10-QPeriod: Q1 FY2005

MCDONALDS CORP Quarterly Report for Q1 Ended Mar 31, 2005

Filed May 6, 2005For Securities:MCD

Summary

McDonald's Corporation reported strong first-quarter 2005 results, demonstrating continued positive momentum from its revitalization plan. Total revenues increased by 9% to $4.8 billion, driven by a 4.6% rise in comparable sales across the system. This growth was achieved despite an extra day in the prior year's quarter, showcasing underlying business strength. Net income saw a significant 42% increase to $727.9 million, translating to diluted earnings per share (EPS) of $0.56, up 40% from the prior year. This robust performance was boosted by a lower effective tax rate. The company also continued its commitment to returning capital to shareholders, repurchasing approximately $437 million in stock during the quarter. Additionally, McDonald's early adopted the new FASB Statement No. 123(R) for share-based payments, impacting reported expenses but demonstrating transparency in accounting practices.

Key Highlights

  • 1Total revenues grew 9% to $4.8 billion in Q1 2005, compared to $4.4 billion in Q1 2004.
  • 2Comparable sales increased by 4.6% across McDonald's restaurants.
  • 3Net income rose significantly by 42% to $727.9 million from $511.5 million in the prior year.
  • 4Diluted Earnings Per Share (EPS) grew 40% to $0.56, benefiting from a lower effective tax rate.
  • 5Company-operated restaurant margins increased 7% in dollar terms, while franchised margins grew 9%.
  • 6The company repurchased $437 million of its common stock in the first quarter.
  • 7McDonald's early adopted SFAS No. 123(R), expensing share-based compensation, which added $0.03 per share in costs but improved financial reporting transparency.

Frequently Asked Questions

Revenue growth was primarily driven by a 4.6% increase in comparable sales across McDonald's restaurants globally, alongside new restaurant additions contributing to overall systemwide sales growth.

The early adoption of SFAS No. 123(R) required McDonald's to recognize share-based compensation expenses based on fair value. This resulted in an incremental expense of $0.03 per share in the first quarter of 2005, primarily impacting Selling, General & Administrative expenses. While it increased reported expenses, it aligns the company with newer accounting standards for greater transparency.

McDonald's expects to return at least $1.3 billion to shareholders through dividends and share repurchases in 2005. The company demonstrated this commitment by repurchasing approximately $437 million of its common stock during the first quarter.

Foreign currency translation had a positive impact on reported revenues, operating income, and net income due to the strengthening of currencies like the Euro. However, it had no material impact on reported earnings per share due to rounding.