Tricon Global Restaurants, Inc. (NYSE: YUM) Friday (8 June) announced that FRANMAC, an association representing U.S. Taco Bell franchisees, together with Tricon, have reached an agreement with Taco Bell’s taco shell suppliers under which those suppliers will provide $60 million to Taco Bell franchisees. These funds will assist Taco Bell franchisees to partially recover lost sales in the wake of marketplace confusion following a taco shell recall of supermarket products licensed under the Taco Bell brand name by Kraft Foods in September, 2000. The funds will be allocated on a pro rata basis to franchisee operators based on their number of restaurants.
The supermarket shells were recalled by Kraft after they were found to contain Starlink, a genetically engineered corn unapproved for human consumption. After Kraft discovered Starlink in its supermarket taco shells, Taco Bell took precautionary measures to safeguard consumers by switching its taco shells to white corn from yellow in September 2000, even though Taco Bell had not concluded that its restaurant shells contained Starlink.
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As part of their agreement, FRANMAC, Tricon and the taco shell suppliers will join together to seek damages from those parties responsible for the introduction of Starlink corn into the U.S. supply chain.
“We are pleased that this agreement will provide partial financial relief for our franchisees as a result of lost sales stemming from the Starlink situation last year,” said David Novak, Tricon Chairman and Chief Executive Officer. “This relief will go a long way to strengthen the Taco Bell franchise system and our relationships with our taco shell suppliers. We remain focused on our number one business objective for the Taco Bell brand – regaining sustainable sales growth. We’re confident we’re on the right strategic track to improve sales trends at Taco Bell and grow the business over the long-term.”
While Tricon owns and operates approximately 20% of the Taco Bell restaurants in the United States, the Company has foregone its right to receive a pro rata share of the payment from the taco shell suppliers so that the vast majority of the funds will directly benefit its franchisee partners.
The Company concurrently reaffirmed its expectations for the second quarter and full-year. For the second quarter, the company expects a range of $0.70 to $0.74 in ongoing operating EPS, with the range tied to U.S. blended same-store sales performance of at least +2% to as high as +4%. Tricon continues to expect full year ongoing operating EPS of at least $3.18.
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By GlobalDataTricon Global Restaurants, Inc. is the world’s largest restaurant company in terms of system units, with over 30,000 restaurants around the world in over 100 countries and territories. Tricon’s three brands, KFC, Pizza Hut and Taco Bell, are the global leaders of the chicken, pizza and Mexican-style restaurant categories, respectively. Total global system sales were over $22 billion in the year 2000.
This announcement contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These “forward-looking” statements reflect management’s expectations and are based on currently available data; however, actual results are subject to future events and uncertainties, which could cause actual results to differ from those projected in these statements. Factors that can cause actual results to differ materially include economic and political conditions in the countries and territories where Tricon operates, the impact of such conditions on consumer spending and currency exchange rates, pricing pressures resulting from competitive discounting, new-product and concept development by Tricon and other food-industry competitors, the success of our refranchising strategy, fluctuations in commodity prices, supplier contracts, business viability of our key distributor and franchise operators, and actuarially determined casualty loss estimates. Further information on factors that could affect Tricon’s financial and other results are included in the company’s Forms 10-Q and 10-K, filed with the Securities and Exchange Commission.
