Yum! Brands Inc. Reports Second-Quarter 2008 EPS of $0.45 per share, 16% Growth Excluding Special Items; Raises Full-Year EPS Growth Forecast to 12% from 11%, Excluding Special Items

Yum! Brands Inc. (NYSE: YUM) today reported results for the second quarter ended June 14, 2008.

SECOND-QUARTER HIGHLIGHTS

• Very strong system-sales growth of +43% in mainland China and +15% in Yum! Restaurants International (YRI), fueled by broad-based unit development, same-store-sales growth, and favorable foreign currency translation.
• Worldwide same-store-sales growth of +4%, including +14% in mainland China, +4% in YRI, and +2% in the U.S. (all figures are system-wide).
• Operating profit growth of +38% in China Division and +18% in YRI, with a 12% decline in the U.S.
• Lower effective tax rate versus prior year.
• Increased quarterly dividend by 27% with our yield now about 2%.
• EPS results as outlined below:

FULL-YEAR OUTLOOK

The Company, for the second time, raised its full-year 2008 EPS forecast. We expect to generate $1.89 per share or 12% growth, a $0.02 increase from our previous guidance in our first-quarter earnings release. This is prior to full-year net gains from special items of up to $0.06 per share as previously announced in the Company’s full-year 2007 earnings release on February 4, 2008. Full-year reported EPS, including all items, is expected to total up to $1.95, or 16% growth.

David C. Novak, Chairman and CEO, said, “The power of the global Yum! portfolio is most evident even in difficult times, and I’m pleased to report second-quarter EPS growth of 16%, excluding special items. Based on this strong performance, we confidently raise our full-year EPS growth forecast to 12%. The strength of YUM’s global development machine, which will deliver over 1,600 new units in 2008, and the major progress we’re making on key sales growth initiatives gives us confidence we will be able to continue this type of consistent performance in 2009.

“Our strong second-quarter EPS growth of +16% was driven by exceptional profit growth in our international businesses and tax benefits recognized during the quarter. Our global system-sales growth of 11% was led by our China and YRI businesses as well as favorable foreign currency impact. Importantly, our international development pace is full speed ahead, as both our China and YRI businesses are on pace to match or exceed last year’s record performance. As a result, our international businesses delivered spectacular profit growth this quarter with China up 38% and YRI up 18%. In the U.S., our profit declined primarily due to the continuation of high commodity inflation. However, I am pleased to report our U.S. business continues to make top line progress generating second-quarter same-store-sales growth of +2%, the fourth consecutive quarter of positive growth.

“Shareholders should expect us to continue building consistent value by differentiating our portfolio of brands and driving profitable global expansion through our four key strategies that make us not your ordinary restaurant company: build leading brands in China in every significant category; drive aggressive international expansion and build strong brands everywhere; dramatically improve U.S. brand positions, consistency and returns; and drive industry-leading, long-term shareholder and franchisee value.”

CHINA DIVISION COMMENTS

• Mainland China delivered outstanding same-store-sales growth of 14%, lapping +7% from 2007.
• Mainland China traditional units were up 20% versus prior year with 95 new units opened during the quarter. Year-to-date, mainland China is exceeding the pace of last year’s record development which further strengthens our leadership position in the rapidly growing restaurant industry.
• Restaurant margin declined, as expected, largely due to continued high food cost inflation. Commodity inflation was approximately $16 million for the second quarter and $27 million year-to-date.
• Foreign currency conversion benefited operating profit by $8 million in the second quarter and $16 million year-to-date.
• China results were negatively impacted by unforeseen expenses related to the devastating earthquake in May and meaningful charitable contributions to support the recovery effort.

YRI DIVISION COMMENTS

• YRI achieved same-store-sales growth of 4%, lapping +5% from 2007.
• Traditional units were up 4% versus prior year with 160 new units opened in over 20 countries during the quarter of which 97% were opened by franchisees. Year-to-date, new-unit openings equal the record pace of 2007.
• Franchise fees, a key driver of our high-return business, grew by 22% and are expected to reach approximately $675 million for the full-year.
• The strength of foreign currencies versus the U.S. dollar benefited operating profit by $9 million for the quarter and $16 million year-to-date.
• The loss of a VAT exemption in our Mexico business adversely impacted restaurant margin percentage by more than one percentage point and operating profit by $9 million during the second quarter. As previously communicated, this loss is expected to negatively impact restaurant margin percentage by more than one percentage point and operating profit by more than $30 million for the full-year 2008.