10-QPeriod: Q2 FY2008

MCDONALDS CORP Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 6, 2008For Securities:MCD

Summary

McDonald's Corporation reported a strong second quarter for 2008, demonstrating significant recovery and growth compared to the prior year's results, which were heavily impacted by an impairment charge related to the Latin America (Latam) transaction. Total revenues increased by 4% year-over-year to $6.08 billion. Net income surged to $1.19 billion, or $1.04 per diluted share, a substantial turnaround from the net loss of $711.7 million reported in the same period of 2007. This performance was driven by robust comparable sales growth across all geographic segments, particularly in Europe and APMEA, and benefited from the sale of McDonald's minority interest in Pret A Manger, contributing $0.10 per share. The company continued its commitment to returning value to shareholders, repurchasing $787.9 million of stock and paying $421.6 million in dividends during the quarter. Management highlighted the strategic direction focused on "being better, not just bigger," with ongoing initiatives to enhance customer experience and drive profitability. The company also provided an outlook for the full year, expecting continued systemwide sales growth and managing cost pressures in key commodities.

Financial Highlights

27 data points
Beta

Revenue

$6.08B

Net Income

$1.19B

19.6% Net Margin

EPS (Diluted)

$1.04

Cash & Equivalents

$2.34B

Free Cash Flow

$780.00M

Financial Statements
Beta
Revenue$6.08B
SG&A Expenses$598.70M
Operating Expenses$4.42B
Operating Income$1.65B
Interest Expense$146.30M
Net Income$1.19B
EPS (Basic)$1.05
EPS (Diluted)$1.04
Shares Outstanding (Basic)1.13B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Total revenues for the quarter increased by 4% to $6.08 billion, compared to $5.84 billion in the prior year's quarter.
  • 2Net income dramatically improved to $1.19 billion ($1.04 per diluted share) from a net loss of $711.7 million ($0.60 per diluted share) in Q2 2007, largely due to the absence of significant impairment charges.
  • 3The company reported strong global comparable sales growth of 6.1% for the quarter.
  • 4Operating income turned positive at $1.65 billion, a significant improvement from a loss of $181.7 million in the prior year's quarter, excluding the Latam transaction impact.
  • 5McDonald's continued its robust share repurchase program, buying back $787.9 million of stock in the quarter, and paid $421.6 million in dividends.
  • 6A non-operating gain of $160.1 million was recognized from the sale of McDonald's minority ownership interest in Pret A Manger.
  • 7The company saw strong performance in its European and APMEA segments, with double-digit operating income growth driven by comparable sales increases.

Frequently Asked Questions

The significant increase in net income was primarily driven by the absence of a substantial impairment and other charges totaling $1.6 billion recorded in the second quarter of 2007 related to the sale of McDonald's businesses in Latin America (Latam). Additionally, strong comparable sales growth across all segments and a gain from the sale of the Pret A Manger investment contributed positively.

The sale of the Latam businesses in August 2007 resulted in a significant impairment charge in Q2 2007. In the current report, the company reports 'excluding Latam Transaction' results to provide a clearer view of underlying business trends, showing a substantial recovery in operating income and net income. The Latam transaction also shifted revenue streams in those markets from Company-operated sales and franchised rents/royalties to primarily royalties.

McDonald's is continuing its strategy to optimize its ownership mix, focusing on franchising and developmental licenses. The company plans to refranchise 1,000 to 1,500 Company-operated restaurants by the end of 2010 and has already refranchised approximately 300 in the first half of 2008. This strategy aims to maximize long-term brand performance and returns.

For the full year 2008, McDonald's expects U.S. beef costs to be up 8% to 9% and chicken costs to rise about 5% to 6%. In Europe, beef costs are projected to increase by 8% to 9%, and chicken costs by approximately 7% to 8%. Some quarterly volatility is anticipated.