Yum Brands - Yummy Outlook

FULL-YEAR 2008 OUTLOOK
The company raised its full-year 2008 EPS forecast from $1.82 to $1.85 per share, or at least 10% growth. This is prior to significant one-time gain items described later in this release.
David C. Novak, Chairman and CEO, said, "I am pleased to report that we ended our first decade as a public company in 2007 by once again demonstrating the underlying power of our global portfolio of leading restaurant brands. Fueled by strong 2007 same-store-sales growth of 3% and continued profitable international expansion, including record new-restaurant openings of 471 in mainland China and 852 in YRI, we achieved 15% EPS growth. This marks the sixth straight year of delivering on our commitment of at least 10% annual EPS growth.

"Importantly for shareholders, our China and YRI divisions continued to generate outstanding operating results, with full-year same-store-sales growth of +10% and +6%, and operating profit growth of +30% and +18%, respectively. With such powerful results, we generated record cash from operating activities of nearly $1.6 billion and returned an all-time high of $1.7 billion to our shareholders through share repurchases and dividends. Additionally, we announced in October our plan to substantially increase the amount of share buybacks over the next two years, repurchasing a total of up to $4 billion of the company's outstanding common stock.
"As we enter our second decade, we expect 2008 to be another excellent year. We are confident we can continue to build on our track record of growing EPS at least 10% each year by generating 20% operating profit growth from our China Division, 10% from our YRI Division and 5% from our U.S. businesses. Our teams, strategies and financial strength have never been better, and we are totally focused on delivering exceptional results for our shareholders.
"Shareholders should expect us to continue building consistent value by differentiating our global portfolio of brands and driving profitable global expansion through our four key strategies: building leading brands in China in every significant category; driving aggressive international expansion and building strong brands everywhere; dramatically improving U.S. brand positions, consistency and returns; and driving industry-leading, long-term shareholder and franchisee value."

CHINA DIVISION COMMENTS
For 2007, we opened a record 471 new units in mainland China, further strengthening our leadership position in China's rapidly growing restaurant category. In 2006, we opened 364 new restaurants in mainland China.
Mainland China's fourth-quarter same-store-sales growth of 17% was the best ever for the market, while simultaneously achieving record-level unit growth in 2007.
For the fourth-quarter and full-year 2007, the slight decrease in restaurant margin percentage was better than anticipated, as record same-store-sales growth largely offset unusually high food-cost inflation. We expect high food-cost inflation to continue into the first half of 2008 and moderate later in the year.
Foreign currency conversion continued to provide benefit in both fourth-quarter and full-year operating profit, $6 million and $19 million, respectively.

YRI (Yum Restaurants International) DIVISION COMMENTS
For the fourth quarter, YRI's operating profit growth was negatively impacted by 5 percentage points due to incremental investments in KFC sales-growth initiatives, incremental incentive compensation, and selected, market-level organizational restructuring.
For 2007, we opened a record 852 new restaurants in our YRI Division, 94% of which were opened by our franchise and joint-venture partners. This is the ninth consecutive year of at least 3% year-over-year YRI net unit growth. YRI continues to build an enviable development track record.
YRI same-store-sales growth was strong at +5% and +6% for fourth-quarter and full-year 2007, respectively.
Franchise fees, a key driver of our high-return business, passed the $500 million mark during 2007 with full-year growth of 15%.
The strength of foreign currencies versus the U.S. dollar continued to provide benefit in both fourth-quarter and full-year operating profit, $10 million and $24 million, respectively.