百勝餐飲集團 (YUM) 2017 Q3 法說會逐字稿

Good morning.

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

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

Brands Third Quarter 2017 Earnings Conference Call.

(Operator Instructions) Thank you.

I would now like to turn the call to Mr. Keith Siegner.

Please go ahead.

Thanks, Angela.

Good morning, everyone, and thank you for joining us.

On our call today are Greg Creed, our CEO; and David Gibbs, our President and CFO.

Following remarks from Greg and David, we'll open the call to questions.

Before we get started, I'd like to remind you that this conference call includes forward-looking statements.

Forward-looking statements are subject to future events and uncertainties that could cause our actual results to differ materially from those statements.

All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included in our filings with the SEC.

In addition, please refer to the Investors section of the Yum!

Brands website, www.yum.com, to find disclosures and reconciliations of non-GAAP financial measures that may be used on today's call.

Please note the following regarding our basis of presentation for today's call.

First, system sales results exclude the impact of foreign currency.

Second, core operating profit growth figures exclude the impact of foreign currency and special items.

We are broadcasting this conference call via our website.

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

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

We'd like to make you aware of the following changes in upcoming Yum!

investor events.

Disclosures pertaining to our outstanding debt in our restricted group capital structure will be provided at the time of the second quarter Form 10-Q filing.

Fourth quarter earnings will be released on February 8, 2018, with the conference call on the same day.

We plan to provide perspective on 2018 in conjunction with this call -- with that call.

Now I'd like to turn the call over to Mr. Greg Creed.

Thank you, Keith, and good morning, everyone.

Yum!

Brands delivered another strong quarter of results, with 11% core operating profit growth and 22% EPS growth, excluding special items.

System sales grew 6%, driven by a 3% same-store sales growth and 3% net unit growth.

We are reiterating our guidance for 2017 and remain firmly on track with achieving our 2019 transformation goals.

Today, I want to first talk to you about our recent anniversary celebrations.

Then I will discuss 2 of our 4 key growth drivers, which influence our daily decision-making, including unrivaled culture and talent and distinctive, relevant and easy brands.

And then David will follow up with both restaurant development and unmatched franchise operating capability.

Now to begin, our recent anniversary celebrations.

2 days ago, we celebrated our first anniversary since the spinoff of Yum China as an independent company.

And David and I were fortunate enough to be in China last week to celebrate and talk about our future together.

We are proud of Yum China's success and are impressed by their ability to make Yum!'s brands distinctive, relevant and easy.

Our collaboration with Yum China is as strong as ever, and we are confident in the power of our brands by working together.

In connection with the spinoff, we announced our multiyear strategic transformation initiatives to become more focused, more franchised and more efficient so we can deliver more growth to our shareholders.

We are making significant strides towards completion of these initiatives and look forward to updating you today and as we progress on this journey.

Another recent anniversary occurred last month when we celebrated our 20th anniversary as an independent company.

Since the October 1997 spin from PepsiCo, Yum!

Brands has more than doubled its system sales, grown operating profit more than 6x over and developed into a global powerhouse, going from 30% of restaurants outside the U.S. to nearly 60% of restaurants outside the U.S. A $10,000 investment in Yum!

Brands in 1997 at the time of our spin from PepsiCo would be worth $170,000 today, a phenomenal return.

A lot of change has occurred in 20 years, and really, even in the last year, but the one constant has been our unrivaled culture and talent.

When David Novak began leading this company, he truly believed that culture mattered and that it could be a distinct competitive advantage.

And I'm proud to say that our people-first culture has never been stronger and is a competitive advantage for Yum!

As I traveled to some of the 137 countries where Yum!

is represented, I am able to witness firsthand the caliber of our people around the world.

I take a lot of pride in knowing that our people-first culture drives the passion for our brands that each of our employees and partners display, as they are truly engaged in delivering their unique piece of Yum!

As we celebrate these 1st and 20th anniversaries, I am committed to ensuring that our unrivaled culture and talent remains a competitive advantage for Yum!

today and in the future.

Now to our 3 distinctive, relevant and easy brands.

First, KFC, representing nearly 50% of our operating profit.

During the quarter, system sales grew 7% with 4% same-store sales growth and 4% net unit growth.

At our recent Analyst Day, we highlighted the brand's strong track record of success and the significant room for growth in both developed and emerging markets.

We also highlighted delivery as a future -- as a driver of future results where we expect to double delivery sales to at least $2 billion by 2020.

KFC's product is ideal for delivery, and the markets share an enthusiasm for executing it.

That's why our KFC teams attended the Delivery Summit where Yum China shared key learnings from their extensive delivery network, including best practices to ensure this becomes a successful repeatable model for KFC around the globe.

The need for ease is making delivery the largest growth driver for KFC.

And the team came home with several action items to not only accelerate the growth of the delivery business at KFC, but to make sure the experience is best-in-class.

As another example of best practice sharing, approximately 300 KFC individuals from around the world, including franchisees, came together to share ideas on value, delivery and innovation at our Annual Marketing Planning Meeting this quarter.

The teams came hungry to learn from their counterparts across the globe and to taste the top food innovations and left the meeting confident that KFC has a very strong global pipeline of innovation, rooted in insights and culture.

Taking place for over a decade now, this is the original repeatable model.

As I mentioned earlier, the entire global leadership team and I spent a week in China where we all came away impressed with the China team's ability to make our brands distinctive, relevant and easy.

And KFC China is executing on digital, social and delivery.

We even had KFC delivered to us on a train by placing our order via mobile, with a team member delivering it to us at the next stop when we arrived.

It really doesn't get much easier than that.

Yum China has truly created an all-access brand.

In addition to China, another market demonstrating the power of distinctive, relevant and easy brands is Latin America, where year-to-date same-store sales growth has grown 5% and third quarter same-store sales growth 4%.

Using our Always Original brand positioning, the team has grown the core with buckets and box meals, as well as driven innovation through the launch of flavored chicken on the bone and our marriage of chicken and pizza into the Chizza.

Thailand has turned around their business this quarter with 4% same-store sales growth by adding more value to the calendar and communicating in a way that really connects with consumers.

As an example, their Chick 'N Share for THB 99, or approximately $3, offers value in the snacking category and is positioned as THB 20 or $0.60 per person.

KFC is truly a global powerhouse brand, with China, Latin America and Thailand being just 3 examples of our markets demonstrating success with our Always Original brand positioning, value and delivery.

Next, to Pizza Hut, currently representing 20% of Yum!'s annual operating profit, split nearly even between the U.S. and international.

During the quarter, Pizza Hut U.S. system sales declined 1%, with flat same-store sales growth and 2% net unit decline.

At our recent Analyst Day, we demonstrated the changes underway as a result of a Transformation Agreement signed in the U.S. at the beginning of May, namely a hot, fast and reliable Pizza Hut experience.

Most importantly, the Transformation Agreement represents clear alignment amongst the system for a digital, delivery-centric way forward.

We are making our investment in hot in a 360-degree way.

When you see our ads on TV, they highlight our commitment to delivering our pizza 15 degrees hotter.

When the pizza arrives at your house, it's wrapped in a new delivery pouch with 3 layers of thermal insulation.

When you bite into the pizza, it will be crispier as a result of our new proprietary sheet included inside every box.

Each of these changes are designed to deliver on our commitment to hot.

These changes were rolled out to all Pizza Huts across the U.S. just after the end of the third quarter and will be part of your next Pizza Hut experience.

To deliver on our fast and reliable commitment, Pizza Hut announced the addition of 14,000 new delivery drivers by the end of the year and have executed other operational enhancements designed to make the delivery system more efficient.

Additionally, the Hut Rewards loyalty program was launched in August, and we are encouraged by initial trends and are confident our investment in loyalty will pay off in the long run.

As we've said before, do not expect the Transformation Agreement to yield results overnight, but we do expect to see improvement over time.

I am confident the changes made with the Transformation Agreement will allow us to execute on our commitment to a hot, fast and reliable Pizza Hut experience over the long term.

Internationally, Pizza Hut's system sales grew 7%, with same-store sales growth of 2% and net unit growth of 6%.

At the Analyst Day, we highlighted the growth potential of this business through unit growth and repeatable models, including technology ventures.

India was a standout market for Pizza Hut with its fifth consecutive quarter of same-store sales growth.

They have implemented the repeatable model for perfect pan pizza execution.

The market also has renewed its focus on team member training, ensuring team members have the tools necessary to deliver an exceptional customer experience.

As a result of these changes, customer satisfaction scores have improved over 9 percentage points versus the prior year.

The team now has signed development agreements with our franchisees in India.

And I've recently met with these franchisees and could feel their enthusiasm for the brand.

They are great examples of franchisees who exhibit the 3 Cs: capable, capitalized, committed; committed both to our brand and to our culture.

With the perfect pan pizza, team members ready for action and the right partners in place, India is poised to accelerate its growth, and we look forward to seeing the continued success in this market.

Finally, Taco Bell, which represents approximately 30% of Yum!'s operating profit.

By keeping to the core of Mexican-inspired products with value and innovation, Taco Bell delivered another solid quarter.

This quarter, system sales grew 6%, with same-store sales growth of 3% and net unit growth of 3%.

During the quarter, the Beefy Potato-rito combined the powers of crispy potato bites, seasoned beef, cheddar cheese, nacho cheese sauce and a kick of creamy chipotle sauce, all for just $1.

This showcases Taco Bell's ability to deliver innovative products at an attractive value to the consumer.

And the Double Chalupa, which included double the amount the seasoned beef, build on a familiar and craveable product while still delivering strong value in a $5 box.

Now proving they are more than just food as fuel, the cult of Taco Bell delivered on food as an experience by launching their own line of clothing in partnership with Forever 21, including cropped sweatshirts, shirts, bodysuits and jackets.

Taco Bell's first-ever retail collaboration is inspired by the iconic graphics that each brand is known for with a mix of vibrant prints.

We understand the importance of reaching the consumer beyond the food, and Taco Bell has given their fans another reason to celebrate.

Internationally, Taco Bell opened 15 units this quarter.

Brazil continued its strong development and has now opened 17 stores over the past 12 months.

I've mentioned before, continuing to unlock the business model by driving costs out of the supply chain and building scale with new and existing franchisees, and India is a great example of this, where we are now locally sourcing corn and equipment, which significantly improved their margin.

India and Brazil are 2 of Taco Bell's 4 key growth markets, along with China and Canada.

We continue to be excited about the potential for this brand internationally.

And changes to the supply chain, such as those made in India, will make the brand sustainable internationally over the long term.

In summary, the focus on our 4 key growth drivers has delivered our strong third quarter results, building off a solid first half of the year.

We remain confident in the underlying strength of our business and are confident in reiterating our 2017 guidance and transformation targets.

And now it gives me great pleasure to introduce our President and CFO, David Gibbs.

Thank you, Greg, and good morning, everyone.

Today, I will discuss our third quarter results and full year outlook, an update on our transformation initiatives and how we are bringing 2 of our 4 key growth drivers to life, our bold restaurant development and unmatched franchise operating capability.

Yum!

delivered another successful quarter with 11% core operating profit growth and 22% EPS growth, excluding special items.

During the quarter, there was minimal impact to operating profit from the timing difference between refranchising and the associated G&A savings, referred to as a net impact from refranchising dilution.

Additionally, during the quarter, we spent approximately $10 million on incremental advertising at Pizza Hut as part of the Transformation Agreement.

This was included in Pizza Hut's operating profit.

We are reiterating our 2017 full year guidance of mid-single-digit core operating profit growth.

As a reminder, this was derived from underlying base operating profit growth of high single digits adjusted for the 53rd week and the net impact from refranchising dilution.

We cautioned that the timing of the refranchising impact would be hard to predict.

While we had limited net impact from refranchising dilution in the first 3 quarters of the year, we expect this to be a significant headwind in the fourth quarter, which is consistent with the 10 to 12 percentage point headwind discussed during our second quarter earnings call.

In addition, we expect $15 million of incremental Pizza Hut media investment in the fourth quarter or an additional 3 percentage points of headwind.

Now with regards to our transformation initiatives, we remain on track to deliver all aspects of our multi-year strategy of being more focused, more franchised and more efficient to deliver more growth.

First, more focused.

This quarter was our second consecutive quarter of delivering 6% system sales growth, on our way to our bold goal of 7% system sales growth.

Second, more franchised.

This quarter, we refranchised 209 units, including 72 KFCs, 46 Pizza Huts and 91 Taco Bells, increasing to 95% franchise ownership.

We continue to expect the majority of the refranchising to be completed in 2017, with the remainder to reach at least 98% franchised and less than 1,000 company-owned restaurants to be complete by year-end 2018.

Third, more efficient.

We continue to make progress towards our G&A goal of 1.7% of system sales, excluding special items.

Year-to-date CapEx is $228 million.

We now anticipate approximately $300 million to $350 million in CapEx this year, slightly lowered from our previous guidance of $350 million to $400 million.

This will reduce in tandem with company ownership to approximately $100 million in ordinary course of business CapEx by 2019.

Year-to-date through the end of the third quarter, we repurchased over 19 million shares at an average price of $69.

Our fully diluted share count as of quarter-end was approximately 349 million.

Combined with our quarterly dividend, we have returned over $1.6 billion in 2017.

We remain committed to returning between $6.5 billion and $7 billion to shareholders from 2017 to 2019.

All of this is enabling us to deliver more growth, and we remain on track to deliver at least $3.75 in EPS in 2019.

Moving now to bold restaurant development, 1 of our 4 key growth drivers.

During the quarter, we opened 641 gross new units and 362 net new units for a year-over-year net unit growth of 3%.

Although we have not disclosed the breakdown of our long-term 7% system sales growth target between same-store sales growth and net unit growth, the key to achieving this over the long term is to ensure a strong development pipeline that's in place with growth-minded franchisees.

We are attaching development agreements to our refranchising deals, which are a way for Yum!

to accelerate unit development across all 3 brands.

We are confident in the unit growth potential for each of our brands, with continued growth at KFC and Pizza Hut in both developed and emerging markets and international development for Taco Bell really just beginning.

The growth-minded franchisees behind our bold restaurant development brings me to our fourth growth driver: unmatched franchise operating capability.

We talked about the 3Cs required for our franchisees: capable, capitalized and committed.

As an example of finding the right franchise partner who's demonstrating the 3Cs, this quarter, we consolidated our highly fragmented franchisee base for Pizza Hut in South Korea under one master franchisee.

The consolidation of this market should allow us to streamline operations, enhance our growth prospects and accelerate development in a key market for Pizza Hut.

At KFC, we recently celebrated Founder's Week, engaging all employees with Colonel Sanders and his passion for food.

To honor the original celebrity chef, we celebrate the chefs in each of our stores who hand bread fresh chicken daily with recognition and, by going back to the basics on operations, recertifying our chefs on making our world-famous products to ensure our food is served with the irresistible taste we all know and love.

And to Taco Bell, Greg previously mentioned the supply chain initiatives in India positively impacting restaurant margins.

It is operational enhancements such as these which improve our unit level economics, strengthen our franchise partners' health and have us enthusiastic about unlocking the potential of Taco Bell globally.

In conclusion, we are pleased with our third quarter results, which built on a strong first half and reinforce our confidence in the underlying strength of our business.

Our strategic transformation initiatives and focus on 4 key growth drivers are setting us up to deliver more growth to our shareholders, and we look forward to updating you as we progress on this journey.

And with that, the team and I are happy to take your questions.

(Operator Instructions) Your first question is from the line of Brian Bittner with Oppenheimer.

Two questions.

First, you've talked about accelerating towards your refranchising goal a bit more rapidly from here, I think getting a lot done by the end of this year.

And that contributes to some near-term earnings headwinds, which you've clearly alluded to for 4Q.

And I know you're not giving '18 guidance yet, but should we be assuming in our models that this refranchising dynamic also remains dilutive factor in the first half of '18 and then starts to reverse to accretion in the latter part of '18 and into '19?

Any color you can give us past 4Q would be helpful.

Yes, Brian, I think that's a good way to look at it.

Obviously, we have a lot more refranchising to do, and that will be more dilutive, and that's why we have highlighted the issues related to that in the fourth quarter, and that will continue into the first half of the year.

Okay.

And second question, just on Pizza Hut U.S. Is there anything you can talk to regarding the early progress there?

We heard a competitor yesterday putting a lot of blame on the NFL for a weak start to the fourth quarter.

So there's a lot of confusion swirling around regarding pizza in general.

And I know it's really early in your turnaround efforts, but any light you can shed on how that's going?

I think to sort of answer 2 parts of the question, look, we also love live sports, whether it's baseball, college football, NFL.

We're not seeing any impact from any of that on our business, and continue to obviously promote not just pizza, but all of our brands on live sports.

And then on Pizza Hut, as I said, this is really us putting the foundations in place.

The foundations are not always sexy, but I think delivering hot, reliable pizza is important.

And I do believe the team is making progress on all the areas of the foundation that will enable us to build longer term a strong Pizza Hut position.

And I don't think -- and there has been no real impact to our business from any of the issues.

Although I would point out, Pizza Hut is the official sponsor of the NCAA, so we're happy about that partnership.

And your next question is from John Glass with Morgan Stanley.

First, just on your system sales growth goals of 7%.

In 2 of your brands, one of them, you're there at KFC; you're very close at Taco Bell, obviously; at Pizza Hut, it's lagging that 7%.

So first, can you get to the 7% without Pizza Hut getting to 7% itself?

And when you think about Pizza Hut, can you get to 7% at Pizza Hut if that is a goal without the U.S. really accelerating?

Can you maybe just explore the dynamics on the brands and maybe specifically at Pizza Hut?

Well, I think, as you saw, John, we're making good progress.

Obviously, we're making good progress in KFC in developed and emerging markets.

As you saw, Taco Bell also making great progress.

We're also making progress at Pizza Hut.

On the international side of Pizza Hut, we obviously had a good quarter, I think system sales were 7%.

And obviously, we're going to have to make quarter-over-quarter progress.

But as we said, don't expect any heroics, but we do believe we can, by getting the foundations in place and doing the right things, continue to progress our Pizza Hut U.S. performance.

So I just feel good about the performance we are making, the steady progress we're making.

We are making the brands more distinctive, more relevant and easier.

And I think all of that is going to help us get to the long-term goal.

Yes.

I think one of the ways to look at it is we have 250 combinations of brands and -- over 250 combinations of brands and countries.

So some of those brands and countries are going to be growing north of 10% and others will be growing less than 7%.

Do we need Pizza Hut to get to 7% to get the entire system to 7%?

No.

As you can see -- as we said, KFC has been performing at 7%, and that's with KFC U.S. closing store -- more stores than they're opening right now.

We know that's going to reverse.

So we've got upside in all 3 brands, and I know we're going to get there in different ways, in different countries.

But in aggregate, we've got our eyes focused on the prize of 7%.

That's helpful.

And if I could just follow up.

Can you -- or maybe you did disclose them in the release and I missed it, what the refranchising dilution is expected to be in the fourth quarter?

Just I know there's a lot of moving pieces in that quarter.

Can you isolate the refranchising piece so we can get a better sense of how we think about the first half of '18?

I think we've categorized that as 10 to 12 percentage points of headwinds through a combination of refranchising dilution and the impact from the 53rd week.

You can do the math on it.

But basically, we'll get into more details on that in the fourth quarter.

And the other challenge that we have with all of this refranchising is the timing is never really certain, right?

These are deals that we're working on with outside parties, and they will close when they close.

We don't want to close them before they should close or any later than they should close.

So it's very hard to predict exactly what that will be in the fourth quarter.

Your next question is from the line of Jason West with Crédit Suisse.

Just wondering if you can talk a bit about the competitive environment in the U.S., I guess, thinking mostly Taco Bell.

Another good quarter there.

You guys are holding up margins pretty good.

And we've seen a lot of these companies in the space have an investment margin and seen some labor pressure.

Just I want to get a feel for, if you think you can grow margins at Taco Bell from here or should we look for some investment to try to keep the sales where they are?

Well, Jason, it's definitely a competitive marketplace.

I think we all know that, which I think is even more encouraging with the results we delivered.

Taco Bell had a solid quarter, as you said, plus 3% same-store sales growth.

I think what Taco Bell is able to do is to balance being the value leader with an underlying economic model that delivers good industry-leading margins.

I think that, that team knows exactly how to ensure that we continue to grow same-store sales, while obviously protecting the sort of 20%-plus margins.

I've got confidence that through both value and innovation, they'll continue to do that in the fourth quarter and going forward.

Your next question is from the line of David Palmer with RBC Capital Markets.

You mentioned confidence against the 2019 earnings goals.

I think there was some curiosity now ahead of 2019, it's more on those sustaining elements of the revenue growth, which, of course, are the unit growth and delivery.

Is there anything at this point -- I know it's early, and I know you probably have future Analyst Days ahead, you want to talk about this more, but updates about particularly the U.S. when it comes to delivery and international when it comes to unit growth and the confidence you have in traction and any numbers or stats would be helpful.

Well, on the unit front, I guess I'd point out, if you look at the numbers this quarter, we're close to 100 units ahead of our net new unit development pace from last year.

That's a pretty encouraging sign.

And in fact, if you look at gross new units, that's over 200 units ahead of the pace that we had.

So we -- I think we feel like, just as we had planned, the ramp up in unit development is happening slowly but surely and confident, particularly internationally, in having a lot more upside there.

In the U.S., of course, a big opportunity on unit growth is reversing Pizza Hut U.S. and KFC U.S. to being net growers rather than decliners, which is well on its way.

And I think, David, to answer your question on delivery, which is sort of the easy part of distinct, relevant and easy, I mean, the good news is we've got 1,000 Taco Bells delivering now.

Obviously, the KFC team, as we said, went off to the Delivery Summit with China, so they picked up a lot of ideas on how to execute delivery.

We've got almost, I think, 20,000 brands within Yum!

currently delivering.

So we've got a lot of in-house knowledge, obviously, with the Pizza Hut brand and KFC in places like the Middle East delivering.

And obviously, we're doing some testing work with aggregators.

So I think we're doing all the things that you would expect us to do in order to unleash the growth potential of delivery going forward.

Your next question is from the line of Gregory Francfort with Bank of America.

Just, Greg, maybe following up on that.

Can you talk about how you think delivery plays out in the U.S. in terms of getting the check size up and maybe how you think the bundled value meals fit in to that kind of longer term to drive check size?

Sure.

I think, Greg, the good news is the delivery that we are doing, there's 2 things that are obvious.

First of all, check does grow.

Secondly, there are also -- a lot of it is new occasions.

So I think what we're excited about is delivery actually gives us access, greater access to new occasions and higher checks.

So both of those will obviously help drive system sales.

So I think right now, it's early days, but what we're seeing is both a check growth and a new occasion opportunity, both of those obviously positive for our growth potential.

Okay.

And maybe one follow-up, just on the international business.

It feels like across a bunch of different brands, you've seen better numbers the last couple of quarters from some of the international divisions.

Any thoughts on the international consumer, maybe particularly out of Europe?

Well, when you're in 137 countries, there's a lot of international consumers.

No, look, I think our business in Central and Eastern Europe is strong.

Our KFC business in the U.K. is strong.

Look, I think where we build distinct, relevant and easy brands, which is really the cornerstone of driving our system sales growth, and where we've got great franchise partners who are executing a great customer experience, I think that's why we are continuing to see the success and the growth that we are around the world.

So look, there will always be markets, when you're in as many, that have good macros and bad macros.

And our job is to build distinct, relevant and easy brands, supported by unmatched franchise operating capability.

Yes.

I think we've talked about this on past occasions.

But a couple of years ago, we made a change to organize globally around brands.

That change principally benefited the international business because we heard we've been organized that way in the U.S. So I think part of the success we are seeing in building distinctive, relevant brands is really what we keep talking about, just more focus on the brands themselves, dedicated 100% teams to the brands internationally, working even closer with our franchise partners.

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

The question is on KFC.

Obviously, a good quarter both from a same-store sales and a unit development perspective.

But considering that is your biggest division and it's kind of the -- still the driver of the overall Yum!

engine, I just wanted to get a sense of what can accelerate from here at KFC in order to -- allowing the corporation to achieving 7% systemwide sales growth.

4% global comps, I think, is an above-average number for the division.

This is obviously something that you'd be proud of at any point.

And accelerating unit development beyond the 4% level that you're currently achieving on a unit base of 21,000 is obviously just a tough order just by the law of large numbers.

So I just want to get your sense of which of those -- what can accelerate from here at KFC?

I mean, or is this just a type of division that even achieving 7% systemwide sales growth as we think about the next 3 to 5 years would just in and of itself be a great level?

Well, I think the good -- if I talk about same-store sales growth, I think the good thing is that Roger Eaton is doing a great job of getting everyone focused back on the core.

So if you think about the innovation that we've been doing, it's all been innovation around core chicken on the bone, so flavors delivered by chicken on the bone.

Value, you've got everyone running $5 boxes, $10 share and $20 family meals.

I think that's helping.

Delivery, obviously, we do believe that the KFC brand, I always -- I joke internally that the Colonel knew we were going to deliver, and that's why he made the bucket 60 years ago because there's no better delivery vehicle than a bucket of chicken.

So I think that for all those reasons, focus on the core, flavors around the core, pride in the core and then, obviously, great execution plus then delivery, I think will -- gives us the confidence that we -- that even though this is a big brand and, yes, it has the law of big numbers, that this brand can continue to deliver like it's been delivering for the past few quarters.

And I remain firmly confident that this brand will continue to deliver.

So that 4% type of comp level is something you think, I mean, through base execution and delivery, it sounds like is an achievable number over the long term.

What about on the restaurant side, I mean, does it make sense?

I mean, would you want a 21,000-unit brand to accelerate beyond a 4% systemwide unit growth year-on-year?

Yes, obviously, as we've talked in the past, we're not going to provide brand-by-brand guidance on development, but your question is well-placed, John.

Of course, we'd like to see all of our brands pick up the pace of development.

KFC is building a lot of units, but it's also just scratched the surface in so many markets around the world.

I know the KFC team is continually looking for ways to accelerate development, and you're seeing some of that happening this year.

And something that a lot of companies have kind of experienced, both in a good way and a bad way, is managing 1,000 or 2,000 units globally in a year can just be too much.

So there's 2 things: I mean, one is franchisee capability and demand; and secondly is the level that you think is right for the brand to grow in terms of units.

And that's what I'm just trying to get a sense of, what that maximum limit is, or perhaps there really isn't one that as long as there's a market-to-market buildup, that it continues to make sense to accelerate that development.

Well, I think 2 things, John.

I think, as David said, in the large part of the world, we've got less than 1 unit per 1 million population.

A large part of the world, you would argue, we would be underpenetrated compared to sort of developed market economics.

The second thing is, I think as we've gone through this transformation, as we've refranchised the business, we've built in, as we said, stronger franchisees.

So both our existing franchisee base, we are very happy with, and the new franchisees with development agreements attached to all of this, which traditionally we haven't done, but as well as with the capability and the commitment and the capacity to actually do this development.

So I think for those reasons, we feel good about the KFC brand being able to deliver both same-store sales growth and net new unit growth this year, next year, the year after and the year after that.

Your next question is from the line of Matt McGinley with Evercore ISI.

I guess I have a follow-up on that unit development question.

It's obviously very encouraging to see that tick up in the unit growth.

But as you look at the present unit growth that you've had over the past, say, this quarter or past quarter, do you know how much of that is normal development growth pipeline versus the contractual commitments you're receiving from refranchising or the contractual commitments you get from when a franchisee turns over?

I'm kind of curious if that unit uptick that we're seeing now is -- could accelerate because we're not actually getting those refranchising type commitments in the numbers yet.

Yes.

I mean, I think it's fair to say that some of the refranchising commitments have started to impact the pace of development.

But remember, with the time frames around development and when we just really restarted this batch of refranchising a little bit over a year ago, a lot of these deals were in the pipeline before the refranchising began.

So it's starting to have an impact, and we hope that it will continue to have an impact and even greater magnitude as we go forward.

And on the G&A decline by $300 million as it relates to the refranchising, you'd said that you extensively will be done with that refranchising by year-end.

What causes the lag between refranchising and G&A reductions as your asset base shrinks?

I mean, you had the, obviously, the store-related G&A and then you have the headquarters G&A.

I'm kind of curious of how the, perhaps, headquarters G&A would lag or lead that refranchising that would drop those G&A dollars.

I guess, also to clarify, we said the majority of the refranchising will be done by year-end, but we certainly will have some refranchising that will spill into 2018.

And then as far as what might be a lagging item on G&A versus the refranchising of stores, just to give you like an obvious one, in some international markets, if we're selling the entire market, we might have office lease obligations, we might have to do a lot of things with employees to continue during the transition period to a franchise organization.

All of that would be lagging the actual transfer of the restaurants and the restaurant level profitability that will be going to the franchisees.

Your next question is from the line of Dennis Geiger with UBS.

Can you provide any more detail on what you're seeing from those recent initiatives in place at Pizza Hut in the U.S. at this early stage?

Anything on loyalty, the new thermal pouch, the new app, the marketing spend, maybe if it's just customer satisfaction metrics, maybe what the franchisees are saying?

Any incremental detail would be great.

Yes, look, I think it's just a nice positive build.

I think the good news is QSR magazine came out and rated our digital effort in the genius category.

I think we were only second behind Starbucks in a sort of group with Panera and Domino's.

So we feel really good that our effort is being recognized at least within the industry.

So no, I think we are making progress.

It's early days.

I know the advertising for the hot pouch has just started.

As we said, you'll get a crispier hotter pizza when you next experience Pizza Hut.

So I think we're doing all the right things.

Loyalty is now underway, making progress on that.

We're happy with that progress.

So I think we're just starting to do all the right foundational blocking and tackling things.

And I'm pleased with the progress that we're making on all of those fronts.

Great.

And if I could get one more in.

With the roughly 600 restaurants refranchised year-to-date through the end of the quarter, anything more you can say about those transactions?

I guess, specifically, any commentary on the development agreements coming out of those?

I'm sure there's only so much you can say, but as far as number of years, just to think about -- any way to kind of contextualize that?

Yes.

I think, first of all, we're pleased with the prices we're getting for refranchising.

As I mentioned on previous calls, there is a strong market for the stores that we're refranchising.

Lots of capital out there available for these kinds of deals.

And similarly, with that capital availability, we've got franchisees willing to sign up for development commitments.

We've got generally very good unit-level economics in most of the countries we operate on -- operate in.

So yes, I think it's been a very positive story in terms of the reception to the refranchising program.

Your next question is from the line of Andrew Charles with Cowen and Company.

Greg, with the quick service industry increasing focus more recently on the $1 to $3 price point, it seems likely to intensify early next year.

What can Taco Bell do to help differentiate on value, given the brand was the only national QSR with a $1 menu over the last 5 years?

And then I have a follow-up.

Well, I think, as I said earlier, the great thing is we can do $1 all day, all night, all week, all month, all quarter, and still have great margins.

We got a really good underlying economic model at Taco Bell.

We will never give up our leadership of value in the QSR category.

I can assure you that.

I know Brian and the team are very focused.

They're aware of what's going on in the marketplace.

But I think we're very confident if we execute our plans, given the context of what's occurring, that we can still be very competitive in that price range.

And then, David, what led to minimal profit dilution from refranchising in 3Q, while you guys are ahead of schedule on the refranchising activity?

And further, which expense line should we expect the refranchising dilution to be most evident in 4Q and early 2018?

The minimal profit dilution in the first part of the year, obviously, some of this depends on what kind of stores you're selling.

If you're selling stores with lower margins and you're collecting royalties, in some cases, you have a positive impact from the refranchising.

And in terms of where these things are going to show up in our P&L, obviously, you'll see our margin going down brand by brand.

You'll see G&A going down and then franchise and license expense going up, particularly when we refranchise stores that we end up holding on to real estate or remaining on lease obligations.

We have to recognize those kinds -- the rent and depreciation through the franchise and license expense line.

Your final question is coming from the line of Sara Senatore with Bernstein.

I had a quick follow-up on Pizza Hut, then I wanted to ask about Latin America.

The first on Pizza Hut was just, I know you said you didn't see a real impact from NFL viewership, but it does seem like the category in aggregate has slowed.

So Greg has mentioned the idea of delivery being part of easy, and I'm wondering if it's the fact that so many other restaurants are pursuing this kind of easy component through delivery, if that's having any impact.

And then like I said, I'll have a second question about Latin America, please.

I think that a lot of people are trying to get into the easy delivery business, but I think we've got a track record of doing it for so many years.

We obviously have a system that knows how to deliver.

I think what we've done is we've doubled down, we've hired 14,000, we will be hiring 14,000 more drivers, as we said, to deliver.

I think Artie's got the team operationally focused on making sure that we improve our speed of service, we make the pizzas hot.

You can now track it.

You've got a loyalty program.

So even though I think, obviously, competition is heating up in this area, I also think we're raising our performance, and I think that will keep us -- continue to keep us competitive in this marketplace.

All right.

And then just on the Latin America business, you talked about it very positively.

And I think for most of the time that I've been following Yum!, it's kind of been in the shadow of emerging Asia in particular.

Are you seeing sort of a quantitative or qualitative difference in performance there?

And does that change potentially how you think about the balance of your global growth going forward?

Well, I think, as we said, what I love is we've got this concept of a repeatable model.

And it's very clear that when we execute or best practice the repeatable model, it has impact.

So the Latin America KFC performance I spoke about was really about implementing the repeatable model and making sure we have value and then innovation around chicken flavor, chicken on the bone.

We've also got, as we talked about, the Taco Bell Brazilian business now got 17 restaurants which we've opened in 12 months.

So that was a market that we weren't in for that brand in the past.

So look, I think we just feel confident that by executing the repeatable model and growing our presence with a brand like Taco Bell, we can get growth or more growth out of Latin America.

Okay.

So I'd like to thank everyone for being on the call today.

I think we delivered another strong quarter.

We're firmly on track to achieve our 2019 transformation goals.

I do believe we are focused on the right key growth drivers.

And now for all of us, it's about execute, execute, execute.

So thank you for being with us.

Thank you for supporting us.

We look forward to speaking to you in the future.

Thank you.

Bye-bye.

This does conclude today's conference.

You may now disconnect.