the US, never saw a number greater than 5%, it didn't feel like a 5% from a consumer standpoint and I think you have the same thing right now happening in China, so we are going to look at broader measures and obviously we are a pretty good bellwether because we are everywhere in China so I think we may see it before you see it in all the measures combined anyway.

Yes.

John, one other thing, I think David talked about our business and on the economic side.

The other thing is when you look at the Chinese economy, fundamentally, it's one of the strongest in the world, so it's just a matter of when it's going to come back.

We feel pretty confident that it will.

The amazing thing, and Rick said, that we follow the consumer confidence index, that's one we think is a pretty decent indicator.

The amazing part about that is in the fourth quarter of this year was still down versus last year.

If you look at fourth quarter 2009 versus fourth quarter 2008, year-over-year consumer confidence was down.

It is starting to show year-over-year improvement.

It looks like it.

So that's a good sign.

Exports turned from pretty negative most of the year to positive solidly in December and there's a lot of people saying that that's going to continue which will definitely be good and then also we actually did see some improvement as David gave you earlier, the break in some of the segments of the market, that divergence between central and west and export markets actually narrowed as the year progressed.

So there's plenty of signs pointing in the right direction.

It's just going to be a matter of time.

And also the Chinese consumer has always been a big saver, we all know that.

They probably are more cautious but all the signs are pointing in the right direction.

Great.

Good color.

Thanks, guys.

Thanks.

Next question please, Kristen.

Your next question is from the line of Joe Buckley with Bank of America.

Thank you.

Just a couple of questions.

You talked a little bit about pricing in the US and pricing YRI and it sounds like you have no price now in most instances.

Could you address China also where you are in pricing year over year and then secondly, on the KFC US, you said 80% of your franchisees are paying on time.

Is 20% being late an unusually large number?

How does that relate historically?

And then lastly the CapEx number for the year came in much lower than we were thinking, about $100 million lower.

Does that get pushed into 2010 or whats the story with the CapEx?

Yes, Joe, let me answer that.

On China pricing its zero current run rate on pricing and then on the CapEx piece, there's going to be no carryover impact to our forecast that we provided you for 2010.

It was just underspending across a lot of different categories, so there wasn't anything actually in particular.

It was all spread across the actively growing parts of our business which was YRI and China so it was just a little bit here and there but it wasn't necessarily timing that will be additive to 2010.

Yes and regarding the percentage that are late, that number is usually below 10% so 20% is higher than usual.

Thank you.

Thanks, Joe.

Next question please, Kristen.

Your next question is from the line of Steve West with Stifel, Nicolaus.

When we talk about getting Taco Bell back on track and a drive-through diet and then what we have seen with the KFC grilled chicken, maybe not performing as well as expected or at least maybe it's stabilizing, how would you see kind of the difference between the two and maybe what we should expect as we go forward on getting Taco Bell back on track and even getting KFC back on track here?

Well, I think Taco Bell, like I told you we are pumped up about what's going on there and we feel good about the pipeline and, I think that you'll see I think a solid year .

At KFC, our first half is going to be tough because we will be overlapping Kentucky grilled chicken which was easily the most successful new product that was launched in the category last year but we expect to see steady progress at KFC and we expect each of our business to make more money this year than they made last year.

Thanks, next question please,

From the line of Jason West with Deutsche Bank .

Thanks, guys, I'll try to keep it quick.

Just wondering if you could talk about the percent of cash flow that you generate out of the US Pizza Hut and KFC businesses, you mentioned the profits.

I just wanted to see if the cash flow mix is similar as well and also are you having any collection issues at Pizza Hut, given the weak sales we've seen there, and then third just in terms of the refranchising, particularly KFC which has been a little slow, do you expect to sell those restaurants to existing franchisees or are you looking for third parties to come and get involved with that system?

Thanks.

On the by brand cash flow, it's pretty comparable they'll profit.

The only thing would be different is obviously there's higher capital expenditures at Taco Bell so if you're looking at more of a free cash flow measure, you have that impact.

We are growing net units and there is some company investment but otherwise you will pretty well track what the profit is.

Yes your question on the Pizza Hut system is franchisees are in good shape there, they have the commodity benefits in 2009 so they were making good profits even though they had soft sales.

We also have larger franchisees in the Pizza Hut system that are generally well capitalized, so a couple of onesy, twosy types of issues but for the most part very solid on the Pizza Hut side and in general the large franchisees we haven't seen problems.

Thanks, next question please, Kristen.

And your next question is from the line of David Tarantino with Robert W.

Baird.

Good morning.

Question for Rick on the tie between the earnings growth outlook for 2010 and the comps plan that you provided.

I think at the analyst day you seem to suggest that you might be able to hit the 10% EPS growth without a 2% comp so the question is, is that still the case, do you think you have some room on the cost side if comps fall short and then secondly, what level of comp decline would you start to get nervous about your ability to get to that 10% earnings growth?

Yes, obviously no firm answer I could give on that.

I think that there's probably no difference from where we were in December from my perspective and again I think that the assumption that I've been working under is that if you have a weaker economy than people's expectation is you probably have a bit of a natural hedge on your commodity costs.

I mean, obviously things go the other way, then we will have the upside on the sales piece of it, so I think modest increases, decreases I don't expect a change.

Anything significant, of course you'd have to worry about, but I don't have sort of a firm number in my head.

I do think that as we should have said given the fourth quarter, we are not going in the year with momentum so clearly, we are really cheering for the economy to pick up and our sales to pick up, so I think we are not starting with momentum, but I feel like, David, I feel good about our plans for the year.

Very helpful.

And if I could just squeeze one more in.

You mentioned same store sales expectation is that the growth would be back weighted.

How are you thinking about the profitability or the operating income growth?

Is that also going to be back weighted or with the cost being favorable in the first half would you expect it to be more balanced?

I would say probably what you just said would be my best guess, back end weighted but not as much as the sales because we expected the commodities to be favorable in the first quarter.

Great.

Helpful.

Thank you.

Thanks.

Kristen, next question please.

Your next question is from the line of Jeff Omohundro with Wells Fargo Securities.

Thanks I was just wondering if you could give us an update on the signature beverage, new beverage initiatives such as KFC Crushers and what your outlook is this year and how important a role they might play as you build sales layers?

Well we are in the midst now of expanding the Crusher line across KFC International so we were adding to the line different products.

This is a product, basically a sub brand, that we will continue to add news to as we go over time.

And so we are very, very enthusiastic about it.

Thanks.

Thanks, Jeff.

Next question please, Kristen.

Your final question is from the line of Jeff farmer with Jefferies & Company.

Thank you, and good morning.

I was just hoping to get understanding of your tax rate.

I think you guided to roughly 26% at the analyst day for 2010 but just looking at the model, looks like it hasn't been that high since 2004 so what factors would actually lead to a higher tax rate for you guys in 2010?

A rate of 26% is really what we expect to average over the next three years it could fluctuate from year to year and from quarter to quarter as it has in the past.

We benefit a lot from planning, reconciling audits with the IRS, et ceterA & We still expect to see benefits from those things just not quite as large over the next three years as we have had over the last two.

Okay, let me wrap this up.

First of all, thanks to all of you on the call.

As we continue to execute against our global opportunities, our business model will increasing be driven by China, Yum Restaurants International and Taco Bell in the US.

The restructuring of Pizza Hut and KFC in the US continues and this will ultimately improve our returns as well as the stability and predictability of our cash flow in the US business.

We are very focused on addressing the strategic challenges of both those brands that we expect will ultimately provide upside from a profit perspective from our position that we have today.

Overall, we believe that the execution of our strategies will lead us to a business model that will enable us to continue our track record of consistent performance and achieving at least 10% EPS growth each year.

For 2010, we believe that all of our businesses are better off and better prepared to drive sales as the global consumer comes out of what you might characterize as a hunker down mode.

Importantly, keep in mind at more than half of our EPS growth will be driven by new units built last year and units to be opened in the next several months.

In China, our business is well positioned for continued growth with its substantial infrastructure advantages, the strong brand positions I've talked about, the new unit investment returns that are as good as ever.

So we are in the right place at the right time with the right brands.

Yum Restaurants International continues to drive solid growth each year and build its future runway for growth based on the strength of its broad geography and being in over 110 countries, we have gotten an extensive franchise growth machine and a leading position in emerging markets around the world and in particular we are very excited about what's going on in India and France as we highlighted at the annual conference.

Finally, in the United States we are making progress towards positioning Taco Bell as a significant growth engine driven by both an increase in our average unit volumes as well as the new unit growth that we expected to drive over time.

With all this in mind, we continue to expect EPS growth of at least 10% for 2010, which would mark the ninth consecutive year we would meet our annual target of 10% growth and we are confident we will continue to build the value of our company not only in 2010, but well beyond.

It's a great business and we love running it and building it and thanks for being on the call and I look forward now to talking to our employees around the world.

We always have a talk to David call right after this and I can't wait to tell him about what's going on and convey the excitement that we have for 2010.

Thank you very much.

This concludes today's conference.

You may now disconnect.