Q3 2019 Earnings Call

The recession to ask a question during the session you will need to press star one on your telephone if you would like to withdraw your question press the pound key if you acquire another assistance. Please press star Zero I would now like they had the conference over to your Speaker today, Keith Siegner, Vice President Investor Relations, EM ebay and treasurer.

Thank you may begin.

Thanks, operator, good morning, everyone and thank you for joining us on our call today or Greg Creed, Our CEO , David Gibbs, our President and Chief Operating Officer, Chris Turner, Our Chief Financial Officer, Dave Russell for Senior Vice President Corporate controller following remarks from Greg David and Chris will open the call. The question before we get sorted.

I'd like to remind you that this conference call include forward looking statements. These forward looking statements are subject to future events. It 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 FCC. In addition, please refer to earn.

These releases and relevant sections of our filings with is with the FCC defined disclosures and reconciliations of non-GAAP financial measures that maybe use on today's call.

The following me regarding our basis a presentation for today's call first all system sales results exclude the impact of foreign currency second Pizza Hut Division in worldwide system sales and net new unit growth included the benefit of the increase in units in the fourth quarter of 2018 related to our strategic alliance to tell the pizza.

Same store sales growth reflects the inclusion of pellet pizza in the prior year base.

Third quarter operating profit growth figures exclude the impact of foreign currency and special items.

For the lease accounting standard was Perspectively adopted on January 1st 2019. As a reminder, this is a GAAP required change, resulting in a recognition of operating lease assets and liabilities on the balance sheet. We do not expect a change in our income statement or cash flows as a result of this accounting change and last please note that 2019.

Results will include the 50 Threerd week broadcasting this call via our website. This call is also being recorded and will be available for playback. Please be advised that if you asked a question. There will be included in both the live conference and in any future use of the recording we'd like to make you aware of the following changes in upcoming investor events disclosures pertaining to outstanding debt.

Our restricted group capital structure will be provided at the time of the Form 10-Q filing.

Fourth quarter 2019 earnings will be released on February six 2019 with the conference call on the same day now I'd like to turn the call over to Mr. Greg.

Thank you Keith and good morning, everyone. Following a very strong first half and along with our expectations third quarter results were healthy and consistent with our long term growth model.

Yeah, I'm delivered third quarter system sales growth of 8%, including 3% same store sales growth and 7% net new unit growth. While we're pleased with our results. We know there was always work to be down.

I'd like to begin todays call with a few opening remarks before I handed over to Chris who will go wide Ralph third quarter results and unrivaled culture and tablets, then David will discuss how full growth drivers relevant easy and distinct brands also as we say red for short bold restaurant development unmatched franchise operating capability and then.

Additional news on culture and talent.

Now to start at the top I'm confident that the board no I have identified the best and most capable person to lead the next phase of growth for young were delighted that David will officially take over as CEO in January .

But it's been a fantastic partners to me throughout our transformation. These past few years.

We've always shade and I'm wavering belief in people their development and now culture, and we'll continue to invest in making Yum the best place to work.

I'm also immensely proud of the progress we've made by making both the Taco Bell and the KFC brands Red and accelerating the pace of global unit development.

But there was always unfinished business and for us that unfinished business includes consistently enhancing the customer experience buying showing that we have the best people technology and assets.

And this unfinished business is probably most pronounced I pizza hut U.S.

I'm proud of body styles and his team has that continued to make significant progress on many aspects of the turnaround of this business such as enhancing product quality improving the speed of service introducing a loyalty program and upgrading our technology over the past few years.

And as we announced last quarter, they leaning in to accelerate the transition about asset base to one with modern delivery carry out assets. While also moving aggressively to evolve our franchisee base. So that we can deliver a world class experience every time.

We know that some of their franchisees economics are pressured, particularly in higher wage markets at the same time, others are over leveraged and some simply out the write off writing pod enough for us to grow this brand.

We know this transition won't be easy, but we are committed to doing the right thing threes iconic brand over the long term.

To be clear, we have many existing pizza hut U.S. franchisees that have the capital commitment and capability to bring the brand to life. The right way and we will continue to support and partner with them on the brand turned around.

Of course, this transition will on developing lead to some disruption and choppiness in the short term and I'm confident that audio and his team I said to tackle this head on.

Now you want to lead the business better than you found it but also with the knowledge that will be better after you're gone and that's exactly how I feel today.

We have accelerated growth while simultaneously executing a major transformation and now nothing will give me more played you're going to watch out brands and each of our employee and franchise partners guard from strength to strength.

Well I got the opportunity to service the C O. The I'm starting in 2015. The goal was to lead our culture to fuel results and continued to build brands up people Trust and champion while driving aggressive unit expansion.

Has always been and remains I foundational pillar for me.

We then bid on this foundation with the separation of Yum, China in October 2016, which was the starting point it out three year transformation.

We became a no I feel about being more focused more franchise and more efficient to generate more gross and create a world with more young.

Right confident were well on the way to accomplishing out 2016 transformation goals, we completed our Refranchising program and I, 98% franchise.

We have demonstrated financial discipline by meeting our goal of gene I being 1.7% assistance styles and by reducing run right Capex.

We're on track to returned six and a half the $7 billion to shareholders through dividends and share repurchases between 2017 in 2019, and we've generated EUR, 80% total shareholder shareholder return since we announced the transformation.

Additionally, we closed create even transformative deals to drive profitable system sales growth for young and our franchisees for years to come.

But she tells the same store sales and our pace of net unit growth has nearly doubled since we announced our transformation in 2016.

I work is not finished but I'm extremely proud and I believe the young families equally proud of what we have accomplished and we're even more excited about their future growth potential and with that it gives me great pleasure to introduce our new Chief Financial Officer, Chris Carter. Thanks.

Thank you, Greg and good morning, everyone today, I'll discuss our third quarter results and our remaining transformation initiatives to begin the results core operating profit grew 6% and as Greg mentioned young delivered system sales growth of 8% same store sales growth of 3%.

And net new unit growth of 7%.

A major contributor to this success was KFC, our largest division in units and profit contribution with 3% same store sales growth and 6% net new unit growth driving 8% system sales growth in the quarter. Similarly, Taco Bell had another great quarter with 7% systems.

Sales growth driven by 4% for both same store sales and net new unit growth.

I'll now update you on our 2019 as outlook and the moving pieces that will impact our reported results versus adjusted EPS guidance, all of which as outlined in a table within our earnings release.

First there is no change to our goal to deliver at least $3.75 and 2019, adjusted EPS, which we introduced in 2016 second as a reminder, the three dollar 75 cents excludes any benefit from the 50 Threerd week and 2019 the impact of changes in FX rates.

And any special items for any gains or losses from marking to market our grubhub investment.

We estimate the benefit of the 50 Threerd week to 2019 to be approximately six cents. Our updated estimate of the impact of FX rate movements is now a 12 cents headwind to the $3.75 figure.

This is because rates have moved against us since we provided the original guidance in October of 2016.

This estimated headwind is based on applying current forward rates to local currency forecasts, which will undoubtedly very overtime.

Year to date 2019 special items are a two cents tailwind and year to date Grubhub mark to market adjustments or 14 cents headwind to the $3.75 figure respectively.

Taking these items into account as outlined in our earnings release, the GAAP equivalent to our adjusted 2019 EPS guidance of at least $3.75 is at least $3.57.

Now turning to our transformation initiatives to be more focused more franchised and more efficient in order to deliver more growth to our shareholders.

With our target franchise mix of at least 98% having been reached in the fourth quarter of 2018 and with focus on our for growth drivers consistently at the heart of everything we do although I'll update you on our plans to be more efficient.

In summary, we remain on track.

Good day was 1.6% of system sales in the third quarter.

Additionally, our capex guidance is unchanged for reference details of our guidance are available on our website in the Investor section.

Regarding our capital return plans our goal to returned $6.5 billion to $7 billion of capital to shareholders over the three year period 2017 through 2019 remains firmly on track.

During the third quarter, we repurchased 1.5 million shares for $174 million at an average price per share below $115. When combined with dividends, we've already returned $6 billion toward our target $6.5 billion to $7 billion.

Last but certainly not least some updates on unrivaled culture in town.

Elevating our customer experience with digital and technology at the forefront is key to growing our brands to that end Clay Johnson has joined US as young Chief Digital and Technology officer, or Cdti show and Gavin Felder will be promoted to young Chief strategy Officer effective December one.

These newly created leadership positions will report to me and partner with our brands to accelerate global growth through technology and disruptive innovation.

Play has over 20 years of industry experience and comes to us from Walmart, where he served as CIO in his new role as CEO Clay will oversee yom's global technology strategy partnering with our KFC Pizza hut and Taco Bell divisions. He will lead a coordinated cross brand effort to accelerate.

Great Yom's digital commerce strategy data and analytics and emerging technologies to enhance the customer and employee experience.

Additionally, he will provide strategic oversight to our global technology risk management and I T shared services teams. These critical connections will ensure that our technology implementations are developed with the security of our data infrastructure as a top priority.

As Chief strategy Officer, Gavin will be responsible for developing Yum brands long term corporate strategies and partnering closely with the global brand divisions to implement initiatives to unlock new sources of growth and disruptive innovation.

He will work closely with clay to integrate technology centric solutions across their operations, including restaurant technology strategies to elevate the customer and team member experience.

Evan is a successful digital leader and proven growth strategist. He started nearly 12 years ago, and Yum restaurants International as a finance manager before becoming CFO of KFC Africa, and later CFO of KFC global in his current role Gavin has overseen strategy digital and technology finance.

We're planning supply chain and IP security of our largest global brand with that I'll hand, it off to our president and Chief operating Officer, David Gibbs.

Thank you Chris will conclude our call today with an update on our growth drivers relevant easy and distinctive brands bold restaurant development unmatched franchise operating capability, an unrivaled culture and talent.

I'll start with our Red brands KFC delivered its 17th consecutive quarter of positive same store sales growth. This global powerhouse continues to show broad based strength from stand up with standout performances across many of our largest markets. This translated into division system sales growth of 8% with same store sales growth of 3%.

Net new unit growth of 6%.

International call outs include India, So pack Latin America, and our Russia business unit, which includes central and Eastern Europe , India delivered 7% same store sales growth driven by distinctive marketing promotion of the zinger Burger and consistent value with the ultimate savings bucket.

Our strategy to continue to impressed with 8% same store sales growth their best quarter in recent history.

Drivers included the successful hot Rod promotion and delivery, Russia, Central and Eastern Europe posted a strong 7% same store sales growth owing to a bucket for one value promotion and a finger looking good spin on a taco Locos tacos.

In the U.S. same store sales declined 1% in the quarter.

We had a temporary loss of momentum with the cheetos sandwich promotion, which led to the quarter's decline. However, our value promotion of two for $6 mix and match provided us with the new channel for all at current menu items and the quarter brought us many valuable insights to improve future performance, we made a splash with plant based fried chicken alternate.

Those with beyond Nuggets, and beyond Boneless wings. The results were very positive we sold out in five hours and generated 2 billion meat $2 billion with the media impressions 2 billion media impressions.

Then at the ended the quarter, we launched Mac and cheese bowls, which builds off of flavors, you've already seen but packaged in a unique KFC style. We're bullish on the future and are excited about our plans for the rest of 2019 and beyond.

In addition, KFC U.S. continues to part with Grubhub to add locations for delivery and click and collect we officially launched online ordering at KFC Dotcom on October 13th in conjunction with the introduction of Kentucky fried wings, and our Rudy inspired advertising.

We now have 2700, KFC is offering delivery and 3700 restaurants available for click and collect we're excited about owning our own digital channel and the operation to ease. This provides our franchisees while grubhub takes care of the delivery.

Moving on to Pizza Hut, where division system sales grew 7% with flat same store sales growth and net new unit growth of 9%.

Pete said international system sales grew 14% in the quarter driven by a nine point benefit from the addition of the tell a pizza units in Q4 last year, while same store sales growth was 1%.

Improve importantly, we were we reported reported positive system sales growth across all international business units. During the quarter. In addition, we were encouraged by 3% same store sales growth in the off premise segment of our business. This quarter lapping similar 3% growth last year were 6% on a two year basis.

The team's focus on the fundamentals of a modern delivery experience is clearly producing results on a good sign for the future of this business as we migrate more and more to an asset based position to win in off premise.

In addition, the system sales growth gap between the Diamond channel and off premise sales narrowed from historical levels this quarter to three points, reducing the drag on our performance from Diana.

In the U.S. system sales declined 2% with same store sales declining, 3% and a 1% net new unit decline coming off a solid second quarter. The pizza at U.S. business decelerated in Q3 as changes to our value offerings helped franchisee margins, but had a negative impact on transactions.

In addition, our previously announced plans to accelerate the transition to a modern delivery asset base in the U.S., while restructuring in upgrading our franchisee base also took a toll on performance.

Well, we strongly believe that these are the right strategy is to build the business for the longer term. These moves will introduce some uncertainty in the business performance over the short term as we expect results to continue to be choppy. We caution we could see a continuation of soffe sales and unit contraction throughout 2020 in the Pizza U.S. business of course, we know that when we.

I have great franchise operators running first class assets that are well positioned in trade areas to serve customers. We win in the marketplace and the pizza at U.S. team is working hard to accelerate this transition.

We continue to expand our Grubhub partnership test with Pizza Hut, which is now active in over 700 restaurants Pizza hut is well positioned to leverage being listed on the grubhub marketplace, but by but by fulfilling delivery orders through our own delivery network. This gives us better control the customer experience.

Last but not least Taco bell where system sales grew 7% with same store sales growth of 4% and net new unit growth of 4%.

In the U.S. innovation and value continues to be cornerstones of our success.

Promotions included stake Reaper Ranch fries, and the return of the Triple double Crunch Rep, both of which mixed above 9%.

But the triple double with the stand out of the quarter available as a $5 Bucks and Allah cart.

Our all access strategy to create a frictionless customer experience is sharper than ever Taco Bell now has kiosks and over 6100 restaurants, and we launched localized AI driven product recommendations to officially give our customers what they want kiosk results are encouraging with consistent check lift and utilization, we see particularly.

Strong consumer appeal in urban markets in fact in Manhattan kiosk utilization is over 50% at our company Cantinas.

Digital menu boards are offered in over 1000 locations with a new simplified menu.

Delivery is now live in 4800, Talkabout restaurants in the U.S. mobile and online ordering continued to be a priority and we are seeing strong results with over 14 million registered users.

Additionally, click and collect functionality is available nationwide on Taco Bell Dot com and the talk about that.

Internationally, we continue to build a category of one Brad we had strong sales momentum around the world driven by focus on iconic core products value boxes at power price points and product innovation.

We saw a widespread spraying strength in the Philippines, Japan, Canada and Europe .

We continue to strengthen global brand awareness by successfully incorporate U.S. programs into globally relevant promotions.

The UK ran a steel a base still a taco promotion tied to the major League Baseball, London series generating strong media Buzz and sales momentum.

Next onto bold restaurant development.

During the quarter, we opened 389 net new units, bringing total net new units opened over the last four quarters to 1876, excluding the tele pizza units added in few fourth quarter of last year.

At KFC development continues to be strong in Q3 with 317 net new units across 52 countries.

We continue to see momentum in China Asia, Russia in Thailand.

In the U.S., we've seen more positive momentum and closed out Q3 with over 1800 American show him in restaurants across the country.

At Pizza hut as we transition the U.S. asset base, we expect the pace of New unit development for the division to decelerate as healthy International unit growth will be offset by a short term declining the app absolute number of U.S. unit [noise].

All in the Division opened 17 net new units during the quarter.

Pizza Hut International opened 76, net new units with noteworthy contributions from Asia, Latin America and Iberia.

[noise] Taco Bell delivered 55 net new units during the quarter in the U.S., We opened four new urban style cantina restaurants, hitting the 50 restaurant milestone recent urban cantina openings includes Chicago, San Jose Champagne, and Fort Lauderdale internationally, Thailand launched its third store, which is the first outside ex Pat.

Communities in Bangkok, and China, and Australia, each opened their fifth location.

We're continuing to build franchise development capability through events, such as a development convention in Guatemala, a four day event covering development principles and best practices to Foster Foster Threec partners around the world.

Next unmatched franchise operating capability.

First I'd like to highlight a great visit the executive team and myself had with Joey Wat and the Yum China team earlier this month.

We're excited to learn about the work they're doing the lead innovation across many aspects of their business and as always we were incredibly impressed with their operational execution and overall focus on putting the customer for us across all our brands.

At KFC, we've seen solid improvements across the board sharing proven ideas and global best practices. When it comes to ops driven sales enablers. This is particularly the case when it comes to speed, our franchisees and so Pat created a competitive speed initiative called this Friday, which was then adopted by the UK to great success.

At Taco Bell, we're proud to announce this was our fastest Q3 in five years.

It wouldn't have been possible without the commitment from over from our over 7000 general managers and their teams to deliver unrivaled fast and friendly service.

Our Summersby challenge was a huge driver. The success, we were 17 seconds faster and saw a 3 million more cars in our drive.

At Pizza Hut, we have successfully improved their system average delivery speed, which allows us to deliver hotter pizzas faster to our customers door.

While technology and data science have unlocked key inside the credit goes to our restaurant leaders and drivers who have implemented these tactics at the store level to provide a hot fast and reliable experience for our delivery customers.

Now to unrivaled culture and talent two biggest assets are our brands in our people as we build the world's most loved trusted and fastest growing restaurant brands. Our culture continues to be a strength and is a key enabler of our continued success.

We recently completed our 2019 employee engagement survey of all corporate above restaurant employees globally, and we scored number one unemploy gauge min among an elite benchmark of over 300 global companies.

95% of the corporate employees surveyed are proud to work and you know them and 91% believe our company is a great place to work.

What's even more encouraging is that we've accomplished these results during a time of significant business transformation.

I'd like to finished by saying how excited I am pretty damn and privileged I am to serve as the next CEO of Yum under Greg leadership, we have achieved so much already.

Of course, there's still more we can achieve in the future everywhere. We operate we need to continue elevating and investing in a world class customer experience with unrivaled talent modern assets and the best operations with disruptive and innovative technology.

This effort will only be realized through a strong partnership with our 2000 franchisees, who run our restaurant and over 1.5 million restaurant team members, who bring or brands to life around the world everyday.

When we are at or Beth will continue to deliver long term value for all our stakeholders.

Before we take your questions I want to personally thank Greg for a tremendous leadership.

As we all know gregs been making meaningful contributions to use them for the past 25 years. He has been fully committed to developing our talent, increasing our collaboration elevating our brands and growing our business.

Yeah, Most importantly, gregs vision to take young as unique recognition culture and use it to fuel even better results is what we will all remember it goes without saying the gregs big personality and positive energy make him not only a great leader, but also one of the best partners and friends I could have had over the last many years. There's no question that working with Greg day in day out has helped.

Prepare me for this next role and also given me a ton of last along the way.

It's hard to believe that this will be Greg last earnings call on behalf of the entire Yum system, we want to sincerely. Thank him for the impact is made to our business and we wish Greg and his wife Carol the very best as they move into this new exciting chapter.

Now the team and I are happy to take your questions.

[noise] to ask a question press star followed by the number one on your Touchtone phone tumor moved yourself from the Q press the pound key any interest on time, we ask that you. Please limit yourself to one question. If you have more than one question press star one to get back into the queue and we will address additional questions as time permits please hold while we compile.

Thank you and a roster.

Well first question comes from the line of John Glass with Morgan Stanley .

Thanks, Good morning, and congratulations Greg and thanks for the funny accent, along the way.

The can we just talk a little bit about the pizza hut business in sort of your outlook. One you talked about some disruption that may be possible. During this period of time can you just be specific about that is that to sort of lower engagement and franchisees is certainly be closing stores or what does the nature of that.

Too is there an opportunity for the company again to sort of step in either as an intermediary or as you know provide some temporary support from advertising in some way to smooth this process better because I you know I think gives you look out over 12 months, you don't want to avoid obviously that disruption.

And three I think there was a call out on the profit to the pizza business. He was a drag or detraction from past due receivables how big is that in is that something we need to be cognizant of as we think about the next year, So and does that impact the global core operating profit growth.

Well, thanks, John and I do appreciate Greg accents, it will all miss it as far as a that your three different questions I'll take the first two and we'll let Chris talk a little bit about the receivables as far as the disruption as you can imagine when we're closing a lot of stores and opening new stores that can be an enormous distraction.

Finally, if we're taking the lead on transitioning franchisees out of the system in their stores into the hands of new players some of that we'll get to the receivables, which Chris will talk about and also while transactions are taking place. Yes, obviously, there's a focus issue in terms of where franchisee.

Focuses as far as the company stepping in and.

Playing an active role in some of this I wouldn't rule that out, but that's certainly not the plan now the great thing about the pizza hut Biz U.S. businesses, we have plenty of people that want to get into it and are eager to buy stores.

And invest capital into fixing those stores and relocating them.

So we see our role as more of the facilitator than we do as somebody to be buying stores, given our asset light model, but I do think they're probably yes, there could be an opportunity at different points in time for us to take control of some stores as they transition to another party. If that's a better way to approach. It so I wouldn't rule that out and then I'll let.

Chris just talk a little bit about that receivables, yes, John on the receivable side clearly.

Being an outstanding franchise operators, one of our top priorities and our stores do performed the best when we have committed capable and well capitalized franchisees as.

David just mentioned, we are working to evolve that pizza hut U.S. franchisee base and you did see noted a the the past due receivables balances did have.

An impact.

But to kind of put it in context as we transition certain pizza hut franchisees, we will see an uptick in that bad debt, but again to put in context year to date, we recorded about $200 million in fee income from our us franchise system and over 95% of that we've either collected or anticipate.

Collecting a obviously, we'll try to minimize the choppiness as we go through this process, but we.

We do believe that the work that we're doing will ultimately be the right thing to strengthen the brand and the overall system.

Next question please.

Your next question comes from a line of Dennis Geiger with Qbs.

Thanks, Greg Congratulations on your many years of success.

Good luck.

One of my technology, I guess, given given young spend at the forefront of investment in technology analytics to really enhance operations over the last several years just wondering if you could share some some some thoughts in the latest benefits that you're getting.

From those investments in partnerships.

Quick order collider, and just how those experiences frame, how you're thinking about additional investment opportunities or partnerships, particularly now with Clayton in place as CTO. Thanks.

Well I would just highlight from a tax standpoint, we're proud of the work that we've done today, but theres a lot more to do I think like a lot of companies, we have a healthy dissatisfaction in.

In terms of our tech agenda, and we're going after it much more aggressively and crystal can talk a little bit about that as far as what we've done to date.

Obviously, the quick order transaction has worked out quite well by bringing them in house, we've been able to improve their capabilities and provide better services to our franchisees at lower cost of the deal with Grubhub has given us great commercial terms for our franchisees and that's allowed us to uniformly launched delivery.

Without having the pushback that I think others may have seen.

Both in Toquepala and the KFC system.

But I know you know with one of the vet reasons are very excited about Chris joining the team and clay Johnson joining the team as these guys you know bring a lot to detect discussion as well as Gavin felt there and I know they've got a lot of plans going forward, yes, David there first we do have the team in place now both strong technology leadership in each of our brands.

And geographies and then the new additions that we mentioned earlier at the center and quite Johnson supported by Gavin builder, obviously for competitive reasons, we can't go into a lot of detail on our future strategies.

Just to give a little bit of color I think they're probably three ways that we could advance technology, one would be evaluating and considering potential acquisitions or investments in technology companies to help leverage our scale to bring those technologies to our stores and our franchisees.

Second could be a commercial arrangements that we make with technology providers that give our franchisees advantage. The economics in taking advantage of those technologies and then third given the strength of our team will be developing internally proprietary technologies.

So those would be the three ways that we can leverage scale. In this area you know the areas that will be hunting in a range across the full technology spectrum, but e-commerce data and analytics and any innovations that improve the customer experience and the economics in our stores will clearly be at the forefront.

Thank you next question. Please next question comes from a line of John Ivankoe with JP Morgan.

Hi, Thank you I was hoping we could get maybe an early view on fiscal 20 development, whether we talking in terms of percentage growth by brand or absolute net restaurant growth by brand.

I think it's important at this point to kind of think about whether KFC can maintain or even accelerate.

Ex pace as the first point secondly, you've obviously made some fairly cautious total unit count comments around pizza hut, just want to get a little bit more clarification. There and then on Taco Bell I think the other comments were in the press release 67 gross units in 13 countries.

It's hard to drive scale. It does kind of numbers internationally, but are we at the point now were Taco Bell can materially accelerate into 2020, <unk> I'd like a follow up as well.

Yeah, I mean as far as our unit count guidance, we don't have start to provide guidance by brand. So I'll talk about Yom in general we have we've raised we raised our guidance previously to 4% net unit growth, we still think thats, a REIT longer number for the long term as we've highlighted.

The last earnings call with the leaning in on Pizza hut that introduced a little bit more uncertainty into the pace of development, but we still think over the next few years, we will average that 4% unit growth number.

As far as Taco Bell, that's actually one of the Irrs that I think we're most excited about what's going on in international.

We by choice focused on a few countries to try to get paid the pace of development really going in those countries. So you highlighted that it's 13 countries, but when you get a franchisee that signed up to build 600 units in India, obviously that can make a meaningful step change to the pace of our development at Taco Bell internationally to just pick one exam.

But we will be expanding you know two additional countries over time.

But I think we're really at the point, where and talk about international can development can start to become a more meaningful contributor to us and then as far as KFC maintaining their lofty pace of development. You know we see no reason why that can continue and the strength of that brand is something that I would just highlighted forever.

Anybody on this earnings call. It just continues to be widespread strength with clear brand positioning a team that is really energized about the growth prospects ahead of us and absolutely believe in the bill our ability to continue to grow and develop and accelerate the pace of KFC development.

Thank you.

Your next question comes from a line of David Palmer with Evercore.

Thanks, Good morning.

Just a follow up on the pizza.

System.

Speak to that.

Hello.

<unk>.

There's been reports about and PC being in trouble there bonds are trading cheap.

Margin pressure seems to be.

Across the system.

What are your thoughts about.

Specifically means just to unit.

Just getting things done.

Platform you want in place.

Just overall, how you're going to move forward in 2020 with that brand. Thanks.

Sure as far as the other pizza business.

I want to make sure we all.

Recognized that the pizza at international business is performing quite well starting to really deliver on some of the things that we've been looking for out of that business.

In terms of moving to a modern delivery asset base, we talked about in the earnings in the script. The fact that there plus six on off premise sales.

Two year basis, plus three lapping a three all of that is a really good sign in terms of the strength of the pizza brand when its executed right in the market the pizza at U.S. business as we've talked about also previously has some unique challenges given the dine in the state in the condition of the assets the location of those assets.

So that's what we're trying to address by moving to a more modern delivery to state and setting the business up or long term health. Unfortunately, a lot of franchisees or some franchisees have some debt.

That makes it hard to relocate those assets and that's that's what we're working through with those parties to get the stores in the hands of the right partners that are well capitalized to grow and build the business. Its not the majority of our franchisees. The majority of our franchisees are good partners and doing a nice job, but as a.

You know the QSR category is facing a lot of wage pressures right now and that is.

Pressuring unit level economics, and franchisees economics, but as we always remind people building a new pizza hut is a good investment the unit economics stand on their ourselves. This is more about working through with a select group of franchisees.

That may have more debt on their business than they should get those stores.

Capitalize properly and in the right hands of the right partners.

Your next question comes from a line of Sara Senatore with Bernstein.

Thank you I wanted to ask about Aggregators, you said that pizza hut is well positioned.

That all the brands I think from the craft partnership, but I guess could you give a little more color on that and in particular.

Okay, which.

Sometimes only seen is when when restaurant companies kind of unlock different ordering channels. They are back of house challenges and just because the that production capacity, maybe down quite keep up with how the orders come in so.

That was the first part question and then the second was just a quick one on KFC and and the beyond that gets it makes them too much.

Hi, this is sort of sustainable versus short term, you're very healthy last but maybe.

Core part of that many thanks.

Yeah, I guess on the question of Aggregators, obviously, we value our partnership with Grubhub and one of the key features of that partnership to your points area is that we integrated the technologies. So that the orders get past directly into our POS systems I wasn't easy that was part of the reason there was a delay in launch, but we think that does give us a.

True competitive advantage over a lot of other people that are working with aggregators.

So we haven't really had issues that you're alluding to in terms of being able to get the orders to the stores accurately and then back out to the customer and I think thats why its working so well.

As far as KFC and beyond Nuggets, obviously, we're all intrigued by plant based means don't meet alternatives and the success that we did with beyond the success of that test that we did with beyond obviously is a good sign we've done other tests around the world that's not the only one that we've done is the one that's garnered the most pressing the U.S. So you can.

We expect more to come on that front you saw just a couple weeks ago Pizza hut launched in the U.S. launch their compostable box.

And did so with a plant based alternative meet topping.

So we think there's plenty of application for but a more to come on that overtime.

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

Hey, Thanks for the question, Greg Congrats on retirement and David Congratulations on the new role.

My questions just on on Gionee, and you're now kind of running it where you kind of an expected to get to a few years ago as a percentage system sales on Gionee and how do you expect this evolving over time <unk> some of your bigger peers are.

Seeking reinvestments in the technology side and do you think this is aligning you continue to leverage or do you expect it to kind of flat line or maybe go up overtime I guess any thoughts on that'd be helpful. Thank you.

Yes. Thanks Gregory Good question, you know as we come to the close on the transformation we.

Provided that 1.7% guidance for the transformation on DNA.

You saw that this quarter, we were at 1.6% and so we feel comfortable with power land.

Closing out the transformation from DNA perspective.

It's been reset to a lower base I think going forward you could expect to more normal run rate trajectory on DNA.

Given the lower base, there will be some timing differences that could.

You know create some lumpiness, there and we will be investing in technology and other areas, but we do expect in general to get leverage on our sales growth over time.

Your next question comes from a line of Brian Bittner with Oppenheimer.

Thanks, Good morning, Congratulations Greg and David David a question for you.

Clearly post transformation now and I know you have strategic growth plans in place over multiple years that you gave us at your analyst day last December but as you take over as CEO .

How do you put your stamp on this company over the next many years just anything philosophically on how you think about Yum brands under your leadership first under Greg's.

For instance are you, hoping to making any changes in the portfolio through acquisitions or divestitures any anything or any insight you can give us an how you're thinking moving forward. Thanks.

Yeah. Thanks, Brian .

Look I think we're all excited that we're coming out of this transformation with a business that is stronger and better position to grow that that's to start and that is very much to the Greg leadership over the last five years as I said in my prepared remarks, now that we've got a better machine you know, we'd like to drive faster and grow faster and.

Yeah, I'll I'll detail a lot of this as we get into 2020, but just to give you a preview.

We've talked about this rested recipe for growth.

And how it's been fueling our growth over the last couple of years, I think theres an opportunity to lean in further within the recipe for growth on the customer experience. We are not consistently executing the customer experience around the world to the standards that we have we have pockets of excellence, we can be more consistent on that.

There is obviously an opportunity on technology, which Chris talked about and then there's an opportunity to better leverage our scale I think now that we are.

More of a franchise or less and less of an equity operator.

That gives us the ability to turn our focus to leveraging the scale on behalf of the entire system. We're organized in a better way to do that I think you're seeing more collaboration around the world again, thanks to Greg's leadership and dialing up the collaboration all of that leads to an opportunity on scale I do think that potentially could.

Be something that would give us a benefit if we did an acquisition. So you know we don't need an acquisition to grow our brands today, our strong generally around the world with plenty of growth opportunities, but we certainly wouldn't rule out an acquisition I think the other thing that you'll see US talk about is we've talked a lot about the red.

At the peak for growth at the same time, we've had what we call our recipe for good.

The.

Businesses are doing all around the world in their communities around people planet and food will talk more about that as we get into 2020 and the way we can dial up our communication on that and our efforts in that area.

Operator, we have time for one more question.

Your final question comes from the line of David Tarantino with <unk> from Baird.

Hi, Good morning, My Congrats also Greg for all you have accomplished.

David on her new role.

My question is pretty simple I guess.

Just as it relates to the 2020 outlook or 2021 outlook.

I'm just wondering if you're still comfortable with the algorithm that you've laid out for growth in light of all the pizza hut challenges are saying.

And I guess secondarily I guess, how how long do you think these this pizza hut.

Restructuring our transformation gonna take to play out is that Oh, one or two year plan or do you think is longer than that thanks.

As far as.

Our guidance for 2020, and 2021, we'll talk a little bit more about that on the Q4 earnings call, but in general we put in place a long term growth algorithm that we think we can achieve over the next several years and that's what our business is built for certainly you know.

Challenges in Pizza U.S. would pressure that model, but at the same time.

Upside from Taco Bell International growth and all of the other successor, we're having around the world with KFC.

Gives you confidence that we can overcome pressures to the model, but again, we'll talk more about that in Q4, when we get to sort of our updates to the long term growth model. Our plan is really to.

Just provide you on an annual basis any one time adjustments to the long term growth model. For example, this year, we had a 50 threerd week next year will be lapping. The 50 Threerd week will provide you the guidance for what that means for for 29 team for 2020.

With that I'm going to turn it back over to Greg for some closing remarks. Thank you David So in closing up to 25 years with the company today is my final earnings call.

I've been blessed to work with another one such a one I think much when such amazing individuals, including our board our team members, our franchisees and our customers.

After five years, a C O I feel really good about what we accomplished and what's next for Yum, We've transformed the company and I truly believe that young as stronger for all stakeholders and now I'm handing the range today, but there has been an incredible partner and I'm looking forward to watching him lead.

Now finally, I want to thank you our investors in the analysts through the years you've challenge. This asta tough questions gave your opinions and kept a shop, you've made me about a leader and the I'm a bad at company and for all of that annual coin wishes today. Thank you.

Thank you, ladies and gentlemen that does conclude today's conference call you may now disconnect.