10-QPeriod: Q1 FY2022

MCDONALDS CORP Quarterly Report for Q1 Ended Mar 31, 2022

Filed May 2, 2022For Securities:MCD

Summary

McDonald's Corporation reported its first-quarter 2022 financial results, showcasing resilience and continued growth despite global economic uncertainties. Total revenues increased by 11% (14% in constant currencies) to $5.67 billion, driven by a broad-based increase in comparable sales across all segments, with a notable 20.4% surge in International Operated Markets. The company's strategic focus on digital, delivery, and drive-thru channels continues to yield positive results, with digital channels contributing over 30% of Systemwide sales in key markets. Despite a 28% year-over-year decrease in net income to $1.10 billion, primarily due to significant non-operating expenses related to a potential international tax settlement ($500 million) and costs associated with suspending operations in Russia and Ukraine ($127 million), the underlying business performance remains strong. Excluding these one-time items, adjusted net income increased by 19%, highlighting the health of the core business. The company also continued its commitment to returning capital to shareholders through share repurchases totaling $1.5 billion and dividend payments of $1.0 billion.

Financial Highlights

49 data points
Beta

Revenue

$5.67B

89.7% Gross Margin

Net Income

$1.10B

19.5% Net Margin

EPS (Diluted)

$1.48

Total Assets

$50.88B

Cash & Equivalents

$2.34B

Free Cash Flow

$1.73B

Financial Statements
Beta
Revenue$5.67B
Cost of Revenue$584.00M
Gross Profit$5.08B
Operating Expenses$3.35B
Operating Income$2.31B
Interest Expense$287.30M
Net Income$1.10B
EPS (Basic)$1.49
EPS (Diluted)$1.48
Shares Outstanding (Basic)742.60M
Shares Outstanding (Diluted)747.60M

Key Highlights

  • 1Consolidated revenues grew 11% (14% in constant currencies) to $5.67 billion, indicating strong top-line performance.
  • 2Global comparable sales increased by 11.8%, with International Operated Markets showing robust growth of 20.4%.
  • 3Digital channels now represent over 30% of Systemwide sales in the top six markets, underscoring the success of the 'Accelerating the Arches' strategy.
  • 4Net income saw a significant decline of 28% to $1.10 billion, largely due to a $500 million reserve for an international tax matter and $127 million in costs related to Russia/Ukraine operations.
  • 5Excluding these one-time charges, adjusted net income increased by 19% (22% in constant currencies), demonstrating underlying business strength.
  • 6The company repurchased approximately $1.5 billion of common stock and paid $1.0 billion in dividends, returning significant capital to shareholders.
  • 7Restaurant unit expansion remains a priority, with expectations of opening approximately 1,300 to 1,400 net new restaurants in 2022.

Frequently Asked Questions

The decrease in net income is primarily attributable to two significant non-operating expenses: a $500 million reserve set aside for a potential settlement related to an international tax matter, and $127 million in costs incurred to support operations in Russia and Ukraine following the suspension of activities in those regions. Excluding these items, the underlying business showed strong growth.

McDonald's temporarily suspended operations in Russia and Ukraine during the first quarter. This resulted in approximately $127 million in pre-tax operating expenses, including employee salaries, lease payments, and costs for inventory that likely will be disposed of. The company is monitoring the situation and expects negative impacts on revenue and income as long as the conflict continues.

McDonald's expects to open approximately 1,700 to 1,800 restaurants globally in 2022, with an anticipated net restaurant addition of 1,300 to 1,400 units. A significant portion of this expansion is planned for the U.S. and International Operated Markets, with developmental licensees and affiliates contributing to over 1,300 openings.

The company is experiencing inflationary impacts on labor and commodities, particularly in U.S. Company-operated restaurants. While the filing doesn't detail specific immediate actions, it notes that strategic menu price increases and strong marketing promotions in the U.S. helped to offset some of these pressures and drive comparable sales growth. The focus on operational efficiency and the franchise model helps to mitigate some of these impacts.