Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction and Overview
The following Management's Discussion and Analysis (“MD&A”), should be read in conjunction with the unaudited Condensed Consolidated Financial Statements (“Financial Statements”), the Forward-Looking Statements and our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, (“2023 Form 10-K”). All Note references herein refer to the Notes to the Financial Statements. Tabular amounts are displayed in millions of U.S. dollars except per share and unit count amounts, or as otherwise specifically identified. Percentages may not recompute due to rounding.
Yum! Brands, Inc. and its Subsidiaries (collectively referred to herein as the “Company,” “YUM,” “we,” “us” or “our”) franchise or operate a system of over 59,000 restaurants in more than 155 countries and territories, primarily under the concepts of KFC, Taco Bell, Pizza Hut and The Habit Burger Grill (collectively, the “Concepts”). The Company’s KFC, Taco Bell and Pizza Hut brands are global leaders of the chicken, Mexican-style and pizza categories, respectively. The Habit Burger Grill, is a fast-casual restaurant concept specializing in made-to-order chargrilled burgers, sandwiches and more. Of the over 59,000 restaurants, 98% are operated by franchisees.
YUM currently consists of four operating segments:
• The KFC Division which includes our worldwide operations of the KFC concept
• The Taco Bell Division which includes our worldwide operations of the Taco Bell concept
• The Pizza Hut Division which includes our worldwide operations of the Pizza Hut concept
• The Habit Burger Grill Division which includes our worldwide operations of the Habit Burger Grill concept
Through our Good Growth Strategy we intend to unlock the growth potential of our Concepts and YUM, drive increased collaboration across our Concepts and geographies and consistently deliver better customer experiences, improved unit economics and higher rates of growth. Key enablers include accelerated use of technology and better leverage of our systemwide scale.
Our global citizenship and sustainability strategy is reflected in our Good agenda, which includes our priorities for social responsibility, risk management and sustainable stewardship of our people, food and planet.
Our Growth agenda is based on four key drivers:
• Unrivaled Culture and Talent: Leverage our culture and people capability to fuel brand performance and franchise success
• Unmatched Operating Capability: Recruit and equip the best restaurant operators in the world to deliver great customer experiences
• Relevant, Easy and Distinctive Brands: Innovate and elevate iconic restaurant brands people trust and champion
• Bold Restaurant Development: Drive market and franchise unit expansion with strong economics and value
We intend for this MD&A to provide the reader with information that will assist in understanding our results of operations, including performance metrics that management uses to assess the Company's performance. Throughout this MD&A, we commonly discuss the following performance metrics:
• Same-store sales growth is the estimated percentage change in system sales of all restaurants that have been open and in the YUM system for one year or more, including those temporarily closed. From time-to-time restaurants may be temporarily closed due to remodeling or image enhancement, rebuilding, natural disasters, health epidemic or pandemic, landlord disputes or other issues. The system sales of restaurants we deem temporarily closed remain in our base for purposes of determining same-store sales growth and the restaurants remain in our unit count (see below). Same-store sales growth excludes, for subsidiaries operating on a monthly calendar, the extra day resulting from a leap year and excludes, for subsidiaries operating on a weekly periodic calendar, the last week of the year in fiscal years with 53 weeks. We believe same-store sales growth is useful to investors because our results are heavily dependent on the results of our Concepts' existing store base. Additionally, same-store sales growth is reflective of the strength of our Brands, the effectiveness of our operational and advertising initiatives and local economic and consumer trends.
• Gross unit openings reflects new openings by us and our franchisees. Net new unit growth reflects gross unit openings offset by permanent store closures, by us and our franchisees. To determine whether a restaurant meets the definition of a unit we consider whether the restaurant has operations that are ongoing and independent from another YUM unit, serves the primary product of one of our Concepts, operates under a separate franchise agreement (if operated by a franchisee) and
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has substantial and sustainable sales. We believe gross unit openings and net new unit growth are useful to investors because we depend on new units for a significant portion of our growth. Additionally, gross unit openings and net new unit growth are generally reflective of the economic returns to us and our franchisees from opening and operating our Concept restaurants.
• System sales and System sales excluding the impacts of foreign currency translation (“FX”) reflect the results of all restaurants regardless of ownership, including Company-owned and franchise restaurants. Sales at franchise restaurants typically generate ongoing franchise and license fees for the Company at a rate of 3% to 6% of sales. Increasingly, customers are paying a fee to a third party to deliver or facilitate the ordering of our Concepts' products. We also include in System sales any portion of the amount customers pay these third parties for which the third party is obligated to pay us a license fee as a percentage of such amount. Franchise restaurant sales and fees paid by customers to third parties to deliver or facilitate the ordering of our Concepts' products are not included in Company sales on the Condensed Consolidated Statements of Income; however, any resulting franchise and license fees we receive are included in the Company's revenues. We believe System sales growth is useful to investors as a significant indicator of the overall strength of our business as it incorporates our primary revenue drivers, Company and franchise same-store sales as well as net unit growth.
In addition to the results provided in accordance with Generally Accepted Accounting Principles in the United States of America ( “ GAAP ” ), the Company provides the following non-GAAP measurements:
• Diluted Earnings Per Share excluding Special Items (as defined below);
• Effective Tax Rate excluding Special Items;
• Core Operating Profit. Core Operating Profit excludes Special Items and FX and we use Core Operating Profit for the purposes of evaluating performance internally;
• Company restaurant profit and Company restaurant margin as a percentage of sales (as defined below).
These non-GAAP measurements are not intended to replace the presentation of our financial results in accordance with GAAP. Rather, the Company believes that the presentation of these non-GAAP measurements provide additional information to investors to facilitate the comparison of past and present operations.
Special Items are not included in any of our Division segment results as the Company does not believe they are indicative of our ongoing operations due to their size and/or nature. Our chief operating decision maker does not consider the impact of Special Items when assessing segment performance.
Company restaurant profit is defined as Company sales less Company restaurant expenses, both of which appear on the face of our Condensed Consolidated Statements of Income. Company restaurant expenses include those expenses incurred directly by our Company-owned restaurants in generating Company sales, including cost of food and paper, cost of restaurant-level labor, rent, depreciation and amortization of restaurant-level assets and advertising expenses incurred by and on behalf of that Company restaurant. Company restaurant margin as a percentage of sales (“Company restaurant margin %”) is defined as Company restaurant profit divided by Company sales. We use Company restaurant profit for the purposes of internally evaluating the performance of our Company-owned restaurants and we believe Company restaurant profit provides useful information to investors as to the profitability of our Company-owned restaurants. In calculating Company restaurant profit, the Company excludes revenues and expenses directly associated with our franchise operations as well as non-restaurant-level costs included in General and administrative expenses, some of which may support Company-owned restaurant operations. The Company also excludes restaurant-level asset impairment and closures expenses, which have historically not been significant, from the determination of Company restaurant profit as such expenses are not believed to be indicative of ongoing operations. Company restaurant profit and Company restaurant margin % as presented may not be comparable to other similarly titled measures of other companies in the industry.
Certain performance metrics and non-GAAP measurements are presented excluding the impact of FX. These amounts are derived by translating current year results at prior year average exchange rates. We believe the elimination of the FX impact provides better year-to-year comparability without the distortion of foreign currency fluctuations.
Results of Operations
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Summary
All comparisons within this summary are versus the same period a year ago.
Quarterly Financial Highlights:
% Change
System Sales, ex FX Same-Store Sales Units GAAP Operating Profit Core Operating Profit
KFC Division +4 (2) +8 +3 +6
Taco Bell Division +4 +1 +3 +2 +2
Pizza Hut Division (4) (7) +5 (11) (10)
YUM +2 (3) +6 (1) +6
Additionally:
• Foreign currency translation unfavorably impacted Divisional Operating Profit by $11 million for the quarter ended March 31, 2024.
First Quarter
2024 2023 % Change
GAAP Diluted EPS
$1.10 $1.05 +5
Less Special Items EPS
$(0.05) $(0.01) NM
Diluted EPS Excluding Special Items
$1.15 $1.06 +9
• In addition to the aforementioned factors impacting Operating Profit, our diluted EPS was negatively impacted by $0.08 for the quarter ended March 31, 2024 and $0.07 for the quarter ended March 31, 2023, from after-tax investment losses. Foreign currency translation negatively impacted our diluted EPS by approximately $0.03 for the quarter ended March 31, 2024.
• Gross unit openings for the quarter were 808 units resulting in 421 net new units.
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Worldwide
GAAP Results
Quarter ended
2024 2023 % B/(W)
Company sales $ 474 $ 474 Even
Franchise and property revenues 757 770 (2)
Franchise contributions for advertising and other services 367 401 (8)
Total revenues 1,598 1,645 (3)
Company restaurant expenses 400 403 1
G&A expenses 286 282 (2)
Franchise and property expenses 31 36 14
Franchise advertising and other services expense 367 395 7
Refranchising (gain) loss (5) (4) NM
Other (income) expense (1) 10 NM
Total costs and expenses, net 1,078 1,122 4
Operating Profit 520 523 (1)
Investment (income) expense, net 22 24 NM
Other pension (income) expense (2) (2) NM
Interest expense, net 117 130 10
Income before income taxes 383 371 3
Income tax provision
69 71 3
Net Income $ 314 $ 300 5
Diluted EPS (a)
$ 1.10 $ 1.05 5
Effective tax rate 18.0 % 19.1 % 1.1 ppts.
(a) See Note 2 for the number of shares used in this calculation.
Performance Metrics
Unit Count 3/31/2024 3/31/2023 % Increase (Decrease)
Franchise 58,106 54,681 6
Company-owned 1,023 1,002 2
Total 59,129 55,683 6
Quarter ended
2024 2023
Same-Store Sales Growth (Decline) %
(3) 8
System Sales Growth %, reported
— 6
System Sales Growth %, excluding FX
2 11
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Our system sales breakdown by Company and franchise sales was as follows:
Quarter ended
2024 2023
Consolidated
Company sales (a)
$ 474 $ 474
Franchise sales 14,572 14,541
System sales 15,046 15,015
Negative (Positive) Foreign Currency Impact (b)
279 N/A
System sales, excluding FX $ 15,325 $ 15,015
KFC Division
Company sales (a)
$ 105 $ 110
Franchise sales 8,023 7,947
System sales 8,128 8,057
Negative (Positive) Foreign Currency Impact (b)
237 N/A
System sales, excluding FX $ 8,365 $ 8,057
Taco Bell Division
Company sales (a)
$ 240 $ 229
Franchise sales 3,357 3,235
System sales 3,597 3,464
Negative (Positive) Foreign Currency Impact (b)
(2) N/A
System sales, excluding FX $ 3,595 $ 3,464
Pizza Hut Division
Company sales (a)
$ 2 $ 5
Franchise sales 3,165 3,331
System sales 3,167 3,336
Negative (Positive) Foreign Currency Impact (b)
44 N/A
System sales, excluding FX $ 3,211 $ 3,336
Habit Burger Grill Division
Company sales (a)
$ 127 $ 130
Franchise sales 27 28
System sales 154 158
Negative (Positive) Foreign Currency Impact (b)
— N/A
System sales, excluding FX $ 154 $ 158
(a) Company sales represents sales from our Company-operated stores as presented on our Condensed Consolidated Statements of Income.
(b) The foreign currency impact on System sales is presented in relation only to the immediately preceding year presented. When determining applicable System sales growth percentages, the System sales excluding FX for the current year should be compared to the prior year System sales.
Non-GAAP Items
Non-GAAP Items, along with the reconciliation to the most comparable GAAP financial measure, as presented below.
Quarter ended
2024 2023
Core Operating Profit Growth %
6 11
Diluted EPS Growth %, excluding Special Items
9 Even
Effective Tax Rate excluding Special Items 19.4 % 19.3 %
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Quarter ended
2024 2023
Company restaurant profit $ 74 $ 71
Company restaurant margin % 15.6 % 14.9 %
Reconciliation of GAAP Operating Profit to Core Operating Profit Quarter ended
2024 2023
Consolidated
GAAP Operating Profit $ 520 $ 523
Detail of Special Items:
(Gain) loss associated with market-wide refranchisings (a)
3 (3)
Operating loss impact from decision to exit Russia (b)
— 3
Charges associated with Resource Optimization (c)
21 3
Special Items Expense - Operating Profit
24 3
Negative Foreign Currency Impact on Operating Profit
11 N/A
Core Operating Profit $ 555 $ 526
Special Items as shown above were recorded to the financial statement line items identified below.
Condensed Consolidated Statements of Income Line Item
General and administrative expenses $ 21 $ 4
Franchise and property expenses — 1
Refranchising (gain) loss 3 (3)
Other (income) expense — 1
Special Items Expense - Operating Profit
$ 24 $ 3
KFC Division
GAAP Operating Profit $ 313 $ 305
Negative (Positive) Foreign Currency Impact
10 N/A
Core Operating Profit $ 323 $ 305
Taco Bell Division
GAAP Operating Profit $ 208 $ 204
Negative (Positive) Foreign Currency Impact
— N/A
Core Operating Profit $ 208 $ 204
Pizza Hut Division
GAAP Operating Profit $ 93 $ 104
Negative (Positive) Foreign Currency Impact
1 N/A
Core Operating Profit $ 94 $ 104
Habit Burger Grill Division
GAAP Operating Loss $ (5) $ (5)
Negative (Positive) Foreign Currency Impact
— N/A
Core Operating Profit (Loss) $ (5) $ (5)
Reconciliation of GAAP Net Income to Net Income excluding Special Items
GAAP Net Income $ 314 $ 300
Special Items Expense - Operating Profit
24 3
Special Items Tax (Benefit) (d)
(10) (2)
Net Income excluding Special Items $ 328 $ 301
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Reconciliation of Diluted EPS to Diluted EPS excluding Special Items
Diluted EPS $ 1.10 $ 1.05
Less Special Items Diluted EPS (0.05) (0.01)
Diluted EPS excluding Special Items $ 1.15 $ 1.06
Reconciliation of GAAP Effective Tax Rate to Effective Tax Rate excluding Special Items
GAAP Effective Tax Rate 18.0 % 19.1 %
Impact on Tax Rate as a result of Special Items (1.4) % (0.2) %
Effective Tax Rate excluding Special Items 19.4 % 19.3 %
(a) Due to their size and volatility, we have reflected as Special Items those refranchising gains and losses that were recorded in connection with market-wide refranchisings. During the quarters ended March 31, 2024 and 2023, we recorded net refranchising losses of $3 million and net refranchising gains of $3 million, respectively, that have been reflected as Special Items.
Additionally, we recorded net refranchising gains of $8 million and $1 million during the quarters ended March 31, 2024 and 2023, respectively, that have not been reflected as Special Items. These net refranchising gains relate to refranchising of restaurants unrelated to market-wide refranchisings that we believe are indicative of our expected ongoing refranchising activity.
(b) In April 2023, we completed our exit from the Russia market by selling the KFC business in Russia to Smart Service Ltd. Our GAAP operating results for the quarter ended March 31, 2023 presented herein reflect revenues from and expenses to support the Russian operations for KFC prior to the date of sale, within their historical financial statement line items and operating segments. However, given our decision to exit Russia and our pledge to direct any future net profits attributable to Russia subsequent to the date of invasion of Ukraine to humanitarian efforts, we reclassed such net operating profits or losses from the KFC Division segment results to Unallocated Other income (expense). Additionally, we incurred certain expenses related to the disposition of the business and other one-time costs related to our exit from Russia which we recorded within Corporate and unallocated G&A and Unallocated Franchise and property expenses. The resulting net Operating Loss of $3 million for the quarter ended March 31, 2023 has been reflected as a Special Item.
(c) We recorded charges of $21 million and $3 million during the quarters ended March 31, 2024 and 2023, respectively, to General and administrative expenses related to a resource optimization program. This program has allowed us to reallocate significant resources to accelerate our digital, technology and innovation capabilities to deliver a modern, world-class team member and customer experience and improve unit economics. We have recently expanded the program to identify further opportunities to optimize the Company’s spending and identify additional, critical areas in which to potentially reallocate resources, both with a goal to enable the acceleration of the Company’s growth rate. Costs incurred to date related to the program primarily include severance associated with positions that have been eliminated or relocated and consultant fees. Due to their scope and size, these charges have been reflected as Special Items.
(d) The below table includes the detail of Special Items Tax (Benefit) Expense:
Quarter ended
3/31/2024 3/31/2023
Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense $ (6) $ —
Tax (Benefit) Expense - Income tax impacts from decision to exit Russia — (2)
Tax (Benefit) - Other Income tax impacts recorded as Special (4) —
Special Items Tax (Benefit) Expense $ (10) $ (2)
Tax (Benefit) Expense on Special Items Operating Profit and Interest Expense was determined by assessing the tax impact of each individual component within Special Items based upon the nature of the item and jurisdictional tax law.
Other Income Tax impacts recorded as Special in the quarter ended March 31, 2024 include benefits related to the reversal of a reserve due to the favorable resolution of a tax audit in a foreign jurisdiction. Such reserve was established in prior years related to income tax liabilities originally recorded as a Special Item as part of an intercompany restructuring of intellectual property.
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Reconciliation of GAAP Operating Profit to Company Restaurant Profit
Quarter ended 3/31/2024
KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated
GAAP Operating Profit (Loss) $ 313 $ 208 $ 93 $ (5) $ (89) $ 520
Less:
Franchise and property revenues 397 210 148 2 — 757
Franchise contributions for advertising and other services 130 148 88 1 — 367
Add:
General and administrative expenses 83 49 52 13 89 286
Franchise and property expenses 17 8 5 1 — 31
Franchise advertising and other services expense 129 147 90 1 — 367
Refranchising (gain) loss — — — — (5) (5)
Other (income) expense (2) — (4) — 5 (1)
Company restaurant profit $ 13 $ 54 $ — $ 7 $ — $ 74
Company sales $ 105 $ 240 $ 2 $ 127 $ — $ 474
Company restaurant margin % 12.2 % 22.5 % 1.9 % 5.5 % N/A 15.6 %
Quarter ended 3/31/2023
KFC Division Taco Bell Division Pizza Hut Division Habit Burger Grill Division Corporate and Unallocated Consolidated
GAAP Operating Profit (Loss) $ 305 $ 204 $ 104 $ (5) $ (85) $ 523
Less:
Franchise and property revenues 412 201 155 2 — 770
Franchise contributions for advertising and other services 165 142 94 — — 401
Add:
General and administrative expenses 89 45 51 13 84 282
Franchise and property expenses 26 5 3 1 1 36
Franchise advertising and other services expense 164 138 93 — — 395
Refranchising (gain) loss — — — — (4) (4)
Other (income) expense 7 1 (2) — 4 10
Company restaurant profit $ 14 $ 50 $ — $ 7 $ — $ 71
Company sales $ 110 $ 229 $ 5 $ 130 $ — $ 474
Company restaurant margin % 12.0 % 22.2 % 3.9 % 4.9 % N/A 14.9 %
Items Impacting Reported Results and Reasonably Likely to Impact Future Results
The following items impacted reported results in 2024 and/or 2023 and/or are reasonably likely to impact future results. See also the Detail of Special Items in this MD&A for other items similarly impacting results.
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Middle East Conflict
During the fourth quarter of 2023, certain of our markets, principally in our KFC and Pizza Hut Divisions, began being impacted by a military conflict in the Middle East region. While the impacts from the Middle East conflict have been scattered and difficult to measure, we believe the markets most impacted by the conflict, which include markets in the Middle East, Indonesia and Malaysia, collectively created a low single-digit headwind to YUM's overall same-store sales growth during the quarter ended March 31, 2024. We continue to expect this impact to decrease with sales improving in the most impacted markets over the balance of 2024.
Impact of Foreign Currency Translation on Operating Profit
Changes in foreign currency exchange rates negatively impacted the translation of our foreign currency denominated Divisional Operating Profit by $11 million for the quarter ended March 31, 2024. This included a negative impact to our KFC Division Operating Profit of $10 million for the quarter ended March 31, 2024. We currently expect changes in foreign currency to negatively impact Divisional Operating Profit by approximately $20 to $30 million on a full-year basis.
Investment in Devyani
During the quarter ended March 31, 2024, we sold our approximate 5% minority investment in Devyani International Limited ("Devyani"), a franchise entity that operates KFC and Pizza Hut restaurants in India, for pre-tax proceeds of $104 million. Changes in the fair value of our ownership interest in Devyani prior to the date of sale resulted in pre-tax investment losses of $20 million and $23 million in the quarters ended March 31, 2024 and 2023, respectively.
KFC Division
The KFC Division has 30,251 units, 87% of which are located outside the U.S. Additionally, 99% of the KFC Division units were operated by franchisees as of March 31, 2024.
Quarter ended
% B/(W)
2024 2023 Reported Ex FX
System Sales $ 8,128 $ 8,057 1 4
Same-Store Sales Growth (Decline) % (2) 9 N/A N/A
Company sales $ 105 $ 110 (4) (3)
Franchise and property revenues 397 412 (4) (1)
Franchise contributions for advertising and other services 130 165 (21) (20)
Total revenues $ 632 $ 687 (8) (6)
Company restaurant profit $ 13 $ 14 (3) (1)
Company restaurant margin % 12.2 % 12.0 % 0.2 ppts. 0.4 ppts.
G&A expenses $ 83 $ 89 7 7
Franchise and property expenses 17 26 34 35
Franchise advertising and other services expense 129 164 21 20
Operating Profit $ 313 $ 305 3 6
% Increase (Decrease)
Unit Count 3/31/2024 3/31/2023
Franchise 30,029 27,785 8
Company-owned 222 218 2
Total 30,251 28,003 8
Company sales and Company restaurant margin %
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The quarterly decrease in Company sales, excluding the impact of foreign currency translation, was driven by a Company same-store sales decline of 4%.
The quarterly increase in Company restaurant margin percentage was driven by the impact of closing units with low restaurant margin percentages, partially offset by a Company same-store sales decline.
Franchise and property revenues
The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a 3% negative impact from the sale of our KFC Russia business and a franchise same-store sales decline of 2%, partially offset by unit growth.
G&A
The quarterly decrease in G&A, excluding the impact of foreign currency translation, was driven by the impact of the sale of the KFC Russia business.
Operating Profit
The quarterly increase in Operating Profit, excluding the impact of foreign currency translation, was driven by unit growth and lower Franchise and property expenses, primarily due to lapping global franchise convention expenses in the prior year, partially offset by a same-store sales decline.
Taco Bell Division
The Taco Bell Division has 8,555 units, 87% of which are in the U.S. The Company owned 7% of the Taco Bell units in the U.S. as of March 31, 2024.
Quarter ended
% B/(W)
2024 2023 Reported Ex FX
System Sales $ 3,597 $ 3,464 4 4
Same-Store Sales Growth % 1 8 N/A N/A
Company sales $ 240 $ 229 5 5
Franchise and property revenues 210 201 5 5
Franchise contributions for advertising and other services 148 142 4 4
Total revenues $ 598 $ 572 5 5
Company restaurant profit $ 54 $ 50 6 6
Company restaurant margin % 22.5 % 22.2 % 0.3 ppts. 0.3 ppts.
G&A expenses $ 49 $ 45 (8) (8)
Franchise and property expenses 8 5 (39) (39)
Franchise advertising and other services expense 147 138 (7) (7)
Operating Profit $ 208 $ 204 2 2
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% Increase (Decrease)
Unit Count 3/31/2024 3/31/2023
Franchise 8,071 7,806 3
Company-owned 484 470 3
Total 8,555 8,276 3
Company sales and Company restaurant margin %
The quarterly increase in Company sales was driven by unit growth and Company same-store sales growth of 2%.
The quarterly increase in Company restaurant margin percentage was driven by same-store sales growth partially offset by higher labor and other restaurant operating costs.
Franchise and property revenues
The quarterly increase in Franchise and property revenues was driven by unit growth and franchise same-store sales growth of 1%.
G&A
The quarterly increase in G&A was driven by increased legal costs, higher digital and technology expenses and higher headcount and salaries partially offset by lower share-based compensation.
Operating Profit
The quarterly increase in Operating Profit was driven by unit growth and same-store sales growth partially offset by higher restaurant operating costs, higher Franchise advertising and other service expense primarily related to digital and technology expenses, higher bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables and increased G&A.
Pizza Hut Division
The Pizza Hut Division has 19,942 units, 67% of which are located outside the U.S. The Pizza Hut Division uses multiple distribution channels including delivery, dine-in and express (e.g. airports) and includes units operating under both the Pizza Hut and Telepizza brands. Additionally, over 99% of the Pizza Hut Division units were operated by franchisees as of March 31, 2024.
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Quarter ended
% B/(W)
2024 2023 Reported Ex FX
System Sales $ 3,167 $ 3,336 (5) (4)
Same-Store Sales Growth (Decline) % (7) 7 N/A N/A
Company sales $ 2 $ 5 (64) (64)
Franchise and property revenues 148 155 (5) (4)
Franchise contributions for advertising and other services 88 94 (6) (6)
Total revenues $ 238 $ 254 (6) (6)
Company restaurant profit $ — $ — (82) (82)
Company restaurant margin % 1.9 % 3.9 % (2.0) ppts. (2.0) ppts.
G&A expenses $ 52 $ 51 (2) (2)
Franchise and property expenses 5 3 (113) (114)
Franchise advertising and other services expense 90 93 3 4
Operating Profit $ 93 $ 104 (11) (10)
% Increase (Decrease)
Unit Count 3/31/2024 3/31/2023
Franchise 19,935 19,025 5
Company-owned 7 21 (67)
Total 19,942 19,046 5
Franchise and property revenues
The quarterly decrease in Franchise and property revenues, excluding the impacts of foreign currency translation, was driven by a franchise same-store sales decline of 7%, partially offset by unit growth.
G&A
G&A, excluding the impacts of foreign currency translation, was largely flat.
Operating Profit
The quarterly decrease in Operating Profit, excluding the impacts of foreign currency translation, was driven by same-store sales declines and current year bad debt expense lapping prior year net bad debt recoveries for past due franchise receivables, partially offset by unit growth.
Habit Burger Grill Division
The Habit Burger Grill Division has 381 units, the vast majority of which are in the U.S. The Company owned 84% of the Habit Burger Grill units in the U.S. as of March 31, 2024.
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Quarter ended
% B/(W)
2024 2023 Reported
System Sales $ 154 $ 158 (2)
Same-Store Sales Growth % (8) — N/A
Total revenues $ 130 $ 132 (2)
Operating Profit (Loss) $ (5) $ (5) (6)
Unit Count 3/31/2024 3/31/2023 % Increase (Decrease)
Franchise 71 65 9
Company-owned 310 293 6
Total 381 358 6
Corporate & Unallocated
Quarter ended
(Expense) / Income 2024 2023 % B/(W)
Corporate and unallocated G&A $ ( 89 ) $ ( 84 ) (7)
Unallocated Franchise and property income (expenses)
— ( 1 ) NM
Unallocated Refranchising gain (loss) 5 4 NM
Unallocated Other income (expense)
( 5 ) ( 4 ) NM
Investment income (expense), net (See Note 8) ( 22 ) ( 24 ) NM
Other pension income (expense) (See Note 9)
2 2 NM
Interest expense, net ( 117 ) ( 130 ) 10
Income tax benefit (provision) (See Note 6) (69) (71) 3
Effective tax rate (See Note 6) 18.0 % 19.1 % 1.1 ppts.
Corporate and unallocated G&A
The quarterly increase in Corporate and Unallocated G&A expense was driven by costs associated with our resource optimization program, partially offset by lapping costs related to the prior year ransomware attack.
Interest expense, net
The quarterly decrease in Interest expense, net was primarily driven by lower borrowings and higher interest income, partially offset by a higher weighted-average interest rate.
Consolidated Cash Flows
Net cash provided by operating activities was $363 million in 2024 versus $349 million in 2023. The increase was primarily driven by an increase in Operating Profit before Special Items and timing of spending on advertising, partially offset by higher income tax payments.
Net cash provided by investing activities was $45 million in 2024 compared to net cash used in investing activities of $56 million in 2023. The change was primarily driven by proceeds from the sale of our approximate 5% minority investment in Devyani in 2024.
Net cash used in financing activities was $247 million in 2024 versus $334 million in 2023. The change was primarily driven by lower net debt repayments and lapping prior year share repurchases.
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Liquidity and Capital Resources
We have historically generated substantial cash flows from our extensive franchise operations, which require a limited YUM investment, and from the operations of our Company-owned stores. Our annual operating cash flows have been in excess of $1.3 billion in each of the past five years and we expect that to continue to be the case in 2024. It is our intent to use these operating cash flows to continue to invest in growing our business and pay a competitive dividend, with any remaining excess then returned to shareholders through share repurchases. To the extent operating cash flows plus other sources of cash do not cover our anticipated cash needs, we maintain a $1.25 billion Revolving Facility under our Credit Agreement that was undrawn as of March 31, 2024. The borrowing capacity under our Revolving Facility was increased to $1.5 billion as part of the April 2024 refinancing of the Credit Agreement as discussed in Note 10. We believe that our ongoing cash from operations, cash on hand, which was approximately $650 million at March 31, 2024, and availability under our Revolving Facility will be sufficient to fund our cash requirements over the next twelve months.
There have been no material changes to the disclosures made in Item 7 of the Company's 2023 Form 10-K regarding our material cash requirements. Due to the ongoing significance of our debt obligations, we are providing the update below.
Debt Instruments
As of March 31, 2024, approximately 94%, including the impact of interest rate swaps, of our $11.2 billion of total debt outstanding, excluding finance leases and debt issuance costs and discounts, is fixed with an effective overall interest rate of approximately 4.6%. We ended the quarter with a consolidated net leverage ratio of 4.1x EBITDA. We continually reassess our optimal leverage ratio to maximize shareholder returns. We target a capital structure which we believe provides an attractive balance between optimized interest rates, duration and flexibility with diversified sources of liquidity and maturities spread over multiple years. We have credit ratings of BB+ (Standard & Poor's)/Ba2 (Moody's).
The following table summarizes the future maturities of our outstanding long-term debt, excluding finance leases and debt issuance costs and discounts, as of March 31, 2024.
2024 2025 2026 2027 2028 2029 2030 2031 2032 2037 2043 Total
Securitization Notes $ 938 $ 884 $ 595 $ 589 $ 737 $ 3,743
Credit Agreement $ 40 $ 53 661 15 1,399 2,168
Subsidiary Senior Unsecured Notes 750 750
YUM Senior Unsecured Notes $ 800 1,050 $ 2,100 $ 325 $ 275 4,550
Total $ 40 $ 53 $ 1,599 $ 1,649 $ 1,994 $ 589 $ 800 $ 1,787 $ 2,100 $ 325 $ 275 $ 11,211
See Note 10 for a discussion of the refinancing of the Credit Agreement that took place in April 2024.
New Accounting Pronouncements Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements through enhanced disclosures about significant segment expenses. The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2024, and subsequent interim periods, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. We are currently evaluating the impact of the standard on our disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which updates income tax disclosure requirements related to the income tax rate reconciliation and requires disclosure of income taxes paid by jurisdiction. The standard is effective for the Company's Annual Report on Form 10-K for fiscal 2025 with early adoption permitted. The amendments should be applied prospectively; however, retrospective application is permitted. We are currently evaluating the impact of the standard on our disclosures.
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