McDonald’s: Reports First Quarter 2018 Results

Oak Brook / IL. (mdc) McDonald’s Corporation announced results for the first quarter ended March 31, 2018. «We continued to build upon the broad-based momentum of our business, marking 11 consecutive quarters of positive comparable sales and our fifth consecutive quarter of positive guest counts», said McDonald’s President and Chief Executive Officer Steve Easterbrook. «More customers are recognising that we are becoming a better McDonald’s, appreciating our great tasting food, fast and friendly service and compelling value as we execute our Velocity Growth Plan».

First quarter highlights

• Global comparable sales increased 5.5 percent and global comparable guest counts increased 0.8 percent
• Due to the impact of the Company’s strategic refranchising initiative, consolidated revenues decreased 9 percent (15 percent in constant currencies)
• Systemwide sales increased 7 percent in constant currencies
• Consolidated operating income increased 5 percent (flat in constant currencies) due to growth in franchised margin dollars, offset by the impact of the Company’s strategic refranchising initiative
• Diluted earnings per share of  USD 1.72 increased 17 percent (12 percent in constant currencies), reflecting  USD 0.07 per share of additional income tax expense associated with adjustments to the provisional amounts recorded in December 2017 under the Tax Cuts and Jobs Act of 2017 (Tax Act). Excluding this impact, diluted earnings per share was  USD 1.79, an increase of 22 percent (16 percent in constant currencies)
• Returned  USD 2.5 billion to shareholders through share repurchases and dividends

In the U.S., first quarter comparable sales increased 2.9 percent driven by growth in average check resulting from menu price increases and product mix shifts. Operating income for the quarter increased 5 percent, reflecting higher franchised margin dollars and higher gains on sales of restaurant businesses, partly offset by lower Company-operated margin dollars.

Comparable sales for the International Lead segment increased 7.8 percent for the quarter, reflecting positive results across all markets, primarily driven by the U.K. and Germany. The segment’s operating income increased 21 percent (9 percent in constant currencies), fueled by sales-driven improvements in franchised margin dollars.

In the High Growth segment, first quarter comparable sales increased 4.7 percent, led by strong performance in China and Italy and positive results across most of the segment, partly offset by continued challenges in South Korea.

In the Foundational markets, first quarter comparable sales rose 8.7 percent, reflecting positive sales performance across all geographic regions.

Steve Easterbrook concluded, «We’re keeping the customer at the centre of everything we do as we continue enhancing their McDonald’s experience. Guided by our Velocity Growth Plan, we are satisfying the rising expectations customers have for the taste and quality of our food and greater convenience as they visit our restaurants or enjoy meals delivered to their homes and offices. We are confident in the strategies guiding our business for today and for long-term sustained growth into the future».

Key highlights – consolidated

USD in millions, except per share data	Q1/2018			Q1/2017			Change		Change Excluding Currency Translation
Revenues	USD	5,138.9		USD	5,675.9		(9)%		(15)%
Operating income	2,143.1			2,034.0			5		0
Net income	1,375.4			1,214.8			13		8
Earnings per share-diluted	USD	1.72		USD	1.47		17%		12%

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Results for the quarter reflected an increase in sales-driven franchised margin dollars and the benefit from a lower effective tax rate, partly offset by lower Company-operated margin dollars driven by refranchising.

Results included approximately  USD 52 million, or  USD 0.07 per share, of additional income tax expense associated with adjustments to the provisional amounts recorded in December 2017 under the Tax Act. Excluding these adjustments, net income was  USD 1,427.7 million, an increase of 18 percent (12 percent in constant currencies), and diluted earnings per share was  USD 1.79, an increase of 22 percent (16 percent in constant currencies).

Foreign currency translation had a positive impact of  USD 0.08 for the quarter on diluted earnings per share.

The following definitions apply to these terms as used throughout this release

Comparable sales represent sales at all restaurants and comparable guest counts represent 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. Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction and natural disasters. Comparable sales exclude the impact of currency translation and sales from hyper-inflationary markets (currently only Venezuela). Management generally identifies hyper-inflationary markets as those markets whose cumulative inflation rate over a three-year period exceeds 100 percent. Management believes that these exclusions more accurately reflect the underlying business trends. Comparable sales are driven by changes in guest counts and average check, which is affected by changes in pricing and product mix. Typically, pricing has a greater impact on average check than product mix. Management reviews the increase or decrease in comparable sales and comparable guest counts compared with the same period in the prior year to assess business trends.

Systemwide sales include sales at all restaurants, whether operated by the Company or by franchisees. While franchised sales are not recorded as revenues by the Company, management believes the information is important in understanding the Company’s financial performance, because these sales are the basis on which the Company calculates and records franchised revenues and are indicative of the financial health of the franchisee base.

Information in constant currency is calculated by translating current year results at prior year average exchange rates. Management reviews and analyzes business results excluding the effect of foreign currency translation, impairment and other strategic charges and gains, as well as adjustments to the provisional amounts recorded in December 2017 under the Tax Act, and bases incentive compensation plans on these results, because the Company believes this better represents underlying business trends.