McDonald’s: Reports Second Quarter 2018 Results

Chicago / IL. (mdc) McDonald’s Corporation announced results for the second quarter ended June 30, 2018. «We’re seeing good performance across our business as our customers tell us that they value and appreciate the moves we’re making to elevate the McDonald’s experience», said McDonald’s President and Chief Executive Officer Steve Easterbrook. «We’re pleased with the results of our international business and the progress we’re making in the U.S. on executing on our Velocity Growth Plan priorities. We’ve now marked 12 consecutive quarters of positive comparable sales, and we are confident that we’re executing the right strategy to achieve long-term, profitable growth».

Second quarter highlights:

• Global comparable sales increased 4.0 percent, reflecting positive comparable sales in all segments
• Due to the impact of the Company’s strategic refranchising initiative, consolidated revenues decreased 12 percent (14 percent in constant currencies)
• Systemwide sales increased 5 percent in constant currencies
• Consolidated operating income decreased 1 percent (4 percent in constant currencies), primarily due to USD 92 million of strategic restructuring charges (USD 85 million related to the previously disclosed restructuring charge for the U.S. business). Excluding these charges, as well as unrelated strategic charges in the prior year, consolidated operating income increased 2 percent (decreased 1 percent in constant currencies)
• Diluted earnings per share of USD 1.90 increased 12 percent (9 percent in constant currencies), reflecting USD 0.09 per share of strategic restructuring charges. Excluding these charges, diluted earnings per share was USD 1.99, an increase of 15 percent (12 percent in constant currencies) over prior year earnings per share (excluding USD 0.03 per share of prior year strategic charges)
• Returned USD 2.5 billion to shareholders through share repurchases and dividends

In the U.S., second quarter comparable sales increased 2.6 percent driven by growth in average check resulting from both product mix shifts and menu price increases. Operating income for the quarter decreased 7 percent primarily due to the strategic restructuring charge. Excluding this charge, operating income increased 1 percent as higher franchised margin dollars were partly offset by lower Company-operated margin dollars.

Comparable sales for the International Lead segment increased 4.9 percent for the quarter, reflecting positive results across all markets, primarily driven by the U.K. and France. The segment’s operating income increased 15 percent (9 percent in constant currencies), fuelled by sales-driven improvements in franchised margin dollars.

In the High Growth segment, second quarter comparable sales increased 2.4 percent, led by strong performance in Italy and positive results across most of the segment, partly offset by continued challenges in South Korea.

In the Foundational markets, second quarter comparable sales rose 6.8 percent, reflecting positive sales performance across all geographic regions.

Steve Easterbrook concluded, «We remain focused on delivering the most enjoyable experience for every customer, every visit. Whether that is when they visit a modernised restaurant with inviting hospitality or through the convenience of having delicious food delivered to their home, we know that our fundamental day-to-day commitment to our customers is running great restaurants».

Key Highlights – Consolidated

(USD in millions except per share data)	Q2/2018			Q2/2017			Inc/(Dec)		Excl.Currency Translation		H1-2018			H1-2017			Inc/(Dec)		Excl.Currency Translation
Revenues	USD	5,353.9		USD	6,049.7		(12)%		(14)%		USD	10,492.8		USD	11,725.6		(11)%		(14)%
Operating income	2,262.3			2,295.1			(1)		(4)		4,405.4			4,329.1			2		(2)
Net income	1,496.3			1,395.1			7		4		2,871.7			2,609.9			10		6
EPS-diluted	USD	1.90		USD	1.70		12%		9%		USD	3.62		USD	3.17		14%		10%

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Earnings per share for the quarter and six months benefited from an increase in sales-driven franchised margin dollars and a lower effective tax rate. Results in both periods were impacted by lower Company-operated margin dollars driven by refranchising as well as USD 92 million (USD 0.09 per share) of pre-tax strategic restructuring charges incurred in the current quarter primarily related to the previously disclosed restructuring of the U.S. business. The six months also included additional income tax expense of approximately USD 52 million (USD 0.07 per share) related to an adjustment to the provisional amounts recorded in December 2017 under the Tax Cuts and Jobs Act of 2017 (Tax Act).

Excluding the above items, as well as USD 0.03 per share of prior year strategic charges, diluted earnings per share was USD 1.99, an increase of 15 percent (12 percent in constant currencies) for the quarter and USD 3.78, an increase of 18 percent (14 percent in constant currencies) for the six months.

Foreign currency translation had a positive impact of USD 0.05 and USD 0.13 on diluted earnings per share for the quarter and six months, respectively.

Earnings per share for the quarter and six months benefited from an increase in sales-driven franchised margin dollars and a lower effective tax rate. Results in both periods were impacted by lower Company-operated margin dollars driven by refranchising as well as USD 92 million (USD 0.09 per share) of pre-tax strategic restructuring charges incurred in the current quarter primarily related to the previously disclosed restructuring of the U.S. business. The six months also included additional income tax expense of approximately USD 52 million (USD 0.07 per share) related to an adjustment to the provisional amounts recorded in December 2017 under the Tax Cuts and Jobs Act of 2017 (Tax Act).

Excluding the above items, as well as USD 0.03 per share of prior year strategic charges, diluted earnings per share was USD 1.99, an increase of 15 percent (12 percent in constant currencies) for the quarter and USD 3.78, an increase of 18 percent (14 percent in constant currencies) for the six months.

Foreign currency translation had a positive impact of USD 0.05 and USD 0.13 on diluted earnings per share for the quarter and six months, respectively.