10-QPeriod: Q1 FY2020

MCDONALDS CORP Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 7, 2020For Securities:MCD

Summary

McDonald's Corporation's first quarter 2020 results, filed on May 7, 2020, were significantly impacted by the onset of the COVID-19 pandemic. While the first two months of the quarter showed robust comparable sales growth, the latter half of March saw a marked decline due to widespread restaurant closures and stay-at-home orders. This led to a consolidated revenue decrease of 6% and a 19% drop in operating income year-over-year. Despite these challenges, the company demonstrated resilience through its heavily franchised model, which provides a stable revenue stream based on franchisee sales. McDonald's is leveraging its strong drive-thru presence and accelerating investments in delivery and digital capabilities to navigate the pandemic. The company also took proactive steps to preserve financial flexibility, including suspending its share repurchase program and securing significant new financing.

Financial Highlights

50 data points
Beta

Revenue

$4.71B

88.2% Gross Margin

Net Income

$1.11B

23.5% Net Margin

EPS (Diluted)

$1.47

Total Assets

$50.57B

Cash & Equivalents

$5.38B

Free Cash Flow

$1.06B

Financial Statements
Beta
Revenue$4.71B
Cost of Revenue$554.20M
Gross Profit$4.16B
Operating Expenses$3.02B
Operating Income$1.69B
Interest Expense$280.00M
Net Income$1.11B
EPS (Basic)$1.49
EPS (Diluted)$1.47
Shares Outstanding (Basic)744.80M
Shares Outstanding (Diluted)750.70M

Key Highlights

  • 1Consolidated revenues decreased by 6% to $4.71 billion, primarily due to the impact of COVID-19 on sales performance in the latter half of March.
  • 2Diluted earnings per share (EPS) declined by 15% to $1.47, reflecting the challenging operating environment.
  • 3Comparable sales decreased by 3.4% for the quarter, with a significant drop of 22.2% in March, while the first two months showed a positive 7.2% increase.
  • 4The company significantly increased its cash position by drawing on a new $1 billion line of credit and issuing $5.5 billion in long-term debt to bolster financial flexibility during the pandemic.
  • 5McDonald's suspended its share repurchase program in early March to preserve cash, though it had repurchased $868.9 million worth of stock during the quarter.
  • 6The company is actively supporting franchisees by deferring collection of approximately $300 million in rental income and royalties for the first quarter, with further deferrals expected in the second quarter.
  • 7Investments in delivery and digital platforms are being accelerated as critical assets for serving customers during the crisis and for future growth.

Frequently Asked Questions

The primary driver of the financial performance was the significant negative impact of the COVID-19 pandemic, which began to affect sales markedly in the second half of March due to restaurant closures, limited operations, and changes in consumer behavior.

McDonald's proactively managed its liquidity by securing $6.5 billion in new financing during the quarter, including a $1 billion line of credit and $5.5 billion in debt issuances. They also suspended their share repurchase program in early March.

The company expects the ongoing restaurant closures, limited operations, and dramatic changes in consumer behavior due to COVID-19 to continue to have a significant negative impact on revenue growth. They are deferring cash collection of rents and royalties from franchisees and anticipate that cash flow from operations may be negative in the second quarter until collections resume in the latter half of the year.

McDonald's is leveraging its strong drive-thru penetration, accelerating investments in delivery and digital capabilities (like mobile order and pay), and working closely with franchisees to support their operations and financial liquidity. They are also focusing on contactless delivery and adapting to changing customer behaviors.