10-QPeriod: Q1 FY2009

MCDONALDS CORP Quarterly Report for Q1 Ended Mar 31, 2009

Filed May 5, 2009For Securities:MCD

Summary

McDonald's Corporation's first quarter of 2009 financial results show resilience amidst a challenging economic environment. Total revenues declined by 10% to $5.1 billion, largely due to a 13% decrease in Company-operated restaurant sales, driven partly by the ongoing refranchising strategy. However, on a constant currency basis, total revenues increased by 2%, indicating underlying operational strength. Net income grew by 4% to $979.5 million, with diluted earnings per share rising 7% to $0.87. The company demonstrated strong comparable sales growth across all geographic segments, with the U.S. up 4.7%, Europe up 3.2%, and APMEA up 5.5%. This growth, combined with disciplined cost management and the strategic shift towards a more franchised model, contributed to an improved combined operating margin of 27.6%. A notable event during the quarter was the gain of $76.5 million from the sale of its minority interest in Redbox.

Financial Highlights

27 data points
Beta

Revenue

$5.08B

Net Income

$979.50M

19.3% Net Margin

EPS (Diluted)

$0.87

Cash & Equivalents

$1.98B

Free Cash Flow

$717.00M

Financial Statements
Beta
Revenue$5.08B
SG&A Expenses$497.30M
Operating Expenses$3.68B
Operating Income$1.40B
Interest Expense$120.90M
Net Income$979.50M
EPS (Basic)$0.88
EPS (Diluted)$0.87
Shares Outstanding (Basic)1.11B
Shares Outstanding (Diluted)1.12B

Key Highlights

  • 1Net income increased by 4% to $979.5 million, with diluted EPS up 7% to $0.87, demonstrating profitability growth.
  • 2Total revenues decreased by 10% to $5.1 billion, influenced by a planned refranchising strategy and foreign currency translation impacts.
  • 3Global comparable sales showed positive momentum, increasing by 4.3% across all segments.
  • 4The combined operating margin improved to 27.6%, indicating effective cost management and operational efficiency.
  • 5McDonald's returned nearly $1.4 billion to shareholders in Q1 2009 through share repurchases ($823.2 million) and dividends ($553.4 million), reinforcing its commitment to shareholder returns.
  • 6The company recognized a $76.5 million pre-tax gain from the sale of its minority interest in Redbox during the quarter.
  • 7Foreign currency translation had a negative impact on reported results, with an $0.08 per share decrease in diluted EPS.

Frequently Asked Questions

The refranchising strategy, which involves selling Company-operated restaurants to franchisees, leads to a decrease in consolidated revenues as Company-operated sales are replaced by franchised sales (where McDonald's earns rent and royalties). While this may decrease consolidated revenue figures, it is expected to increase franchised margin dollars and improve the overall Company-operated margin percent due to the shift in the ownership mix. The strategy is part of optimizing cash flow and returns.

Foreign currency translation had a negative impact on McDonald's reported results for the first quarter of 2009. The strengthening of the U.S. Dollar against major foreign currencies like the Euro, British Pound, and Australian Dollar reduced the value of international revenues and operating income when translated back into U.S. Dollars. This is estimated to have negatively impacted diluted earnings per share by $0.08 for the quarter.

McDonald's continues to optimize its restaurant ownership mix, with a strategic focus on increasing the proportion of franchised restaurants. The company planned to refranchise 1,000 to 1,500 Company-operated restaurants between 2008 and 2010. This shift is expected to impact consolidated revenues but improve overall margins and cash flow.

In February 2009, McDonald's sold its minority ownership interest in Redbox Automated Retail, LLC to Coinstar. This transaction resulted in a non-operating pre-tax gain of $76.5 million recognized in the first quarter of 2009. The company received initial consideration in cash and Coinstar stock, with deferred consideration to be paid later.