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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call to Mr. Keith Siegner, please go ahead.

Thank you, 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 these statements. All forward-looking statements should be considered in conjunction with the cautionary statements in our earnings release and the risk factors included with 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 on 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 would 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 as we plan to provide perspective on 2018 in conjunction 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% co-operating profit growth and 22% EPS excluding special items. System sales grew 6% driven by 3% same store sales growth and 3% net unit growth. We're reiterating our guidance of 207 and remain firmly on track with achieving our 2019 transformation goals. Today I want to first talk you about our recent anniversary celebrations, then I will discuss two of our four key growth drivers, which influenced our daily decision making including unrivalled culture and talent and distinctive relevant easy brands. And then David will follow up with both restaurant development and unmatched franchise operating capability. Now to begin our recent anniversary celebrations. Two days ago, we celebrated our anniversary since the spinoff of Yum China as independent company and David and will fortunate to up to be in the China last week to celebrate and talk about our future together. We're proud of the Yum China success and impressed by their ability to make Yum, Yum's brand distinctive relevant and easy. Our collaboration with Yum China is strong as ever and we’re confident in the power of our brands by working together. In connection with the spinoff we announced our multiyear strategic transformational initiatives to become more focused, more franchise and more efficient so we can deliver more growth to our shareholders. We're making significant strides towards completion of these initiatives and look forward to updating you today and as we progress on this journey. Another reason anniversary occurred last month when we celebrated our 20th anniversary as an independent company, since the October 1997 spinoff from PepsiCo Yum brands has more than doubled its system sales, growing operating profit more than six times over and developed into a global power house,…

Thank you, Greg, and good morning, everyone. Today, I will discuss our third quarter results and full year outlook an update on our transformation initiative and how we are bringing two of our four 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, the was minimal impact to operating profit from the timing difference between refranchises and the associated G&A savings referred to you as the 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 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 based 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 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 points headwinds 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 initiative, we remain on track to deliver all aspects of our multiyear strategy of being more focused, more franchised and more efficient to deliver more growth. First more focus. This quarter was our second consecutive quarter of delivering 6% system sales growth, on…

[Operator Instructions]. Your first question is from the line of Brian Bittner with Oppenheimer.

Two questions first, you talked about accelerating towards your refranchising goal 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 clearly alluded for 4Q and I know you're not giving '18 guidance yet, so we be assuming our models that this refranchising dynamic also remains alluded factor in the first half of '18 and then starts to reverse to accretion in the later part of '18 and into '19, any color you can give us has 4Q will 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 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 point on inner felt for a weak start to the fourth quarter so there is 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 two parts of the question. Look we also love live sports whether it's baseball, college football, NFL. We are 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 in the foundation that will enable us to build longer term a strong Pizza Hut position.

And I don’t think that and there have been no real impacts to our business from any of the issues although I would point out as Pizza Hut is the official sponsor of the NCA and so we're happy about that partnership.

And your next question comes from the line of John Glass with Morgan Stanley.

First, just on your system sales growth goals of 7% and two of your brands one of them are KFC you very close it Taco Bell of obviously Pizza it's lagging that 7%. So first can you get to the 7% without Pizza Hut getting 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. without accelerating. Can you maybe just what are the dynamics on the brands and maybe just dealing in Pizza Hut?

Well, I think you just saw John we’re making good progress obviously we're making good progress in KFC in developing and emerging markets as you saw [Indiscernible] is also is making great progress. We are also making progress at Pizza Hut on the international side of Pizza Hut we obviously had a good quarter I think system sales were down was 7% and obviously we are going to have to make quarter-over-quarter progress but as we said don’t expect any heroics, but we do believe we can if I 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 are making we are making the brands more distinctive and 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 as we have over 250 combinations of brands and countries so some of those brands in countries are going to be growing north of 10% and other will be growing less than 7%. Do we need Pizza Hut to get to 7% to get the entire systems to 7% no. As you can see as we've said KFCs has been performing at 7% and actually KFC U.S. is closing store more stores and they are opening right now we know that's going to reverse. So, we've got upside at all three brands and I know we are going to get there in different ways in different countries but in aggregate we've got our eyes focused on the price of 7%.

And if I can just follow-up, can you or maybe you did disclose some in the release and I missed it what the refranchising dilution is expected to be in the fourth quarter just as the 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 will 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, these are deals that we're working on without side parties and they will close when they close, we don’t want to close them before they should close or any later then they should close. It was very hard to predict exactly what that will be in the fourth quarter.

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

Just wondered 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're seeing a lot of these companies in the space having invested in margin and seeing some labor pressure, just wanted to feel for, if you think you can grow margins in Taco Bell from here or should we look for investment to try to keep the sales where they are.

Its defiantly a competitive market place, 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 say plus 3% same stores sales growth, I think what Taco Bell is able to is to balance, being the value leader with an underlying economic model that delivers good industry leading margins. I think that team knows exactly how to ensure the we continue to grow same store sales while obviously protecting the sort of 20% plus margins, I got confidence though base value and innovation we will now 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 its 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, I know you probably have future analyst day's 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 in any numbers or, that will be helpful. Thank you.

Well on the unit front, I guess I point if you look at the number this quarter, we're close to 100 hundred units ahead of our net new unit development phase from last year, that’s a pretty encouraging sign and effective if you look at gross units over 200 units ahead of the pace that we had. So, I think we feel like, just as we hit plans and the ramp up in unit development is happening slowly but surely and confident particularly internationally in having a lot more upside there and the U.S. off course a big opportunity on unit growth is reversing Pizza Hut U.S. and [AST] the U.S. to being net growing rather than decliners which is well on its way.

I think that question on delivery, which is sort of easy part of distinct, relevant and easy, I mean the good news is we got a thousand 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 go almost I think 20,000 brands with Yum! currently delivering, we got a lot of in house knowledge obviously with the pizza brand and obviously with KFC and places like the Middle East delivery. 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 when order to unleash the growth potential of delivery going forward.

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

Maybe following up can you talked about how you think delivery played out in the U.S. in terms of getting the check size up and maybe how you think the bundled value meals fit into that kind of longer term to drive check size?

Sure. I think Greg the good news is the delivery that we are doing there are two things that are obviously, check does grow. Secondly that also a lot of it is new occasions. So, I think what we are excited about delivery actually gives us greater access to newer occasions and high checks. So, both of those will obviously help to drive system sales. I think right now into early days but what we are seeing is part of a check growth and a new occasion opportunity both of those obviously positive for our growth potential.

And maybe one follow-up just on the international business it feels like across a bunch of different brands you've seen better numbers for the last couple of quarters from some of the international divisions any thoughts on the international consumer in and particularly out of Europe?

When you are in that 137 countries there is a lot of international consumers. Look, I think our business in Central and Eastern Europe is strong our KFC business in the UK is strong look I think where we built 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 know as many of that have good macros and bad macros our job is to build distinct relevant and easy brands supported by unmatched franchise operating capability.

I think we've talked about this in past occasions but couple of years ago we made a change to organize globally around brands and that change principally benefitted the international [indiscernible] because we've already have been organized that way in the U.S. so I think part of this success we are seeing in building distinctive relevant brands is really what we keep talking about just more focused on the brands and sales dedicated 100% teams to the brands internationally working even closer with our franchise partners.

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

The question is on KFC obviously a good quarter both from same-store sales and a unit development perspective. But you are considering that is your biggest division and it's kind of instill the drivers 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% system wide sales growth. 4% global comps I think it's in the above average number for the division is obviously something that you'd be proud of at any point and accelerating unit development beyond the 4% level that you are 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 are those -- what can accelerate from here at KFC or is this just a type of division that even if you are achieving 7% system wide sales growth as we think about in the next 3 to 5 years would just in of itself be a great level?

Well I think the good news -- I've 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 call. 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 have got everyone running $5 boxes, $10 share and $20 family meals, I think that’s helping delivering, obviously, we do believe that the KFC brand, I joke internally that the Colonel we're going to deliver and that’s why he made the bucket 60 years ago, because there is better delivery vehicle then a bucket of chicken. So, I think that for all of those reasons, focus on the core, flavor around the core, pride in the core and then obviously great execution plus then delivery, I think will gives us with the confidence that even through this is a big brand and yes it has a lot of big number that this brand can continue 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 that this execution, delivery sounds like it's an achievable number over the long-term, what about on the restaurant side, I mean does it make sense means would you want the 21,000-unit brand to accelerate beyond 4% system wide unit growth year-on-year.

Obviously, we talked but that’s we're not provide brand by brand guidance on development but your question is well placed John, of course we like to see all of our brands pick up the pace of development, KFC is building a lot of units but it also describes the service and so many markets 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 kind of experience both in a good way and a bad way as, 1000 or 2000 units globally in a year can be too much, there is two things, one is franchise capability and demand and secondly as the level that you think is right for the brand to grow in terms of units, and so I'm just trying to get a sense of what that maximum limit is, or perhaps the really is that one that as there is market to market build up that it continues to make sense to accelerate that development.

I think two things, John I think as David said, in the large part of the world, we got less than one unit for million population, a large part of the world, you would argue we would be under penetrated compared to sort of develop market economics. The second thing is, I think as we gone through this transformation, as we refranchise the business, we build in as we said stronger franchises, so about our existing franchise base, we’re very happy with and the new franchises with development agreement 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 branding out 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 Matthew McGinley with Evercore ISI.

I guess I have a follow up on that unit development question, it's very obviously very encouraging to see that pick up in the unit growth but as you look at the present unit growth that you had over the past, through 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 commitment that you get from when a franchisee turns over and curious of the, uptake that we're seeing now is could accelerate because we're not actually getting those refranchising type commitments and the numbers yet.

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 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 then we hope that it will continue to avenue impact of even greater magnitude as we go forward.

And on a G&A decline by 300 million as it relates to the refranchising you've said that extensive would be done with that refranchising by year-end. What causes a lag between refranchising and G&A reductions as your asset based trends. I mean you has the due to store related G&A I mean you have the headquarters G&A kind of curious of how the perhaps the headquarters G&A would lag or lead that refranchising that would drop those G&A dollars?

I guess also to clarify we've said the majority of the refranchising would be done by year-end but we certainly will have some refranchising that will still be in 2018. And then as far as what might be a lagging item on the 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 owner organization all of that would be lagging the actual transfer to restaurants at a restaurants level profitability that we would going to with the franchises.

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

Can you provide any more detail on what you are seeing from those refranchise initiatives in place at Pizza Hut in the U.S. at this early stage anything on loyalty the new thermal power, it's the new app or the marketing spend maybe if it's just customers satisfaction metrics maybe what the franchises are seeing any of the incremental detail would be great? Thanks.

I think it's just a nice positive build I think the good news is when QSR magazine came out and rated [indiscernible] genius category I think we were only second behind Starbucks in a sort of group with Dominos, so we feel really good that our asset is being recognized at least within the industry. So, no, I think we are making progress, its early days. I know the advertising for hot pouches has just started as we said you will get to a crispier, hotter, when they next experience Pizza Hut. So, I think we are doing all the right things. Our loyalty is now underway making progress on that, we are happy with that progress. So, I think we are just starting to do all the right foundational blocking and tackling things and I'm pleased with the progress that we are making on all of those fronts.

If I can get more in with the roughly 600 restaurants refranchised year-to-date till the end of the quarter anything more you say about those transactions I guess and just specifically any commentary on the development agreements coming out of those I'm sure there is only so much you can say but as far as number of years just to think about anywhere that kind of contractualize that? Thanks.

Yes, I think first of all we are pleased with the prices we are getting for refranchising as I've mentioned on previous calls. There is the strong market for the stores that we are refranchising and lots of capital out there available for these kinds of deals and similarly with that capital availability we've got franchises willing to sign up for development commitments we've got generally very good unit level economics in most of the countries we 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 & Co.

Greg where the quick service industry increasing focus more recently on the $1 to $3 price points, it seems likely to intensify early next year, looking to talk about differentiate on value, given the brand with the only national QSR with the $1 menu over the less five years and then I have a follow up.

I think as I said earlier the great thing is we can grow $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 that leadership of value in the QSR category, I can assure you that, I know Brian and team are very focused, they what’s going on the market place, but I think we're very confident, we execute our plans given the context of what's occurring that we can still be very competitive in that price range.

Thanks, and then David what lead to minimal profit dilution from a franchising in 3Q while you guys were ahead of schedule in the franchising activity and further what expense should we expect the franchising 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 to stores with lower margin and you're collecting royalty in some cases, you can see a positive impact from the refranchising. In terms of where these things are going to show up in our P&L obviously you will see our margins going down brand by brand, you will 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 the brands and depreciation to the franchise and license expense line.

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

I have a quick follow up on pizza and then I wanted to ask about Latin America, the first on pizza, I was just, I know you, if I didn’t see any real impact from NFL viewership, but it does seem like the category aggregate has slowed so, Greg has mentioned the idea of delivering 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, is that having any impact and then like I said I have a second question about Latin America, please.

I think a lot of people are trying to get into the easy delivery business but I think we 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 doubled down we hired 14,000, we'll be hiring 14,000 more drivers as we said to deliver. We have the team operationally focused on making sure that we improve of speed of service, we make the pizzas hot, you can now track it, you 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, continue to keep in competitive in this market place.

Okay thank you and then just on the Latin America business, you talked about it very positively and I think from those the time that I been following you and it going to be in the shadow of emerging Asia and 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?

As we think we said, what I love is we've got this content of repeatable model and it's very clear that when we execute all best practice to repeatable model, it has impact, so the Latin America KFC performance I spoke about was really about implementing the repeatable model, maybe so we had value and then innovation around chicken flavored chicken on the bone. We’ve also got as we talked about the talk about our Brazilian business now we got 17 restaurants which we've opened in 12 months so that was a market that we were 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 more growth out Latin America.

Thank you.

Okay. So, I'd like to thank everyone for being on the call today. I think we delivered another strong quarter, we are 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 office about execute, execute, execute. So, thank you for being with us. Thank you for supporting us, we look forward to speaking you in the future. Thank you. Bye-bye.

This does conclude today's conference. You may now disconnect.