10-QPeriod: Q2 FY2021

MCDONALDS CORP Quarterly Report for Q2 Ended Jun 30, 2021

Filed August 4, 2021For Securities:MCD

Summary

McDonald's Corporation reported a robust financial performance for the second quarter and the first half of 2021, demonstrating significant recovery and growth compared to the pandemic-affected periods in 2020. Total revenues saw a substantial increase of 57% for the quarter and 30% for the six months, driven by strong comparable sales growth across all segments: U.S., International Operated Markets, and International Developmental Licensed Markets. The company's "Accelerating the Arches" strategy, focusing on digital, delivery, drive-thru, marketing, and core menu items, appears to be yielding positive results. Net income surged dramatically, with diluted earnings per share reflecting this strong operational performance. The company also benefited from a significant tax benefit related to a change in the U.K. statutory income tax rate and strategic gains from the sale of McDonald's Japan stock, which contributed to the impressive bottom-line figures. McDonald's continues to emphasize its heavily franchised model, with 93% of its restaurants operated by franchisees. The company's outlook for 2021 remains optimistic, projecting mid-to-high teens Systemwide sales growth in constant currencies and continued capital investments in restaurant modernization and expansion, underscoring a commitment to long-term growth and shareholder value.

Financial Statements
Beta
Revenue$5.89B
Cost of Revenue$579.10M
Gross Profit$5.31B
Operating Expenses$3.20B
Operating Income$2.69B
Interest Expense$296.50M
Net Income$2.22B
EPS (Basic)$2.97
EPS (Diluted)$2.95
Shares Outstanding (Basic)746.60M
Shares Outstanding (Diluted)752.10M

Key Highlights

  • 1Total revenues increased by 57% to $5.9 billion for the quarter ended June 30, 2021, and by 30% to $11.0 billion for the six months ended June 30, 2021, compared to the prior year.
  • 2Global comparable sales increased by a significant 40.5% for the quarter and 22.6% for the six months, indicating strong recovery and consumer demand.
  • 3Net income rose substantially to $2.2 billion for the quarter and $3.8 billion for the six months, with diluted earnings per share of $2.95 and $5.00, respectively.
  • 4The company recognized a significant income tax benefit of $364 million due to a change in the U.K. statutory income tax rate, and strategic gains primarily from the sale of McDonald's Japan stock.
  • 5Consolidated operating income saw substantial increases, rising to $2.7 billion for the quarter and $5.0 billion for the six months.
  • 6The "Accelerating the Arches" strategy, emphasizing digital, delivery, and drive-thru, is showing positive traction, with digital channels contributing nearly $8 billion in Systemwide sales in the top six markets during the first half of 2021.
  • 7The company anticipates 2021 Systemwide sales growth in the mid-to-high teens (in constant currencies) and plans capital expenditures of approximately $2.3 billion.

Frequently Asked Questions

The significant increase in revenues and net income was primarily driven by a strong recovery in comparable sales across all segments (U.S., International Operated Markets, and International Developmental Licensed Markets) as COVID-19 restrictions eased and consumer activity rebounded. This was further boosted by strategic gains from the sale of McDonald's Japan stock and a substantial income tax benefit from a change in the U.K. statutory tax rate.

The "Accelerating the Arches" strategy, focusing on "Double Down on the 3D's: Digital, Delivery and Drive Thru," is performing well. The company reported nearly $8 billion in Systemwide sales from digital channels (mobile app, delivery, kiosk) in its top six markets in the first half of 2021, a 70% increase year-over-year. This indicates strong execution and customer adoption of digital and delivery services.

McDonald's projects continued growth for the full year 2021, expecting Systemwide sales growth in the mid-to-high teens in constant currencies. They also anticipate capital expenditures of approximately $2.3 billion, with a significant portion allocated to new unit expansion and restaurant modernization. The company also expects a free cash flow conversion rate greater than 90%.

For the first six months of 2021, cash used for financing activities totaled $3.6 billion, including $1.7 billion in debt repayments. This indicates a focus on managing debt levels, with plans to reduce current debt to return to pre-COVID-19 leverage ratios. Interest expense decreased year-over-year, reflecting lower average debt balances.