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Share Name | Share Symbol | Market | Type |
---|---|---|---|
McDonalds Corp | NYSE:MCD | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 271.32 | 442 | 10:58:14 |
Delaware | 1-5231 | 36-2361282 | ||
(State or Other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
99.1 | Investor Release of McDonald's Corporation issued October 21, 2014: |
99.2 | McDonald's Corporation: Supplemental Information, Quarter and Nine Months Ended September 30, 2014. |
McDONALD’S CORPORATION | ||||||
(Registrant) | ||||||
Date: | October 21, 2014 | By: | /s/ Kathy Martin | |||
Kathy Martin | ||||||
Corporate Vice President – Assistant Controller |
Exhibit No. 99.1 | Investor Release of McDonald's Corporation issued October 21, 2014: |
Exhibit No. 99.2 | McDonald's Corporation: Supplemental Information, Quarter and Nine Months Ended September 30, 2014. |
FOR IMMEDIATE RELEASE | FOR MORE INFORMATION CONTACT: |
10/21/2014 | Investors: Chris Stent, 630-623-3801 |
Media: Heidi Barker, 630-623-3791 |
• | McDonald's Experience of the Future - a comprehensive restaurant execution concept that elevates the menu and customer experience elements that are hallmarks of the McDonald's brand, and capitalizes on investments in reimaging, service and technology enhancements to improve the look, feel and convenience of the McDonald's experience in ways that are in-tune with today's consumer needs, |
• | Digital Strategy - a global strategy built around simplifying the customer journey across ordering, payment and mobile offers - beginning with the implementation of exciting and relevant new options, such as Apple Pay, |
• | Resourcing for Growth - a diligent review of the organization's structure and use of resources in order to redirect spending toward those initiatives, such as the digital strategy and the McDonald's Experience of the Future, that will support the Company's key long-term growth initiatives. |
• | Global comparable sales decrease of 3.3%, reflecting negative guest traffic in all major segments and the impact of the previously-disclosed supplier issue in certain markets in APMEA |
• | Consolidated revenues decrease of 5% (4% in constant currencies), partly due to the impact of the supplier issue |
• | Consolidated operating income decrease of 14% (14% in constant currencies), approximately half due to the impact of the supplier issue, and the remainder largely due to soft operating performance in the U.S. and certain markets in Europe |
• | Effective tax rate of 44.4%, primarily due to an increase in tax reserves related to certain foreign tax matters |
• | Diluted earnings per share of $1.09, a decrease of 28% (28% in constant currencies). The following items, which total $0.42 per share, negatively impacted diluted earnings per share by 28% (28% in constant currencies) for the quarter: |
◦ | $0.26 per share due to an increase in tax reserves related to certain foreign tax matters |
◦ | $0.15 per share due to the estimated impact of the supplier issue resulting from lost sales and profitability |
◦ | $0.01 per share due to the estimated impact of temporary store closures in Russia and Ukraine |
◦ | Excluding the impact of these items, earnings per share for the quarter would have been relatively flat compared to last year. This supplemental information is provided to help investors understand the impact of recent events on the Company's results. |
• | Returned $4.6 billion year-to-date September to shareholders through dividends and share repurchases, in connection with our $18-$20 billion, 3-year cash return target |
• | On September 18, 2014, McDonald's Board of Directors increased the quarterly cash dividend by 5% to $0.85 per share - the equivalent of $3.40 per share annually - effective for the fourth quarter 2014 |
• | A flatter, more nimble organization that ensures key business decisions are made closer to the customer, by people with local market expertise, |
• | A revamped marketing approach that links national messaging around our food quality, brand transparency and people initiatives - complemented by local ad campaigns that are responsive to individual market preferences, and |
• | A simplified menu that showcases the Company's core products and features locally-relevant menu options - available in new, customizable ways. |
Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||
2014 | 2013 | (Dec) | (Decrease) Excluding Currency Translation | 2014 | 2013 | (Dec) | (Decrease) Excluding Currency Translation | ||||||||||||||||||||
Revenues | $ | 6,987.1 | $ | 7,323.4 | (5 | )% | (4 | )% | $ | 20,869.1 | $ | 21,012.5 | (1 | )% | 0 | % | |||||||||||
Operating income | 2,072.5 | 2,416.7 | (14 | ) | (14 | ) | 6,197.5 | 6,563.9 | (6 | ) | (5 | ) | |||||||||||||||
Net income | 1,068.4 | 1,522.2 | (30 | ) | (29 | ) | 3,660.3 | 4,188.9 | (13 | ) | (12 | ) | |||||||||||||||
Earnings per share-diluted* | $ | 1.09 | $ | 1.52 | (28 | )% | (28 | )% | $ | 3.69 | $ | 4.16 | (11 | )% | (10 | )% |
* | The following items, which total $0.42 per share, negatively impacted diluted earnings per share by 28% (28% in constant currencies) for the quarter and 10% (10% in constant currencies) for the nine months: |
• | $0.26 per share due to an increase in tax reserves for 2003-2008 resulting from an unfavorable lower tax court ruling in a foreign tax jurisdiction, as well as an increase in tax reserves related to audit progression in other foreign tax jurisdictions. |
• | $0.15 per share due to the estimated impact of the previously-disclosed supplier issue in China. In mid-July, food quality issues were discovered at a supplier to McDonald's and other food companies in China. As a consequence, results in China, Japan and certain other markets were negatively impacted due to lost sales and profitability, including expenses associated with our recovery efforts. |
• | $0.01 per share due to the estimated impact of temporary store closures in Russia and Ukraine. |
• | Excluding the impact of these items, earnings per share for the quarter would have been relatively flat compared to last year. This supplemental information is provided to help investors understand the impact of recent events on the Company's results. |
Dollars and shares in millions, except per share data | ||||||||||||||
Quarters Ended September 30, | 2014 | 2013 | Inc/ (Dec) | |||||||||||
Revenues | ||||||||||||||
Sales by Company-operated restaurants | $ | 4,596.2 | $ | 4,923.1 | $ | (326.9 | ) | (7 | )% | |||||
Revenues from franchised restaurants | 2,390.9 | 2,400.3 | (9.4 | ) | 0 | |||||||||
TOTAL REVENUES | 6,987.1 | 7,323.4 | (336.3 | ) | (5 | ) | ||||||||
Operating costs and expenses | ||||||||||||||
Company-operated restaurant expenses | 3,874.7 | 4,004.4 | (129.7 | ) | (3 | ) | ||||||||
Franchised restaurants—occupancy expenses | 431.2 | 408.4 | 22.8 | 6 | ||||||||||
Selling, general & administrative expenses | 575.8 | 554.3 | 21.5 | 4 | ||||||||||
Other operating (income) expense, net | 32.9 | (60.4 | ) | 93.3 | n/m | |||||||||
Total operating costs and expenses | 4,914.6 | 4,906.7 | 7.9 | 0 | ||||||||||
OPERATING INCOME | 2,072.5 | 2,416.7 | (344.2 | ) | (14 | ) | ||||||||
Interest expense | 149.3 | 130.5 | 18.8 | 14 | ||||||||||
Nonoperating (income) expense, net | 2.1 | 13.6 | (11.5 | ) | (84 | ) | ||||||||
Income before provision for income taxes | 1,921.1 | 2,272.6 | (351.5 | ) | (15 | ) | ||||||||
Provision for income taxes | 852.7 | 750.4 | 102.3 | 14 | ||||||||||
NET INCOME | $ | 1,068.4 | $ | 1,522.2 | $ | (453.8 | ) | (30 | )% | |||||
EARNINGS PER SHARE-DILUTED | $ | 1.09 | $ | 1.52 | $ | (0.43 | ) | (28 | )% | |||||
Weighted average shares outstanding-diluted | 983.8 | 1,004.2 | (20.4 | ) | (2 | )% |
Dollars and shares in millions, except per share data | ||||||||||||||
Nine Months Ended September 30, | 2014 | 2013 | Inc/ (Dec) | |||||||||||
Revenues | ||||||||||||||
Sales by Company-operated restaurants | $ | 13,872.6 | $ | 14,129.9 | $ | (257.3 | ) | (2 | )% | |||||
Revenues from franchised restaurants | 6,996.5 | 6,882.6 | 113.9 | 2 | ||||||||||
TOTAL REVENUES | 20,869.1 | 21,012.5 | (143.4 | ) | (1 | ) | ||||||||
Operating costs and expenses | ||||||||||||||
Company-operated restaurant expenses | 11,611.6 | 11,649.9 | (38.3 | ) | 0 | |||||||||
Franchised restaurants—occupancy expenses | 1,275.9 | 1,202.7 | 73.2 | 6 | ||||||||||
Selling, general & administrative expenses | 1,825.4 | 1,757.8 | 67.6 | 4 | ||||||||||
Other operating (income) expense, net | (41.3 | ) | (161.8 | ) | 120.5 | 75 | ||||||||
Total operating costs and expenses | 14,671.6 | 14,448.6 | 223.0 | 2 | ||||||||||
OPERATING INCOME | 6,197.5 | 6,563.9 | (366.4 | ) | (6 | ) | ||||||||
Interest expense | 422.7 | 388.4 | 34.3 | 9 | ||||||||||
Nonoperating (income) expense, net | (1.1 | ) | 26.2 | (27.3 | ) | n/m | ||||||||
Income before provision for income taxes | 5,775.9 | 6,149.3 | (373.4 | ) | (6 | ) | ||||||||
Provision for income taxes | 2,115.6 | 1,960.4 | 155.2 | 8 | ||||||||||
NET INCOME | $ | 3,660.3 | $ | 4,188.9 | $ | (528.6 | ) | (13 | )% | |||||
EARNINGS PER SHARE-DILUTED | $ | 3.69 | $ | 4.16 | $ | (0.47 | ) | (11 | )% | |||||
Weighted average shares outstanding-diluted | 991.1 | 1,008.2 | (17.1 | ) | (2 | )% |
Impact of Foreign Currency Translation | |
Net Income and Diluted Earnings per Share | |
Revenues | |
Restaurant Margins | |
Selling, General & Administrative Expenses | |
Other Operating (Income) Expense, Net | |
Operating Income | |
Interest Expense | |
Nonoperating (Income) Expense, Net | |
Income Taxes | |
Outlook | |
Restaurant Information | |
Risk Factors and Cautionary Statement Regarding Forward-Looking Statements |
Currency Translation (Cost) | ||||||||||||
Quarters Ended September 30, | 2014 | 2013 | 2014 | |||||||||
Revenues | $ | 6,987.1 | $ | 7,323.4 | $ | (49.8 | ) | |||||
Company-operated margins | 721.5 | 918.7 | (2.5 | ) | ||||||||
Franchised margins | 1,959.7 | 1,991.9 | (12.5 | ) | ||||||||
Selling, general & administrative expenses | 575.8 | 554.3 | 0.0 | |||||||||
Operating income | 2,072.5 | 2,416.7 | (12.3 | ) | ||||||||
Net income | 1,068.4 | 1,522.2 | (10.1 | ) | ||||||||
Earnings per share-diluted | $ | 1.09 | $ | 1.52 | $ | (0.01 | ) | |||||
Currency Translation (Cost) | ||||||||||||
Nine Months Ended September 30, | 2014 | 2013 | 2014 | |||||||||
Revenues | $ | 20,869.1 | $ | 21,012.5 | $ | (125.4 | ) | |||||
Company-operated margins | 2,261.0 | 2,480.0 | (11.3 | ) | ||||||||
Franchised margins | 5,720.6 | 5,679.9 | (26.5 | ) | ||||||||
Selling, general & administrative expenses | 1,825.4 | 1,757.8 | (2.0 | ) | ||||||||
Operating income | 6,197.5 | 6,563.9 | (38.8 | ) | ||||||||
Net income | 3,660.3 | 4,188.9 | (35.9 | ) | ||||||||
Earnings per share-diluted | $ | 3.69 | $ | 4.16 | $ | (0.04 | ) |
• | $0.26 per share due to an increase in tax reserves for 2003-2008 resulting from an unfavorable lower tax court ruling in a foreign tax jurisdiction, as well as an increase in tax reserves related to audit progression in other foreign tax jurisdictions. |
• | $0.15 per share due to the estimated impact of the previously-disclosed supplier issue in China. In mid-July, food quality issues were discovered at a supplier to McDonald's and other food companies in China. As a consequence, results in China, Japan and certain other markets were negatively impacted due to lost sales and profitability, including expenses associated with our recovery efforts. |
• | $0.01 per share due to the estimated impact of temporary store closures in Russia and Ukraine. |
• | Excluding the impact of these items, earnings per share for the quarter would have been relatively flat compared to last year. This supplemental information is provided to help investors understand the impact of recent events on the Company's results. |
Quarters Ended September 30, | 2014 | 2013 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
Company-operated sales | |||||||||||
U.S. | $ | 1,097.3 | $ | 1,161.9 | (6 | )% | (6 | )% | |||
Europe | 2,023.6 | 2,123.7 | (5 | ) | (3 | ) | |||||
APMEA* | 1,278.0 | 1,420.9 | (10 | ) | (11 | ) | |||||
Other Countries & Corporate** | 197.3 | 216.6 | (9 | ) | (5 | ) | |||||
Total | $ | 4,596.2 | $ | 4,923.1 | (7 | )% | (6 | )% | |||
Franchised revenues | |||||||||||
U.S. | $ | 1,104.8 | $ | 1,127.1 | (2 | )% | (2 | )% | |||
Europe | 860.5 | 831.6 | 3 | 3 | |||||||
APMEA | 252.5 | 262.2 | (4 | ) | (4 | ) | |||||
Other Countries & Corporate | 173.1 | 179.4 | (3 | ) | 8 | ||||||
Total | $ | 2,390.9 | $ | 2,400.3 | 0 | % | 0 | % | |||
Total revenues | |||||||||||
U.S. | $ | 2,202.1 | $ | 2,289.0 | (4 | )% | (4 | )% | |||
Europe | 2,884.1 | 2,955.3 | (2 | ) | (1 | ) | |||||
APMEA | 1,530.5 | 1,683.1 | (9 | ) | (10 | ) | |||||
Other Countries & Corporate | 370.4 | 396.0 | (6 | ) | 1 | ||||||
Total | $ | 6,987.1 | $ | 7,323.4 | (5 | )% | (4 | )% | |||
Nine Months Ended September 30, | 2014 | 2013 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
Company-operated sales | |||||||||||
U.S. | $ | 3,271.6 | $ | 3,397.6 | (4 | )% | (4 | )% | |||
Europe | 6,023.6 | 6,044.1 | 0 | 0 | |||||||
APMEA | 4,022.0 | 4,086.1 | (2 | ) | (1 | ) | |||||
Other Countries & Corporate | 555.4 | 602.1 | (8 | ) | (2 | ) | |||||
Total | $ | 13,872.6 | $ | 14,129.9 | (2 | )% | (1 | )% | |||
Franchised revenues | |||||||||||
U.S. | $ | 3,233.6 | $ | 3,262.3 | (1 | )% | (1 | )% | |||
Europe | 2,486.0 | 2,334.7 | 6 | 3 | |||||||
APMEA | 791.6 | 780.2 | 1 | 6 | |||||||
Other Countries & Corporate | 485.3 | 505.4 | (4 | ) | 8 | ||||||
Total | $ | 6,996.5 | $ | 6,882.6 | 2 | % | 2 | % | |||
Total revenues | |||||||||||
U.S. | $ | 6,505.2 | $ | 6,659.9 | (2 | )% | (2 | )% | |||
Europe | 8,509.6 | 8,378.8 | 2 | 1 | |||||||
APMEA | 4,813.6 | 4,866.3 | (1 | ) | 0 | ||||||
Other Countries & Corporate | 1,040.7 | 1,107.5 | (6 | ) | 3 | ||||||
Total | $ | 20,869.1 | $ | 21,012.5 | (1 | )% | 0 | % | |||
* | APMEA represents Asia/Pacific, Middle East and Africa. |
** | Other Countries & Corporate represents operations in Canada and Latin America, as well as Corporate activities. |
• | Revenues: Revenues decreased 5% (4% in constant currencies) for the quarter and decreased 1% (0% in constant currencies) for the nine months, reflecting negative comparable sales, which had a more significant impact for the quarter. |
• | U.S.: Revenues decreased for the quarter and nine months due to negative comparable sales, reflecting negative comparable guest counts amid ongoing broad-based challenges, including sustained competitive activity. |
• | Europe: The constant currency results for the quarter and nine months reflected a benefit from expansion, primarily in Russia, and positive comparable sales in the U.K. Both periods were impacted by negative comparable sales and refranchising in Germany and negative comparable sales in Russia. |
• | APMEA: The constant currency decrease for the quarter and flat results for the nine months were driven by negative comparable sales in China, Japan and certain other markets, largely impacted by the supplier issue. Results for both periods benefited from expansion, partly offset by refranchising in Australia. |
Increase/ (Decrease) | ||||||||||||||||||
Months Ended | Quarters Ended | Nine Months Ended | ||||||||||||||||
September 30,* | September 30, | September 30,** | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | 2014 | 2013 | |||||||||||||
U.S. | (4.1 | )% | 0.4 | % | (3.3 | )% | 0.7 | % | (2.2 | )% | 0.2 | % | ||||||
Europe | (4.2 | ) | (0.8 | ) | (1.4 | ) | 0.2 | (0.4 | ) | (0.3 | ) | |||||||
APMEA | (7.5 | ) | (2.1 | ) | (9.9 | ) | (1.4 | ) | (2.7 | ) | (1.7 | ) | ||||||
Other Countries & Corporate | 6.1 | 4.7 | 4.3 | 8.6 | 5.3 | 7.0 | ||||||||||||
Total | (3.8 | )% | (0.1 | )% | (3.3 | )% | 0.9 | % | (1.0 | )% | 0.3 | % |
* | The number of weekdays and weekend days can impact reported comparable sales. The calendar shift/trading day adjustment varied by area of the world, ranging from (1.5%) to (0.1%) in September 2014. In addition, the timing of holidays can impact comparable sales. |
** | On a consolidated basis, comparable guest counts (the number of transactions at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months, including those temporarily closed) decreased 3.7% and 1.4% for the nine months 2014 and 2013, respectively. |
Month Ended | Quarter Ended | Nine Months Ended | ||||||||||||||||
September 30, 2014 | September 30, 2014 | September 30, 2014 | ||||||||||||||||
(Decrease) | Inc/ (Dec) Excluding Currency Translation | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||||||||
U.S. | (3 | )% | (3 | )% | (2 | )% | (2 | )% | (1 | )% | (1 | )% | ||||||
Europe | (6 | ) | (2 | ) | 1 | 1 | 4 | 2 | ||||||||||
APMEA | (6 | ) | (3 | ) | (7 | ) | (6 | ) | (2 | ) | 2 | |||||||
Other Countries & Corporate | (8 | ) | 9 | (7 | ) | 8 | (6 | ) | 9 | |||||||||
Total | (5 | )% | (1 | )% | (3 | )% | (1 | )% | 0 | % | 1 | % |
Quarters Ended September 30, | 2014 | 2013 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | $ | 7,975.1 | $ | 8,129.9 | (2 | )% | (2 | )% | |||
Europe | 4,860.9 | 4,677.4 | 4 | 3 | |||||||
APMEA | 3,065.4 | 3,238.0 | (5 | ) | (4 | ) | |||||
Other Countries & Corporate | 2,024.6 | 2,183.7 | (7 | ) | 9 | ||||||
Total* | $ | 17,926.0 | $ | 18,229.0 | (2 | )% | 0 | % | |||
Nine Months Ended September 30, | 2014 | 2013 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | $ | 23,371.5 | $ | 23,590.0 | (1 | )% | (1 | )% | |||
Europe | 13,993.1 | 13,126.8 | 7 | 3 | |||||||
APMEA | 9,345.5 | 9,574.6 | (2 | ) | 3 | ||||||
Other Countries & Corporate | 5,866.4 | 6,253.5 | (6 | ) | 10 | ||||||
Total* | $ | 52,576.5 | $ | 52,544.9 | 0 | % | 2 | % |
* | Sales from developmental licensed restaurants and foreign affiliated markets where the Company earns a royalty based on a percent of sales totaled $3,492.4 million and $3,862.8 million for the quarters 2014 and 2013, respectively, and $10,610.8 million and $11,235.7 million for the nine months 2014 and 2013, respectively. Results were negatively impacted by the supplier issue and the weaker Yen in Japan, and many weaker currencies in Latin America. The remaining balance of franchised sales is derived from conventional franchised restaurants where the Company earns rent and royalties based primarily on a percent of sales. |
Percent | Amount | Inc/ (Dec) Excluding Currency Translation | ||||||||||||||
Quarters Ended September 30, | 2014 | 2013 | 2014 | 2013 | Inc/ (Dec) | |||||||||||
Franchised | ||||||||||||||||
U.S. | 83.4 | % | 84.0 | % | $ | 921.3 | $ | 946.3 | (3 | )% | (3 | )% | ||||
Europe | 78.6 | 79.3 | 676.6 | 659.1 | 3 | 2 | ||||||||||
APMEA | 84.3 | 88.1 | 212.9 | 230.8 | (8 | ) | (8 | ) | ||||||||
Other Countries & Corporate | 86.0 | 86.8 | 148.9 | 155.7 | (4 | ) | 8 | |||||||||
Total | 82.0 | % | 83.0 | % | $ | 1,959.7 | $ | 1,991.9 | (2 | )% | (1 | )% | ||||
Company-operated | ||||||||||||||||
U.S. | 16.7 | % | 18.4 | % | $ | 182.9 | $ | 214.3 | (15 | )% | (15 | )% | ||||
Europe | 19.5 | 21.1 | 394.6 | 448.4 | (12 | ) | (11 | ) | ||||||||
APMEA | 8.8 | 15.3 | 111.9 | 217.7 | (49 | ) | (50 | ) | ||||||||
Other Countries & Corporate | 16.3 | 17.7 | 32.1 | 38.3 | (16 | ) | (12 | ) | ||||||||
Total | 15.7 | % | 18.7 | % | $ | 721.5 | $ | 918.7 | (21 | )% | (21 | )% | ||||
Percent | Amount | Inc/ (Dec) Excluding Currency Translation | ||||||||||||||
Nine Months Ended September 30, | 2014 | 2013 | 2014 | 2013 | Inc/ (Dec) | |||||||||||
Franchised | ||||||||||||||||
U.S. | 83.2 | % | 83.7 | % | $ | 2,691.8 | $ | 2,730.2 | (1 | )% | (1 | )% | ||||
Europe | 77.9 | 78.4 | 1,936.0 | 1,829.4 | 6 | 2 | ||||||||||
APMEA | 85.6 | 87.8 | 677.6 | 685.0 | (1 | ) | 4 | |||||||||
Other Countries & Corporate | 85.6 | 86.1 | 415.2 | 435.3 | (5 | ) | 8 | |||||||||
Total | 81.8 | % | 82.5 | % | $ | 5,720.6 | $ | 5,679.9 | 1 | % | 1 | % | ||||
Company-operated | ||||||||||||||||
U.S. | 17.5 | % | 18.2 | % | $ | 570.9 | $ | 619.0 | (8 | )% | (8 | )% | ||||
Europe | 18.4 | 19.2 | 1,108.3 | 1,159.7 | (4 | ) | (5 | ) | ||||||||
APMEA | 12.3 | 14.7 | 493.1 | 602.6 | (18 | ) | (17 | ) | ||||||||
Other Countries & Corporate | 16.0 | 16.4 | 88.7 | 98.7 | (10 | ) | (4 | ) | ||||||||
Total | 16.3 | % | 17.6 | % | $ | 2,261.0 | $ | 2,480.0 | (9 | )% | (8 | )% |
• | Franchised: Franchised margin dollars decreased $32.2 million or 2% (1% in constant currencies) for the quarter and increased $40.7 million or 1% (1% in constant currencies) for the nine months. These results reflected a benefit from expansion and refranchising, offset by negative comparable sales performance, which had a more significant impact for the quarter. |
• | U.S.: The franchised margin percent decreased for the quarter and nine months primarily due to negative comparable sales and higher occupancy costs. |
• | Europe: The franchised margin percent decreased for the quarter and nine months primarily due to the impact of refranchising and negative comparable sales in Germany and certain other markets. |
• | APMEA: The franchised margin percent decreased for the quarter and nine months primarily due to the negative impact in China and Japan from the supplier issue, and higher occupancy costs. The margin percent decrease also reflected a higher proportion of conventionally-franchised restaurants relative to developmentally-licensed and affiliate restaurants. While this has a dilutive effect on the franchised margin percent, it results in higher franchised margin dollars. |
• | Company-operated: Company-operated margin dollars decreased $197.2 million or 21% (21% in constant currencies) for the quarter and decreased $219.0 million or 9% (8% in constant currencies) for the nine months. |
• | U.S.: The Company-operated margin percent decreased for the quarter and nine months as the positive impact of a higher average check was more than offset by negative comparable guest counts, higher commodity costs and higher labor. |
• | Europe: The Company-operated margin percent decreased for the quarter and nine months, reflecting weaker results in Russia and Ukraine, as a challenging operating environment negatively impacted comparable sales performance and drove higher imported commodity costs due to weaker currencies. |
• | APMEA: The Company-operated margin percent for the quarter and nine months decreased primarily due to negative comparable sales in China and certain other markets, largely impacted by the supplier issue. |
Quarters Ended September 30, | Nine Months Ended September 30, | |||||||||
2014 | 2013 | 2014 | 2013 | |||||||
Food & paper | 33.6 | % | 33.7 | % | 33.6 | % | 33.7 | % | ||
Payroll & employee benefits | 26.3 | 24.7 | 26.1 | 25.6 | ||||||
Occupancy & other operating expenses | 24.4 | 22.9 | 24.0 | 23.1 | ||||||
Total expenses | 84.3 | % | 81.3 | % | 83.7 | % | 82.4 | % | ||
Company-operated margins | 15.7 | % | 18.7 | % | 16.3 | % | 17.6 | % |
• | Selling, general and administrative expenses increased $21.5 million or 4% (4% in constant currencies) for the quarter and increased $67.6 million or 4% (4% in constant currencies) for the nine months primarily due to higher employee and other costs, partly offset by a reduction in incentive-based compensation. The nine months also included costs related to the 2014 Winter Olympics and Worldwide Owner/Operator Convention. |
• | For the nine months, selling, general and administrative expenses as a percent of revenues increased to 8.7% for 2014 compared with 8.4% for 2013, and as a percent of Systemwide sales was 2.7% for 2014 and 2.6% for 2013. |
Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||||
Gains on sales of restaurant businesses | $ | (26.1 | ) | $ | (45.4 | ) | $ | (77.0 | ) | $ | (129.5 | ) | |||||
Equity in earnings of unconsolidated affiliates | 25.2 | (23.6 | ) | (5.7 | ) | (67.2 | ) | ||||||||||
Asset dispositions and other (income) expense, net | 33.8 | 8.6 | 41.4 | 34.9 | |||||||||||||
Total | $ | 32.9 | $ | (60.4 | ) | $ | (41.3 | ) | $ | (161.8 | ) |
• | Gains on sales of restaurant businesses decreased for the quarter and nine months, primarily in Australia, U.S. and China. |
• | Equity in earnings of unconsolidated affiliates decreased for the quarter and nine months primarily due to weaker operating performance in Japan, largely attributable to the supplier issue. |
• | Asset dispositions and other expense increased for the quarter and nine months, primarily due to charges related to the supplier issue and settlement expenses in the U.S., partly offset by a gain on a property sale in Europe. |
Quarters Ended September 30, | 2014 | 2013 | (Decrease) | Inc/ (Dec) Excluding Currency Translation | ||||||||
U.S. | $ | 914.4 | $ | 1,021.7 | (10 | )% | (10 | )% | ||||
Europe | 926.2 | 944.4 | (2 | ) | (2 | ) | ||||||
APMEA | 177.9 | 391.8 | (55 | ) | (56 | ) | ||||||
Other Countries & Corporate | 54.0 | 58.8 | (8 | ) | 25 | |||||||
Total | $ | 2,072.5 | $ | 2,416.7 | (14 | )% | (14 | )% | ||||
Nine Months Ended September 30, | 2014 | 2013 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||
U.S. | $ | 2,715.7 | $ | 2,834.3 | (4 | )% | (4 | )% | ||||
Europe | 2,532.3 | 2,503.3 | 1 | (1 | ) | |||||||
APMEA | 871.3 | 1,128.4 | (23 | ) | (20 | ) | ||||||
Other Countries & Corporate | 78.2 | 97.9 | (20 | ) | 39 | |||||||
Total | $ | 6,197.5 | $ | 6,563.9 | (6 | )% | (5 | )% |
• | Operating Income: Operating income decreased $344.2 million or 14% (14% in constant currencies) for the quarter and decreased $366.4 million or 6% (5% in constant currencies) for the nine months. Approximately half of the decrease for both periods was due to the supplier issue. |
• | U.S.: Operating income for the quarter and nine months decreased due to lower restaurant margin dollars and lower other operating income. |
• | Europe: Constant currency operating income for the quarter and nine months decreased, reflecting lower Company-operated margin dollars, primarily in Russia and Ukraine, higher franchised margin dollars and higher other operating income. The nine months was also impacted by selling, general and administrative expenses associated with the 2014 Winter Olympics. |
• | APMEA: Constant currency operating income for the quarter and nine months decreased primarily due to the supplier issue impacting results in China, Japan and certain other markets by an estimated $180 million. |
• | Interest expense increased 14% (14% in constant currencies) for the quarter and increased 9% (7% in constant currencies) for the nine months, primarily due to higher average debt balances. |
Quarters Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Interest income | $ | (5.5 | ) | $ | (3.4 | ) | $ | (16.3 | ) | $ | (10.5 | ) | |||
Foreign currency and hedging activity | 4.9 | 3.7 | 11.4 | 9.8 | |||||||||||
Other (income) expense, net | 2.7 | 13.3 | 3.8 | 26.9 | |||||||||||
Total | $ | 2.1 | $ | 13.6 | $ | (1.1 | ) | $ | 26.2 |
• | The effective income tax rate was 44.4% and 33.0% for the quarters 2014 and 2013, respectively, and 36.6% and 31.9% for the nine months 2014 and 2013, respectively. |
• | The higher effective income tax rate for the quarter and nine months was primarily due to a change in tax reserves for 2003-2008 resulting from an unfavorable lower tax court ruling in a foreign tax jurisdiction, as well as the impact of changes in tax reserves related to audit progression in other foreign tax jurisdictions. Excluding this impact, the effective income tax rate would have been 31.0% and 32.1% for the quarter and nine months, respectively. |
• | The 2013 effective income tax rate for the nine months included a tax benefit of nearly $50 million, reflecting the retroactive impact of certain tax benefits as a result of the American Taxpayer Relief Act of 2012. |
• | Changes in Systemwide sales are driven by comparable sales and net restaurant unit expansion. The Company expects net restaurant additions to add approximately 2.5 percentage points to 2014 Systemwide sales growth (in constant currencies), most of which will be due to the 949 net restaurants (1,098 net traditional openings less 149 net satellite closings) added in 2013. |
• | The Company does not generally provide specific guidance on changes in comparable sales. However, as a perspective, assuming no change in cost structure, a 1 percentage point change in comparable sales for either the U.S. or Europe would change annual diluted earnings per share by about 4 cents. |
• | With about 75% of McDonald's grocery bill comprised of 10 different commodities, a basket of goods approach is the most comprehensive way to look at the Company's commodity costs. For the full year 2014, the total basket of goods cost is expected to increase 2.5%-3.0% in the U.S. and 0.0%-1.0% in Europe. |
• | The Company expects full-year 2014 selling, general and administrative expenses to increase approximately 4%-5% in constant currencies. The increase is primarily due to expenses associated with our 2014 Worldwide Owner/Operator Convention and sponsorship of the Winter Olympics, and costs related to long-term growth initiatives. |
• | Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2014 to increase approximately 9-10% compared with 2013. |
• | A significant part of the Company's operating income is generated outside the U.S., and about 40% of its total debt is denominated in foreign currencies. Accordingly, earnings are affected by changes in foreign currency exchange rates, particularly the Euro, British Pound, Australian Dollar and Canadian Dollar. Collectively, these currencies represent approximately 65% of the Company's operating income outside the U.S. If all four of these currencies moved by 10% in the same direction, the Company's annual diluted earnings per share would change by about 25 cents. |
• | The Company expects the effective income tax rate for the full-year 2014 to be 35% to 37%. |
• | The Company expects capital expenditures for 2014 to be approximately $2.7 billion. Over half of this amount will be used to open new restaurants. The Company expects to open approximately 1,400 restaurants including about 500 restaurants in affiliated and developmental licensee markets, such as Japan and Latin America, where the Company does not fund any capital expenditures. The Company expects net additions of between 900-1,000 restaurants. The remaining capital will be used to reinvest in existing locations, in part through reimaging. About 1,000 restaurants worldwide are expected to be reimaged, including locations in affiliated and developmental licensee markets that require no capital investment from the Company. |
• | The Company has returned $4.6 billion year-to-date September to shareholders through dividends and share repurchases, in connection with our 3-year cash return target of $18-$20 billion for 2014 to 2016. This target is based on several ongoing factors, including the significant free cash flow generated from our operations, as well as the use of cash proceeds from debt additions and refranchising of at least 1,500 restaurants. |
At September 30, | 2014 | 2013 | Inc/ (Dec) | |||
U.S.* | 14,327 | 14,213 | 114 | |||
Europe | ||||||
Germany* | 1,470 | 1,453 | 17 | |||
France | 1,319 | 1,283 | 36 | |||
United Kingdom | 1,239 | 1,220 | 19 | |||
Italy | 493 | 470 | 23 | |||
Spain | 470 | 456 | 14 | |||
Russia | 446 | 384 | 62 | |||
Other | 2,295 | 2,225 | 70 | |||
Total Europe | 7,732 | 7,491 | 241 | |||
APMEA | ||||||
Japan* | 3,100 | 3,191 | (91 | ) | ||
China | 2,080 | 1,851 | 229 | |||
Australia | 929 | 906 | 23 | |||
Taiwan | 414 | 396 | 18 | |||
Other | 3,629 | 3,337 | 292 | |||
Total APMEA | 10,152 | 9,681 | 471 | |||
Other Countries & Corporate | ||||||
Canada* | 1,424 | 1,404 | 20 | |||
Brazil | 831 | 763 | 68 | |||
Other | 1,398 | 1,371 | 27 | |||
Total Other Countries & Corporate | 3,653 | 3,538 | 115 | |||
Systemwide restaurants | 35,864 | 34,923 | 941 | |||
Countries | 119 | 119 | 0 |
* | Reflected the following satellites: At September 30, 2014 - U.S. 939, Germany 197, Japan 604, Canada 418; At September 30, 2013 - U.S. 976, Germany 187, Japan 709, Canada 431. |
At September 30, | 2014 | 2013 | Inc/ (Dec) | |||
U.S. | ||||||
Conventional franchised | 12,795 | 12,678 | 117 | |||
Company-operated | 1,532 | 1,535 | (3 | ) | ||
Total U.S. | 14,327 | 14,213 | 114 | |||
Europe | ||||||
Conventional franchised | 5,408 | 5,235 | 173 | |||
Developmental licensed | 263 | 226 | 37 | |||
Total Franchised | 5,671 | 5,461 | 210 | |||
Company-operated | 2,061 | 2,030 | 31 | |||
Total Europe | 7,732 | 7,491 | 241 | |||
APMEA | ||||||
Conventional franchised | 1,156 | 1,019 | 137 | |||
Developmental licensed | 2,609 | 2,247 | 362 | |||
Foreign affiliated | 3,540 | 3,598 | (58 | ) | ||
Total Franchised | 7,305 | 6,864 | 441 | |||
Company-operated | 2,847 | 2,817 | 30 | |||
Total APMEA | 10,152 | 9,681 | 471 | |||
Other Countries & Corporate | ||||||
Conventional franchised | 1,214 | 1,185 | 29 | |||
Developmental licensed | 2,187 | 2,093 | 94 | |||
Total Franchised | 3,401 | 3,278 | 123 | |||
Company-operated | 252 | 260 | (8 | ) | ||
Total Other Countries & Corporate | 3,653 | 3,538 | 115 | |||
Systemwide | ||||||
Conventional franchised | 20,573 | 20,117 | 456 | |||
Developmental licensed | 5,059 | 4,566 | 493 | |||
Foreign affiliated | 3,540 | 3,598 | (58 | ) | ||
Total Franchised | 29,172 | 28,281 | 891 | |||
Company-operated | 6,692 | 6,642 | 50 | |||
Total Systemwide | 35,864 | 34,923 | 941 |
• | Our System’s ability to anticipate and respond effectively to trends or other factors that affect the IEO segment and our competitive position in the diverse markets we serve, such as spending patterns, demographic changes, trends in food preparation, consumer preferences and publicity about us, all of which can drive perceptions of our business or affect the willingness of other companies to enter into site, supply or other arrangements with us; |
• | Our System’s continued innovation in all aspects of the McDonald’s experience, including successful menu enhancements, to differentiate the McDonald’s experience in a way that balances value with margin levels; |
• | Our System’s ability to develop robust menu enhancements, and whether these will result in sales gains; our System’s ability to manage the complexity of our restaurant operations resulting from providing customers additional choices; our System’s ability to continuously adapt in order to deliver a locally-relevant experience in a highly competitive, value-driven operating environment; and our System’s ability to leverage promotional or operating successes across markets; |
• | The risks associated with our franchise business model, including whether our franchisees have the experience and financial resources to be effective operators and remain aligned with us on operating, promotional and capital-intensive initiatives, especially during periods of softer sales performance and the potential impact on us if they experience food safety or other operational problems or project a brand image inconsistent with our values, particularly if our contractual and other rights and remedies are limited, costly to exercise or subject to litigation; |
• | Our ability to achieve the benefits of our stated refranchising goals, which will depend on various factors including the returns we realize from such transactions and whether the resulting ownership mix supports our financial objectives;. |
• | The success of our System’s tiered approach to menu offerings and the impact of changes we may make to our value menu, which has been and will continue to be an important component of our System’s overall menu strategy; the impact of pricing, product, marketing and promotional plans on sales and margins; and our System’s ability to adjust these plans to respond quickly to changing economic and competitive conditions; |
• | Our System’s ability to meet expectations for quality food served in clean and friendly environments by motivating McDonald’s restaurant personnel and our franchisees to achieve consistency and high service levels; |
• | Our System’s ability to drive restaurant improvements that achieve optimal capacity, particularly during peak mealtime hours; |
• | Our System’s ability to respond effectively to adverse perceptions about the quick-service category of the IEO segment or about our food (including its nutritional content and preparation), promotions and premiums, such as Happy Meal toys (collectively, our “products”), how we source the commodities we use, and our ability to manage the potential impact on McDonald’s of food-borne illnesses and food or product safety issues (such as the supplier issue in China); |
• | Our System’s plans for restaurant reimaging and rebuilding, and whether we are able to identify and develop restaurant sites consistent with our System’s plans for net growth of System-wide restaurants and achieve our sales and profitability targets; |
• | Whether we will be able to develop an effective and compelling global digital strategy in the future that will enhance customer engagement and whether competitor loyalty initiatives will impact our ability to attract customers, particularly as these initiatives become established and customer acquisition costs (i.e., switching costs) increase; |
• | The success of our sustainability initiatives to support our brand ambition of good food, good people and good neighbor, which will require System-wide coordination and alignment, and whether we will be effective in achieving our stated sustainability goals and addressing these and other matters of social responsibility in a way that inspires trust and confidence; |
• | The costs and risks associated with our System’s increasing reliance on technological and digital systems (e.g., point-of-sale and other in-store systems or platforms) that support our System-wide restaurants; the risk that we will not fully realize the benefits of the significant investments we are making to enhance the customer experience; the potential for technology system performance failures, security breaches involving our systems or those of third-party providers; legal risks associated with data collection, protection and management, in particular as it relates to information we collect when we provide technology-related services to franchisees; and litigation risk involving intellectual property rights; |
• | The impact of economic action, such as boycotts or protests, work stoppages, and supply chain interruptions (including due to lack of supply or price increases) that can adversely affect us or the suppliers, franchisees and others that are also part of the McDonald’s System and whose performance has a material impact on our results; |
• | The impact of campaigns by labor organizations and activists to promote adverse perceptions of the quick-service category of the IEO segment or our brand, management, suppliers or franchisees, or to promote or threaten specific economic action involving the industry, McDonald’s or our suppliers and franchisees; and |
• | Our System’s ability to recruit and retain qualified personnel to manage our operations and growth. |
• | Whether our strategies will be effective in enabling market share gains, while at the same time enabling us to achieve our targeted operating income growth despite the current adverse economic conditions, intense competition and increasingly complex and costly advertising environment; |
• | The effectiveness of our supply chain management to assure reliable and sufficient product supply on favorable terms; |
• | The impact on consumer disposable income levels and spending habits of governmental actions to manage national economic matters, whether through austerity or stimulus measures and initiatives intended to control wages, unemployment, credit availability, inflation, taxation and other economic drivers; |
• | The impact on restaurant sales and margins of ongoing commodity price volatility, and the effectiveness of pricing, hedging and other actions taken to address this environment; |
• | The impact of the trend toward higher wages and social expenses on the margins of our Company-owned restaurants; |
• | The impact of foreign exchange and interest rates on our financial condition and results; |
• | The challenges and uncertainties associated with operating in developing markets, which may entail a relatively higher risk of political instability, economic volatility, crime, corruption and social and ethnic unrest, including the ongoing events (such as store closures) in the Ukraine and Russia, all of which are exacerbated in many cases by a lack of an independent and experienced judiciary and uncertainties in how local law is applied and enforced, including in areas most relevant to commercial transactions and foreign investment; |
• | The nature and timing of decisions about underperforming markets or assets, including decisions that result in impairment charges that reduce our earnings; and |
• | The impact of changes in our debt levels on our credit ratings, interest expense, availability of acceptable counterparties, ability to obtain funding on favorable terms or our operating or financial flexibility, especially if lenders impose new operating or financial covenants. |
• | The impact of new, potential or changing regulations that can affect our business plans, such as those relating to product packaging, marketing and the nutritional content and safety of our food and other products, as well as the risks and costs of our labeling and other disclosure practices, particularly given varying legal requirements and practices for testing and disclosure within our industry, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of information from third-party suppliers; |
• | The cost, compliance and other risks associated with the often conflicting and highly prescriptive regulations we face, including where inconsistent standards imposed by governmental authorities can adversely affect our business and increase our exposure to litigation or governmental investigations or proceedings; |
• | The impact of nutritional, health and other scientific studies and conclusions, which constantly evolve and often have contradictory implications, but nonetheless drive popular opinion, litigation and regulation (including initiatives intended to drive consumer behavior) in ways that could be material to our business; |
• | The impact of litigation trends, particularly in our major markets, including class actions, administrative proceedings, employment and personal injury claims, litigation with or involving our relationship with franchisees and the legal distinction between our franchisees and us for employment law purposes, landlord/tenant disputes and intellectual property claims (including often aggressive or opportunistic attempts to enforce patents used in information technology systems); the relative level of our defense costs, which vary from period to period depending on the number, nature and procedural status of pending proceedings; the cost and other effects of settlements or judgments, which may require us to make disclosures or take other actions that may affect perceptions of our brand and products; and the scope and terms of insurance or indemnification protections that we may have; |
• | Adverse results of pending or future litigation, including litigation challenging the composition and preparation of our products, or the appropriateness or accuracy of our marketing or other communication practices; |
• | The risks and costs to us, our franchisees and our supply chain of the effects of climate change, greenhouse gases, energy and water resources, as well as the increased public focus, including by governmental and non-governmental organizations, on these and other environmental sustainability matters (e.g., packaging and waste, animal health and welfare, deforestation and land use) and the increased pressure to make commitments, set targets or establish additional goals and take actions to meet them, which could expose the Company to market, operational and execution costs or risks, particularly when actions are undertaken System-wide; |
• | The increasing focus on workplace practices and conditions and costs and other effects of compliance with U.S. and overseas regulations affecting the Company’s workforce (both Company staff and employees working in our Company-owned restaurants), including those relating to wage and hour, healthcare, immigration, retirement and other employee benefits and unlawful workplace discrimination, and our potential exposure to reputational and other harm regarding our workplace practices or conditions or those of our independent franchisees or suppliers (or perceptions thereof); |
• | Disruptions in our operations or price volatility in a market that can result from governmental actions, such as price, foreign exchange or import-export controls, increased tariffs, government-mandated closure of our or our suppliers’ operations and asset seizures; the cost and disruption of responding to governmental investigations or proceedings, whether or not they have merit; and the effectiveness of our strategies and brand-building initiatives to reduce our exposure to such governmental actions; |
• | The legal and compliance risks and costs associated with privacy, data protection and similar laws, the potential costs (including the loss of consumer confidence) arising from alleged security breaches of information systems, and the risk of resulting criminal penalties or civil liability related to such breaches; |
• | The impact on our operations of tax and other regulations affecting capital flows, financial markets or financial institutions, which can limit our ability to manage and deploy our liquidity or increase our funding costs; and |
• | The impact of changes in financial reporting requirements, accounting principles or practices, including with respect to our critical accounting estimates, changes in tax accounting or tax laws (or related authoritative interpretations), particularly if corporate tax reform becomes a key component of budgetary initiatives in the United States and elsewhere, and the impact of settlements of pending or any future adjustments proposed by the IRS or other taxing authorities in connection with our tax audits, all of which will depend on their timing, nature and scope. |
• | The continuing unpredictable global economic and market conditions; |
• | Governmental action or inaction in light of key indicators of economic activity or events that can significantly influence financial markets, particularly in the United States which is the principal trading market for our common stock, and media reports and commentary about economic or other matters, even when the matter in question does not directly relate to our business; |
• | Changes in financial or tax reporting and accounting principles or practices that materially affect our reported financial condition and results and investor perceptions of our performance; |
• | Trading activity in our common stock or trading activity in derivative instruments with respect to our common stock or debt securities, which can be affected by market commentary (including commentary that may be unreliable or incomplete); unauthorized disclosures about our performance, plans or expectations about our business; our actual performance and creditworthiness; investor confidence generally; actions by shareholders and others seeking to influence our business strategies; portfolio transactions in our stock by significant shareholders; or trading activity that results from the ordinary course rebalancing of stock indices in which McDonald’s may be included, such as the S&P 500 Index and the Dow Jones Industrial Average; |
• | The impact of our stock repurchase program or dividend rate; and |
• | The impact on our results of other corporate actions, such as those we may take from time to time as part of our continuous review of our corporate structure in light of business, legal and tax considerations. |
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