10-QPeriod: Q1 FY2017

MCDONALDS CORP Quarterly Report for Q1 Ended Mar 31, 2017

Filed May 8, 2017For Securities:MCD

Summary

McDonald's Corporation's first quarter 2017 results demonstrate continued positive momentum in global comparable sales, which increased by 4.0%, marking the seventh consecutive quarter of growth. This top-line performance was driven by strategic initiatives focused on food quality, value, and customer experience, including the expansion of 'All Day Breakfast' and new premium beef offerings. The company is actively executing its 'Velocity Growth Plan' to drive sustainable guest count growth and long-term shareholder value. While consolidated revenues saw a slight decrease of 4% (3% in constant currencies) primarily due to the ongoing refranchising efforts, operating income saw a robust increase of 14% (16% in constant currencies). This demonstrates the benefits of shifting towards a more franchised model, which reduces capital and general & administrative expenses. Diluted earnings per share also showed strong growth, up 18% to $1.47, aided by share repurchases. The company continues to return capital to shareholders through dividends and buybacks, underscoring a commitment to shareholder returns.

Financial Highlights

49 data points
Beta

Revenue

$5.68B

Net Income

$1.21B

21.4% Net Margin

EPS (Diluted)

$1.47

Total Assets

$32.12B

Cash & Equivalents

$2.41B

Free Cash Flow

$1.12B

Financial Statements
Beta
Revenue$5.68B
SG&A Expenses$521.30M
Operating Expenses$3.64B
Operating Income$2.03B
Interest Expense$218.60M
Net Income$1.21B
EPS (Basic)$1.48
EPS (Diluted)$1.47
Shares Outstanding (Basic)818.80M
Shares Outstanding (Diluted)825.20M

Key Highlights

  • 1Global comparable sales increased by 4.0%, representing the seventh consecutive quarter of positive growth.
  • 2Consolidated revenues decreased by 4% to $5.7 billion, primarily due to the impact of refranchising, while franchised revenues increased by 5%.
  • 3Operating income increased significantly by 14% to $2.0 billion, driven by refranchising benefits, G&A savings, and improved segment performance.
  • 4Diluted earnings per share (EPS) rose by 18% to $1.47, benefiting from share repurchases and operational improvements.
  • 5The company returned $1.6 billion to shareholders in the quarter through share repurchases ($795.7 million) and dividends ($770.6 million).
  • 6Assets and liabilities related to businesses in China and Hong Kong were classified as 'Held for Sale' with an expected gain of $700-$900 million upon completion of the sale in the second half of 2017.
  • 7The company is investing in its 'Experience of the Future' (EOTF) initiative, modernization, digital platforms, and delivery services to enhance customer experience and drive future growth.

Frequently Asked Questions

The primary driver for the decrease in consolidated revenues is the company's ongoing strategy to refranchise its restaurants. As more restaurants are sold to franchisees, the company's revenue from company-operated sales decreases, and it recognizes franchised revenues (like royalties and rent) instead. While this reduces top-line consolidated revenue, it is part of a strategy to optimize the ownership mix for more stable revenue and cash flow streams.

McDonald's reported long-term debt of $27.0 billion as of March 31, 2017, an increase from the prior year due to net debt issuances as part of its capital structure optimization strategy. The company is actively returning capital to shareholders through share repurchases and dividends. In the first quarter of 2017, it repurchased approximately $795.7 million of stock and paid $770.6 million in dividends, aligning with its target to return between $22 and $24 billion to shareholders by 2019.

McDonald's is executing its 'Velocity Growth Plan' focused on longer-term growth. Key initiatives include improving food quality (e.g., fresh quarter-pound beef patties), enhancing the customer experience through the 'Experience of the Future' (EOTF) restaurant modernization program, expanding digital capabilities (mobile ordering and pay, self-order kiosks), and growing its delivery service. These efforts aim to drive guest count growth, retain existing customers, and regain lapsed customers.

The 'Businesses Held for Sale' primarily represent McDonald's operations in China and Hong Kong, which are slated for sale to a developmental licensee. The company expects to retain a 20% ownership stake and record a significant gain upon closing, anticipated in the second half of 2017. This refranchising effort is part of the company's broader strategy to transition to a more franchised model.