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)) |
Emerging growth company | o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | o |
McDONALD’S CORPORATION | ||||||
(Registrant) | ||||||
Date: | January 30, 2019 | By: | /s/ Catherine Hoovel | |||
Catherine Hoovel | ||||||
Corporate Vice President - Chief Accounting Officer |
FOR IMMEDIATE RELEASE | FOR MORE INFORMATION CONTACT: |
1/30/2019 | Investors: Mike Cieplak, investor.relations@us.mcd.com |
Media: Andrea Abate, andrea.abate@us.mcd.com |
• | Global comparable sales increased 4.4%, reflecting positive comparable sales across all segments. |
• | Due to the impact of the Company's strategic refranchising initiative, consolidated revenues decreased 3% (flat in constant currencies). |
• | Systemwide sales increased 5% in constant currencies. |
• | Consolidated operating income decreased 7% (4% in constant currencies) primarily due to non-cash impairment charges. Excluding these charges, consolidated operating income was flat (increased 3% in constant currencies). |
• | Diluted earnings per share was $1.82, reflecting non-cash impairment charges of $0.18 per share, partly offset by an income tax benefit of $0.03 per share associated with the final 2018 adjustments to the provisional amounts recorded in the prior year under the Tax Cuts and Jobs Act of 2017 (“Tax Act”). Excluding these items, diluted earnings per share was $1.97, an increase of 15% (18% in constant currencies) over prior year earnings per share (excluding $0.84 per share of prior year net tax cost under the Tax Act). |
• | Global comparable sales increased 4.5%, reflecting positive comparable sales across all segments. |
• | Due to the impact of the Company's strategic refranchising initiative, consolidated revenues decreased 8% (8% in constant currencies). |
• | Consolidated operating income decreased 8% (8% in constant currencies). 2018 results included non-cash impairment and strategic restructuring charges. 2017 results reflected a gain on the sale of the Company's businesses in China and Hong Kong, partly offset by restructuring and impairment charges. Excluding these items in both years, consolidated operating income increased 2% (2% in constant currencies). |
• | Diluted earnings per share of $7.54 increased 18% (18% in constant currencies). Refer to the Key Highlights - Consolidated page for additional details. |
• | Cash provided by operations was $7.0 billion and free cash flow was $4.2 billion, a 14% increase over the prior year. |
• | The Company returned $8.5 billion to shareholders through share repurchases and dividends. In addition, the Company announced a 15% increase in its quarterly dividend to $1.16 per share beginning in the fourth quarter 2018, and increased the cash return to shareholder target for the 3-year period ending 2019 to about $25 billion. |
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||||||||||||||||||
2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||||||||||||||||||
Revenues | $ | 5,163.0 | $ | 5,340.2 | (3 | ) | % | 0 | % | $ | 21,025.2 | $ | 22,820.4 | (8 | ) | % | (8 | ) | % | ||||||||||||
Operating income | 1,999.5 | 2,144.2 | (7 | ) | (4 | ) | 8,822.6 | 9,552.7 | (8 | ) | (8 | ) | |||||||||||||||||||
Net income | 1,415.3 | 698.7 | 103 | 108 | 5,924.3 | 5,192.3 | 14 | 13 | |||||||||||||||||||||||
Earnings per share-diluted | $ | 1.82 | $ | 0.87 | 109 | % | 115 | % | $ | 7.54 | $ | 6.37 | 18 | % | 18 | % |
• | Fourth quarter diluted earnings per share was $1.82. Included in the quarter results were: |
◦ | approximately $140 million, or $0.18 per share, of non-cash impairment charges; and |
◦ | approximately $25 million, or $0.03 per share, of income tax benefit associated with the final 2018 adjustments to the provisional amounts recorded in the prior year under the Tax Act. |
• | Excluding the above items, as well as the prior year provisional net tax cost of approximately $700 million under the Tax Act, or $0.84 per share, fourth quarter net income was $1,527.5 million, an increase of 11% (15% in constant currencies), and diluted earnings per share was $1.97, an increase of 15% (18% in constant currencies). |
• | Full year diluted earnings per share of $7.54 increased 18% (18% in constant currencies). Included in the full year results were: |
◦ | approximately $140 million, or $0.17 per share, of non-cash impairment charges; |
◦ | pre-tax strategic restructuring charges of $94 million, or $0.09 per share (of which $85 million relates to the restructuring of the U.S. business); and |
◦ | approximately $75 million, or $0.10 per share, of net tax cost associated with 2018 adjustments to the provisional amounts recorded in the prior year under the Tax Act. |
• | Excluding the above items, as well as the prior year provisional net tax cost of approximately $700 million under the Tax Act, a pre-tax gain of approximately $850 million on the sale of the Company’s businesses in China and Hong Kong, and $150 million of restructuring and impairment charges, for a total net cost of $0.29 per share, full year net income was $6,205.3 million, an increase of 14% (14% in constant currencies), and diluted earnings per share was $7.90, an increase of 19% (18% in constant currencies). |
Dollars and shares in millions, except per share data | ||||||||||||||
Quarters Ended December 31, | 2018 | 2017 | Inc/ (Dec) | |||||||||||
Revenues | ||||||||||||||
Sales by Company-operated restaurants | $ | 2,371.2 | $ | 2,673.1 | $ | (301.9 | ) | (11 | )% | |||||
Revenues from franchised restaurants | 2,791.8 | 2,667.1 | 124.7 | 5 | ||||||||||
TOTAL REVENUES | 5,163.0 | 5,340.2 | (177.2 | ) | (3 | ) | ||||||||
Operating costs and expenses | ||||||||||||||
Company-operated restaurant expenses | 1,956.6 | 2,210.1 | (253.5 | ) | (11 | ) | ||||||||
Franchised restaurants-occupancy expenses | 509.7 | 464.6 | 45.1 | 10 | ||||||||||
Selling, general & administrative expenses | 609.8 | 617.6 | (7.8 | ) | (1 | ) | ||||||||
Other operating (income) expense, net | 87.4 | (96.3 | ) | 183.7 | n/m | |||||||||
Total operating costs and expenses | 3,163.5 | 3,196.0 | (32.5 | ) | (1 | ) | ||||||||
OPERATING INCOME | 1,999.5 | 2,144.2 | (144.7 | ) | (7 | ) | ||||||||
Interest expense | 254.1 | 235.1 | 19.0 | 8 | ||||||||||
Nonoperating (income) expense, net | (6.0 | ) | 24.0 | (30.0 | ) | n/m | ||||||||
Income before provision for income taxes | 1,751.4 | 1,885.1 | (133.7 | ) | (7 | ) | ||||||||
Provision for income taxes | 336.1 | 1,186.4 | (850.3 | ) | (72 | ) | ||||||||
NET INCOME | $ | 1,415.3 | $ | 698.7 | $ | 716.6 | 103 | % | ||||||
EARNINGS PER SHARE-DILUTED | $ | 1.82 | $ | 0.87 | $ | 0.95 | 109 | % | ||||||
Weighted average shares outstanding-diluted | 776.6 | 803.0 | (26.4 | ) | (3 | )% |
Dollars and shares in millions, except per share data | ||||||||||||||
Years Ended December 31, | 2018 | 2017 | Inc/ (Dec) | |||||||||||
Revenues | ||||||||||||||
Sales by Company-operated restaurants | $ | 10,012.7 | $ | 12,718.9 | $ | (2,706.2 | ) | (21 | )% | |||||
Revenues from franchised restaurants | 11,012.5 | 10,101.5 | 911.0 | 9 | ||||||||||
TOTAL REVENUES | 21,025.2 | 22,820.4 | (1,795.2 | ) | (8 | ) | ||||||||
Operating costs and expenses | ||||||||||||||
Company-operated restaurant expenses | 8,265.9 | 10,409.6 | (2,143.7 | ) | (21 | ) | ||||||||
Franchised restaurants-occupancy expenses | 1,973.3 | 1,790.0 | 183.3 | 10 | ||||||||||
Selling, general & administrative expenses | 2,200.2 | 2,231.3 | (31.1 | ) | (1 | ) | ||||||||
Other operating (income) expense, net | (236.8 | ) | (1,163.2 | ) | 926.4 | 80 | ||||||||
Total operating costs and expenses | 12,202.6 | 13,267.7 | (1,065.1 | ) | (8 | ) | ||||||||
OPERATING INCOME | 8,822.6 | 9,552.7 | (730.1 | ) | (8 | ) | ||||||||
Interest expense | 981.2 | 921.3 | 59.9 | 7 | ||||||||||
Nonoperating (income) expense, net | 25.3 | 57.9 | (32.6 | ) | (56 | ) | ||||||||
Income before provision for income taxes | 7,816.1 | 8,573.5 | (757.4 | ) | (9 | ) | ||||||||
Provision for income taxes | 1,891.8 | 3,381.2 | (1,489.4 | ) | (44 | ) | ||||||||
NET INCOME | $ | 5,924.3 | $ | 5,192.3 | $ | 732.0 | 14 | % | ||||||
EARNINGS PER SHARE-DILUTED | $ | 7.54 | $ | 6.37 | $ | 1.17 | 18 | % | ||||||
Weighted average shares outstanding-diluted | 785.6 | 815.5 | (29.9 | ) | (4 | )% |
In millions | December 31, | 2018 | 2017 | |||||
Current assets | — | — | ||||||
Cash and equivalents | $ | 866.0 | $ | 2,463.8 | ||||
Accounts and notes receivable | 2,441.5 | 1,976.2 | ||||||
Other current assets | 745.7 | 887.2 | ||||||
TOTAL CURRENT ASSETS | 4,053.2 | 5,327.2 | ||||||
TOTAL OTHER ASSETS | 5,915.3 | 6,028.2 | ||||||
NET PROPERTY AND EQUIPMENT | 22,842.7 | 22,448.3 | ||||||
TOTAL ASSETS | $ | 32,811.2 | $ | 33,803.7 | ||||
TOTAL CURRENT LIABILITIES | $ | 2,973.5 | $ | 2,890.6 | ||||
Long-term debt | 31,075.3 | 29,536.4 | ||||||
Other long-term liabilities | 3,805.3 | 3,525.3 | ||||||
Deferred income taxes | 1,215.5 | 1,119.4 | ||||||
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) | (6,258.4 | ) | (3,268.0 | ) | ||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | $ | 32,811.2 | $ | 33,803.7 |
In millions | Years ended December 31, | 2018 | 2017 | ||||
Operating activities | |||||||
Net income | $ | 5,924.3 | $ | 5,192.3 | |||
Changes in working capital items | (472.7 | ) | (980.5 | ) | |||
Other | 1,515.1 | 1,339.4 | |||||
CASH PROVIDED BY OPERATIONS | 6,966.7 | 5,551.2 | |||||
Investing activities | |||||||
Capital expenditures | (2,741.7 | ) | (1,853.7 | ) | |||
Sales and purchases of restaurant businesses and property sales | 589.5 | 1,064.6 | |||||
Proceeds from sale of businesses in China and Hong Kong | — | 1,597.0 | |||||
Other | (302.9 | ) | (245.9 | ) | |||
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES | (2,455.1 | ) | 562.0 | ||||
Financing activities | |||||||
Short-term borrowings and long-term financing issuances and payments | 2,130.8 | 2,027.8 | |||||
Treasury stock purchases | (5,207.7 | ) | (4,685.7 | ) | |||
Common stock dividends | (3,255.9 | ) | (3,089.2 | ) | |||
Proceeds from stock option exercises and other | 383.2 | 436.3 | |||||
CASH USED FOR FINANCING ACTIVITIES | (5,949.6 | ) | (5,310.8 | ) | |||
EFFECT OF EXCHANGE RATES ON CASH AND EQUIVALENTS | (159.8 | ) | 264.0 | ||||
CASH AND EQUIVALENTS INCREASE (DECREASE) | (1,597.8 | ) | 1,066.4 | ||||
Change in cash balances of businesses held for sale | — | 174.0 | |||||
Cash and equivalents at beginning of period | 2,463.8 | 1,223.4 | |||||
CASH AND EQUIVALENTS AT END OF PERIOD | $ | 866.0 | $ | 2,463.8 | |||
Supplemental cash flow disclosures | |||||||
Cash provided by operations | $ | 6,966.7 | $ | 5,551.2 | |||
Less: Capital expenditures | (2,741.7 | ) | (1,853.7 | ) | |||
FREE CASH FLOW | $ | 4,225.0 | $ | 3,697.5 |
Impact of Foreign Currency Translation | |
Net Income and Diluted Earnings per Share | |
Revenues | |
Comparable Sales and Guest Counts | |
Systemwide Sales and Franchised Sales | |
Restaurant Margins | |
Selling, General & Administrative Expenses | |
Other Operating (Income) Expense, Net | |
Operating Income | |
Interest Expense | |
Nonoperating (Income) Expense, Net | |
Income Taxes | |
Cash Flows | |
Outlook | |
Restaurant Information | |
Risk Factors and Cautionary Statement Regarding Forward-Looking Statements |
Currency Translation Benefit/ (Cost) | |||||||||||
Quarters Ended December 31, | 2018 | 2017 | 2018 | ||||||||
Revenues | $ | 5,163.0 | $ | 5,340.2 | $ | (166.2 | ) | ||||
Company-operated margins | 414.6 | 463.0 | (17.2 | ) | |||||||
Franchised margins | 2,282.1 | 2,202.5 | (57.4 | ) | |||||||
Selling, general & administrative expenses | 609.8 | 617.6 | 6.4 | ||||||||
Operating income | 1,999.5 | 2,144.2 | (64.0 | ) | |||||||
Net income | 1,415.3 | 698.7 | (37.3 | ) | |||||||
Earnings per share-diluted | $ | 1.82 | $ | 0.87 | $ | (0.05 | ) | ||||
Currency Translation Benefit/ (Cost) | |||||||||||
Years Ended December 31, | 2018 | 2017 | 2018 | ||||||||
Revenues | $ | 21,025.2 | $ | 22,820.4 | $ | 122.9 | |||||
Company-operated margins | 1,746.8 | 2,309.3 | 4.4 | ||||||||
Franchised margins | 9,039.2 | 8,311.5 | 57.0 | ||||||||
Selling, general & administrative expenses | 2,200.2 | 2,231.3 | (13.3 | ) | |||||||
Operating income | 8,822.6 | 9,552.7 | 56.2 | ||||||||
Net income | 5,924.3 | 5,192.3 | 32.7 | ||||||||
Earnings per share-diluted | $ | 7.54 | $ | 6.37 | $ | 0.04 |
• | Fourth quarter diluted earnings per share was $1.82. Included in the quarter results were: |
◦ | approximately $140 million, or $0.18 per share, of non-cash impairment charges; and |
◦ | approximately $25 million, or $0.03 per share, of income tax benefit associated with final 2018 adjustments to the provisional amounts recorded in the prior year under the Tax Act. |
• | Excluding the above items, as well as the prior year provisional net tax cost of approximately $700 million under the Tax Act, or $0.84 per share, fourth quarter net income was $1,527.5 million, an increase of 11% (15% in constant currencies), and diluted earnings per share was $1.97, an increase of 15% (18% in constant currencies). |
• | Full year diluted earnings per share of $7.54 increased 18% (18% in constant currencies). Included in the full year results were: |
◦ | approximately $140 million, or $0.17 per share, of non-cash impairment charges; |
◦ | pre-tax strategic restructuring charges of $94 million, or $0.09 per share (of which $85 million relates to the restructuring of the U.S. business); and |
◦ | approximately $75 million, or $0.10 per share, of net tax cost associated with 2018 adjustments to the provisional amounts recorded in the prior year under the Tax Act. |
• | Excluding the above items, as well as the prior year provisional net tax cost of approximately $700 million under the Tax Act, a pre-tax gain of approximately $850 million on the sale of the Company’s businesses in China and Hong Kong, and $150 million of restructuring and impairment charges, for a total net cost of $0.29 per share, full year net income was $6,205.3 million, an increase of 14% (14% in constant currencies), and diluted earnings per share was $7.90, an increase of 19% (18% in constant currencies). |
Quarters Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
Company-operated sales | |||||||||||
U.S. | $ | 621.8 | $ | 776.6 | (20 | )% | (20 | )% | |||
International Lead Markets | 939.5 | 1,041.1 | (10 | ) | (6 | ) | |||||
High Growth Markets | 677.1 | 732.0 | (7 | ) | 0 | ||||||
Foundational Markets & Corporate | 132.8 | 123.4 | 7 | 12 | |||||||
Total | $ | 2,371.2 | $ | 2,673.1 | (11 | )% | (8 | )% | |||
Franchised revenues | |||||||||||
U.S. | $ | 1,285.6 | $ | 1,229.1 | 5 | % | 5 | % | |||
International Lead Markets | 911.7 | 872.0 | 5 | 9 | |||||||
High Growth Markets | 285.2 | 262.7 | 9 | 12 | |||||||
Foundational Markets & Corporate | 309.3 | 303.3 | 2 | 9 | |||||||
Total | $ | 2,791.8 | $ | 2,667.1 | 5 | % | 7 | % | |||
Total revenues | |||||||||||
U.S. | $ | 1,907.4 | $ | 2,005.7 | (5 | )% | (5 | )% | |||
International Lead Markets | 1,851.2 | 1,913.1 | (3 | ) | 1 | ||||||
High Growth Markets | 962.3 | 994.7 | (3 | ) | 3 | ||||||
Foundational Markets & Corporate | 442.1 | 426.7 | 4 | 10 | |||||||
Total | $ | 5,163.0 | $ | 5,340.2 | (3 | )% | 0 | % | |||
Years Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
Company-operated sales | |||||||||||
U.S. | $ | 2,664.6 | $ | 3,260.4 | (18 | )% | (18 | )% | |||
International Lead Markets | 3,961.6 | 4,080.0 | (3 | ) | (5 | ) | |||||
High Growth Markets | 2,847.8 | 4,591.5 | (38 | ) | (37 | ) | |||||
Foundational Markets & Corporate | 538.7 | 787.0 | (32 | ) | (32 | ) | |||||
Total | $ | 10,012.7 | $ | 12,718.9 | (21 | )% | (22 | )% | |||
Franchised revenues | |||||||||||
U.S. | $ | 5,001.2 | $ | 4,746.0 | 5 | % | 5 | % | |||
International Lead Markets | 3,638.5 | 3,260.3 | 12 | 9 | |||||||
High Growth Markets | 1,140.9 | 941.7 | 21 | 18 | |||||||
Foundational Markets & Corporate | 1,231.9 | 1,153.5 | 7 | 9 | |||||||
Total | $ | 11,012.5 | $ | 10,101.5 | 9 | % | 8 | % | |||
Total revenues | |||||||||||
U.S. | $ | 7,665.8 | $ | 8,006.4 | (4 | )% | (4 | )% | |||
International Lead Markets | 7,600.1 | 7,340.3 | 4 | 1 | |||||||
High Growth Markets | 3,988.7 | 5,533.2 | (28 | ) | (28 | ) | |||||
Foundational Markets & Corporate | 1,770.6 | 1,940.5 | (9 | ) | (8 | ) | |||||
Total | $ | 21,025.2 | $ | 22,820.4 | (8 | )% | (8 | )% | |||
• | Revenues: Revenues decreased 3% (flat in constant currencies) for the quarter and decreased 8% (8% in constant currencies) for the year due to the Company's strategic refranchising initiative. |
• | U.S.: Revenues decreased for both periods as the benefit from positive comparable sales was more than offset by the impact of refranchising. |
• | International Lead Markets: Revenues decreased for the quarter and increased for the year. In constant currencies, revenues increased for both periods as positive comparable sales across all markets were partly offset by the impact of refranchising. |
• | High Growth Markets: Revenues decreased for both periods. In constant currencies, revenues increased for the quarter reflecting positive comparable sales across most markets and decreased for the year reflecting positive comparable sales across most markets that were more than offset by the impact of refranchising the Company's businesses in China and Hong Kong in the third quarter 2017. |
Comparable Sales | Comparable Guest Counts* | |||||||||||||||||
Increase/(Decrease) | Increase/(Decrease) | |||||||||||||||||
Quarters Ended | Years Ended | Years Ended | ||||||||||||||||
December 31, | December 31, | December 31, | ||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||
U.S. | 2.3 | % | 4.5 | % | 2.5 | % | 3.6 | % | (2.2 | )% | 1.0 | % | ||||||
International Lead Markets | 5.2 | 6.0 | 5.8 | 5.3 | 2.4 | 2.3 | ||||||||||||
High Growth Markets | 4.8 | 4.0 | 4.1 | 5.3 | 1.8 | 1.8 | ||||||||||||
Foundational Markets & Corporate | 7.1 | 8.0 | 7.1 | 9.0 | 1.5 | 3.3 | ||||||||||||
Total | 4.4 | % | 5.5 | % | 4.5 | % | 5.3 | % | 0.2 | % | 1.9 | % |
* | 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. |
Quarter Ended | Year Ended | ||||||||||
December 31, 2018 | December 31, 2018 | ||||||||||
Quarter Ended June 30, 2018 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | 2 | % | 2 | % | 2 | % | 2 | % | |||
International Lead Markets | 2 | 6 | 9 | 7 | |||||||
High Growth Markets | 4 | 9 | 10 | 8 | |||||||
Foundational Markets & Corporate | 1 | 8 | 6 | 9 | |||||||
Total | 2 | % | 5 | % | 6 | % | 6 | % |
* | Unlike comparable sales, the Company has not excluded hyper-inflationary market results (currently only Venezuela) from Systemwide sales as these sales are the basis on which the Company calculates and records revenues. |
Quarters Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | $ | 9,159.7 | $ | 8,804.2 | 4 | % | 4 | % | |||
International Lead Markets | 5,251.7 | 5,032.5 | 4 | 9 | |||||||
High Growth Markets | 2,345.9 | 2,178.9 | 8 | 12 | |||||||
Foundational Markets & Corporate | 4,902.2 | 4,876.2 | 1 | 8 | |||||||
Total | $ | 21,659.5 | $ | 20,891.8 | 4 | % | 7 | % | |||
Ownership type | |||||||||||
Conventional franchised | $ | 16,027.8 | $ | 15,294.7 | 5 | % | 7 | % | |||
Developmental licensed | 3,370.5 | 3,434.4 | (2 | ) | 8 | ||||||
Foreign affiliated | 2,261.2 | 2,162.7 | 5 | 6 | |||||||
Total | $ | 21,659.5 | $ | 20,891.8 | 4 | % | 7 | % | |||
Years Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | $ | 35,859.5 | $ | 34,379.0 | 4 | % | 4 | % | |||
International Lead Markets | 20,972.4 | 18,819.6 | 11 | 9 | |||||||
High Growth Markets* | 9,725.0 | 6,888.2 | 41 | 38 | |||||||
Foundational Markets & Corporate | 19,577.1 | 18,104.0 | 8 | 11 | |||||||
Total | $ | 86,134.0 | $ | 78,190.8 | 10 | % | 10 | % | |||
Ownership type | |||||||||||
Conventional franchised | $ | 63,250.6 | $ | 59,151.3 | 7 | % | 6 | % | |||
Developmental licensed | 13,519.5 | 12,545.6 | 8 | 13 | |||||||
Foreign affiliated* | 9,363.9 | 6,493.9 | 44 | 42 | |||||||
Total | $ | 86,134.0 | $ | 78,190.8 | 10 | % | 10 | % |
* | Reflects the impact of refranchising the Company's businesses in China and Hong Kong in the third quarter of 2017. |
Percent | Amount | Inc/ (Dec) Excluding Currency Translation | |||||||||||||
Quarters Ended December 31, | 2018 | 2017 | 2018 | 2017 | Inc/ (Dec) | ||||||||||
Franchised | |||||||||||||||
U.S. | 80.7 | % | 82.5 | % | $ | 1,037.3 | $ | 1,013.7 | 2 | % | 2 | % | |||
International Lead Markets | 81.2 | 81.1 | 740.3 | 706.8 | 5 | 9 | |||||||||
High Growth Markets | 75.8 | 75.6 | 216.0 | 198.6 | 9 | 12 | |||||||||
Foundational Markets & Corporate | 93.2 | 93.4 | 288.5 | 283.4 | 2 | 9 | |||||||||
Total | 81.7 | % | 82.6 | % | $ | 2,282.1 | $ | 2,202.5 | 4 | % | 6 | % | |||
Company-operated | |||||||||||||||
U.S. | 14.9 | % | 16.8 | % | $ | 92.5 | $ | 130.4 | (29 | )% | (29 | )% | |||
International Lead Markets | 21.7 | 21.0 | 203.9 | 218.3 | (7 | ) | (3 | ) | |||||||
High Growth Markets | 13.5 | 12.5 | 91.2 | 91.8 | (1 | ) | 7 | ||||||||
Foundational Markets & Corporate | 20.4 | 18.3 | 27.0 | 22.5 | 19 | 24 | |||||||||
Total | 17.5 | % | 17.3 | % | $ | 414.6 | $ | 463.0 | (10 | )% | (7 | )% | |||
Percent | Amount | Inc/ (Dec) Excluding Currency Translation | |||||||||||||
Years Ended December 31, | 2018 | 2017 | 2018 | 2017 | Inc/ (Dec) | ||||||||||
Franchised | |||||||||||||||
U.S. | 81.4 | % | 82.4 | % | $ | 4,070.3 | $ | 3,912.6 | 4 | % | 4 | % | |||
International Lead Markets | 81.1 | 80.8 | 2,951.7 | 2,634.3 | 12 | 10 | |||||||||
High Growth Markets | 76.0 | 73.6 | 867.4 | 693.0 | 25 | 22 | |||||||||
Foundational Markets & Corporate | 93.3 | 92.9 | 1,149.8 | 1,071.6 | 7 | 9 | |||||||||
Total | 82.1 | % | 82.3 | % | $ | 9,039.2 | $ | 8,311.5 | 9 | % | 8 | % | |||
Company-operated | |||||||||||||||
U.S. | 14.9 | % | 16.0 | % | $ | 397.1 | $ | 522.7 | (24 | )% | (24 | )% | |||
International Lead Markets | 21.4 | 21.1 | 847.5 | 861.5 | (2 | ) | (3 | ) | |||||||
High Growth Markets | 13.8 | 17.0 | 393.8 | 781.4 | (50 | ) | (48 | ) | |||||||
Foundational Markets & Corporate | 20.1 | 18.3 | 108.4 | 143.7 | (25 | ) | (25 | ) | |||||||
Total | 17.4 | % | 18.2 | % | $ | 1,746.8 | $ | 2,309.3 | (24 | )% | (25 | )% |
• | Franchised: Franchised margin dollars increased $79.6 million or 4% (6% in constant currencies) for the quarter and increased $727.7 million or 9% (8% in constant currencies) for the year. Both periods benefited from expansion and the impact of refranchising, as well as positive comparable sales performance across all segments. |
• | U.S.: The decrease in the franchised margin percent for the quarter and year was primarily due to higher depreciation costs related to investments in Experience of the Future ("EOTF"), partly offset by the benefit from positive comparable sales. |
• | International Lead Markets: The increase in the franchised margin percent for the quarter and year primarily reflected the benefit from strong comparable sales performance. |
• | High Growth Markets: The increase in the franchised margin percent for the quarter reflected the benefit from strong comparable sales partly offset by the impact of refranchising. For the year, the increase was primarily due to the impact of refranchising, mainly related to the sale of the Company's businesses in China and Hong Kong in the third quarter of 2017, as well as strong comparable sales performance. |
• | Company-operated: Company-operated margin dollars decreased $48.4 million or 10% (7% in constant currencies) for the quarter and decreased $562.5 million or 24% (25% in constant currencies) for the year, primarily reflecting the impact of refranchising. |
• | U.S.: The decrease in the Company-operated margin percent for the quarter and year reflected the impact of accelerated deployment of EOTF (including the related decrease in labor productivity and higher depreciation expense), and higher labor and commodity costs, which more than offset the benefit from positive comparable sales and refranchising. |
• | International Lead Markets: The increase in the Company-operated margin percent for the quarter and year reflected positive comparable sales partly offset by higher labor, commodity and occupancy costs. |
• | High Growth Markets: The increase in the Company-operated margin percent for the quarter reflected the benefit from strong comparable sales, partly offset by higher labor costs. For the year, the decrease was primarily due to the impact of refranchising, mainly related to the sale of the Company's businesses in China and Hong Kong in the third quarter of 2017 and higher labor costs, partly offset by positive comparable sales performance. |
Quarters Ended December 31, | Years Ended December 31, | |||||||||
2018 | 2017 | 2018 | 2017 | |||||||
Food & paper | 31.8 | % | 31.6 | % | 31.5 | % | 31.7 | % | ||
Payroll & employee benefits | 29.0 | 28.8 | 29.3 | 27.7 | ||||||
Occupancy & other operating expenses | 21.7 | 22.3 | 21.8 | 22.4 | ||||||
Total expenses | 82.5 | % | 82.7 | % | 82.6 | % | 81.8 | % | ||
Company-operated margins | 17.5 | % | 17.3 | % | 17.4 | % | 18.2 | % |
Years Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | |||||||
U.S. | $ | 591.4 | $ | 624.4 | (5 | )% | (5 | )% | |||
International Lead Markets | 445.0 | 451.0 | (1 | ) | (3 | ) | |||||
High Growth Markets | 174.1 | 247.9 | (30 | ) | (31 | ) | |||||
Foundational Markets & Corporate | 989.7 | 908.0 | 9 | 9 | |||||||
Total (Selling, General & Administrative Expenses) | $ | 2,200.2 | $ | 2,231.3 | (1 | )% | (2 | )% | |||
Less: Incentive-Based Compensation* | 283.6 | 336.4 | (16 | )% | (16 | )% | |||||
Total (Excluding Incentive-Based Compensation) | $ | 1,916.6 | $ | 1,894.9 | 1 | % | 1 | % |
• | Selling, general and administrative expenses decreased $31.1 million or 1% (2% in constant currencies) for the year. These results were primarily due to lower employee-related costs, partly offset by investment in restaurant technology, costs related to the 2018 Worldwide Owner/Operator Convention, and sponsorship of the 2018 Winter Olympics. |
• | For the year, selling, general and administrative expenses as a percent of Systemwide sales decreased to 2.3% for 2018 compared with 2.5% for 2017. |
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Gains on sales of restaurant businesses | $ | (47.4 | ) | $ | (64.5 | ) | $ | (304.1 | ) | $ | (295.4 | ) | |||
Equity in earnings of unconsolidated affiliates | (35.3 | ) | (82.6 | ) | (151.5 | ) | (183.7 | ) | |||||||
Asset dispositions and other (income) expense, net | 32.2 | 65.8 | (12.9 | ) | 18.7 | ||||||||||
Impairment and other charges (gains), net | 137.9 | (15.0 | ) | 231.7 | (702.8 | ) | |||||||||
Total | $ | 87.4 | $ | (96.3 | ) | $ | (236.8 | ) | $ | (1,163.2 | ) |
• | Gains on sales of restaurant businesses decreased for the quarter primarily due to fewer restaurant sales in the U.S. and were relatively flat for the year. |
• | Equity in earnings of unconsolidated affiliates declined for the quarter and year mainly due to the comparison to a prior year tax benefit in Japan in the fourth quarter 2017, partly offset by improved performance in Japan in 2018. |
• | Impairment and other charges (gains), net for the quarter and year 2018 reflected approximately $140 million of non-cash impairment charges due to the Company’s assessment of the recoverability of long-lived assets. Results for the year 2018 also included the strategic restructuring charge in the U.S. of $85 million. The results for the year 2017 reflected a gain on the Company's sale of its businesses in China and Hong Kong of approximately $850 million, partly offset by $150 million of restructuring and impairment charges. |
Quarters Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||
U.S. | $ | 956.6 | $ | 967.0 | (1 | )% | (1 | )% | ||||
International Lead Markets | 872.2 | 810.3 | 8 | 12 | ||||||||
High Growth Markets | 154.1 | 277.4 | (44 | ) | (41 | ) | ||||||
Foundational Markets & Corporate | 16.6 | 89.5 | (81 | ) | (60 | ) | ||||||
Total | $ | 1,999.5 | $ | 2,144.2 | (7 | )% | (4 | )% | ||||
Years Ended December 31, | 2018 | 2017 | Inc/ (Dec) | Inc/ (Dec) Excluding Currency Translation | ||||||||
U.S. | $ | 4,015.6 | $ | 4,022.4 | 0 | % | 0 | % | ||||
International Lead Markets | 3,485.7 | 3,166.5 | 10 | 8 | ||||||||
High Growth Markets | 1,001.2 | 2,001.4 | (50 | ) | (51 | ) | ||||||
Foundational Markets & Corporate | 320.1 | 362.4 | (12 | ) | (6 | ) | ||||||
Total | $ | 8,822.6 | $ | 9,552.7 | (8 | )% | (8 | )% |
• | Operating Income: Operating income decreased $144.7 million or 7% (4% in constant currencies) for the quarter and decreased $730.1 million or 8% (8% in constant currencies) for the year. Results for the quarter and year 2018 included approximately $140 million of non-cash impairment charges. Results for the year 2018 also included strategic restructuring charges of $94 million (of which $85 million relates to the restructuring of the U.S. business). The results for the year 2017 included a gain of approximately $850 million on the sale of the Company's businesses in China and Hong Kong, partly offset by $150 million of restructuring and impairment charges. Excluding these current year and prior year items, operating income decreased $6.9 million for the quarter, a flat percentage change to prior year (increased 3% in constant currencies) and increased $204.3 million or 2% (2% in constant currencies) for the year. |
• | U.S.: Results for both periods reflected higher franchised margin dollars and lower G&A costs, offset by lower Company-operated margin dollars. Results for the year also reflected the $85 million strategic restructuring charge. Excluding this charge, operating income for the year increased 2%. |
• | International Lead Markets: The constant currency operating income increase for the quarter and year was primarily due to sales-driven improvements in franchised margin dollars across all markets and higher gains on sales of restaurant businesses in the U.K. and Australia. Results for the year also reflected the comparison to a prior year gain on the strategic sale of property in Australia. |
• | High Growth Markets: Excluding the current quarter impairment charges, operating income for the quarter decreased 2% (increased 2% in constant currencies). The constant currency increase for the quarter reflected higher franchised margin dollars due to higher sales-driven performance across most markets. Excluding the 2018 and 2017 impairment charges and the 2017 gain on the sale of the Company's businesses in China and Hong Kong, operating income decreased 10% (11% in constant currencies) for the year due to the impact of refranchising in China and Hong Kong. |
• | Foundational Markets & Corporate: The constant currency operating income decrease for both periods primarily reflected higher G&A costs in Corporate, mainly due to investments in restaurant technology, as well as the comparison to a prior year tax benefit in Japan in the fourth quarter 2017. |
• | Operating Margin: Operating margin is defined as operating income as a percent of total revenues. Operating margin was 42.0% and 41.9% for the years 2018 and 2017, respectively. Excluding the previously described 2018 impairment and strategic restructuring charges and the 2017 gain, and restructuring and impairment charges, operating margin was 43.1% and 38.8% for the years 2018 and 2017, respectively. |
• | Interest expense increased 8% (9% in constant currencies) for the quarter and increased 7% (6% in constant currencies) for the year, primarily reflecting higher average debt balances, partly offset by lower average interest rates. |
Quarters Ended December 31, | Years Ended December 31, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Interest (income) expense | $ | 0.9 | $ | (1.0 | ) | $ | (3.5 | ) | $ | (7.4 | ) | ||||
Foreign currency and hedging activity | (11.2 | ) | 15.3 | 5.1 | 26.4 | ||||||||||
Other expense, net | 4.3 | 9.7 | 23.7 | 38.9 | |||||||||||
Total | $ | (6.0 | ) | $ | 24.0 | $ | 25.3 | $ | 57.9 |
• | The effective income tax rate was 19.2% and 62.9% for the quarters ended 2018 and 2017, respectively, and 24.2% and 39.4% for the years ended 2018 and 2017, respectively. The effective income tax rate for the quarter and year 2018 reflected the final 2018 adjustments to the provisional amounts recorded in the prior year under the Tax Act of approximately $25 million tax benefit for the quarter and approximately $75 million net tax cost for the year. |
• | Excluding the impact of the Tax Act and the current year impairment charges, the effective income tax rate was 19.2% for the quarter 2018 and 22.9% for the year 2018. |
• | Excluding the prior year provisional net tax cost of approximately $700 million under the Tax Act, the effective income tax rate was 27.4% for the quarter 2017 and 31.6% for the year 2017. |
• | Excluding the impact of the Tax Act and the current year impairment charges, the lower effective income tax rate for the quarter and year 2018 reflected the reduction in the U.S. corporate tax rate from 35% to 21% in 2018. In addition, both the fourth quarter 2018 and 2017 reflected a benefit from a change in tax reserves as a result of global audit progression. |
• | Changes in Systemwide sales are driven by comparable sales, net restaurant unit expansion, and the potential impacts of hyper-inflation. The Company expects net restaurant additions to add approximately 1 percentage point to 2019 Systemwide sales growth (in constant currencies). |
• | 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 the new International Operated Markets segment would change annual diluted earnings per share by about 6 to 7 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 2019, costs for the total basket of goods are expected to increase about 1% to 2% in the U.S. and about 2% in key markets outside of the U.S.* |
• | The Company expects full year 2019 selling, general and administrative expenses to decrease about 4% in constant currencies. This decrease will result in expected G&A of approximately $2.1 billion at current exchange rates for full year 2019, reflecting completion of about $500 million of net savings from our G&A budget of $2.6 billion at the beginning of 2015. |
• | Based on current interest and foreign currency exchange rates, the Company expects interest expense for the full year 2019 to increase about 10% to 12% due primarily to higher average debt balances. |
• | 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 80% 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 35 cents. |
• | The Company expects the effective income tax rate for the full year 2019 to be in the 24% to 26% range. Some volatility may result in a quarterly tax rate outside of the annual range. |
• | The Company expects capital expenditures for 2019 to be approximately $2.3 billion. About $1.5 billion will be dedicated to our U.S. business, nearly two-thirds of which is allocated to approximately 2,000 EOTF projects. Globally, we expect to open roughly 1,200 restaurants. We will spend approximately $600 million in our wholly owned markets to open 300 restaurants and our developmental licensee and affiliated markets will contribute capital towards the remaining 900 restaurant openings in their respective markets. The Company expects about 750 net restaurant additions in 2019. |
• | During 2019, the Company expects to return about $9 billion to shareholders, which will complete its cash return to shareholder target of about $25 billion for the 3-year period ending 2019. |
• | Beginning in 2019, the Company expects to achieve the following long-term, average annual (constant currency) financial targets: |
◦ | Systemwide sales growth of 3% to 5%; |
◦ | Operating margin in the mid-40% range; |
◦ | Earnings per share growth in the high-single digits; and |
◦ | Return on incremental invested capital in the mid-20% range. |
At December 31, | 2018 | 2017 | Inc/ (Dec) | |||
U.S. | 13,914 | 14,036 | (122 | ) | ||
International Lead Markets | ||||||
Germany | 1,489 | 1,480 | 9 | |||
Canada | 1,472 | 1,458 | 14 | |||
France | 1,463 | 1,442 | 21 | |||
United Kingdom | 1,292 | 1,285 | 7 | |||
Australia | 982 | 973 | 9 | |||
Other | 289 | 283 | 6 | |||
Total International Lead Markets | 6,987 | 6,921 | 66 | |||
High Growth Markets | ||||||
China | 3,002 | 2,631 | 371 | |||
Russia | 682 | 645 | 37 | |||
Italy | 578 | 566 | 12 | |||
Spain | 515 | 509 | 6 | |||
South Korea | 415 | 447 | (32 | ) | ||
Other | 1,113 | 1,086 | 27 | |||
Total High Growth Markets | 6,305 | 5,884 | 421 | |||
Foundational Markets & Corporate | ||||||
Japan | 2,899 | 2,894 | 5 | |||
Brazil | 968 | 929 | 39 | |||
Philippines | 620 | 566 | 54 | |||
Taiwan | 396 | 396 | — | |||
Other * | 5,766 | 5,615 | 151 | |||
Total Foundational Markets & Corporate | 10,649 | 10,400 | 249 | |||
Systemwide restaurants | 37,855 | 37,241 | 614 | |||
Countries | 120 | 120 | — |
At December 31, | 2018 | 2017 | Inc/ (Dec) | |||
U.S. | ||||||
Conventional franchised | 13,229 | 13,149 | 80 | |||
Company-operated | 685 | 887 | (202 | ) | ||
Total U.S. | 13,914 | 14,036 | (122 | ) | ||
International Lead Markets | ||||||
Conventional franchised | 6,074 | 5,951 | 123 | |||
Developmental licensed | 97 | 47 | 50 | |||
Total Franchised | 6,171 | 5,998 | 173 | |||
Company-operated | 816 | 923 | (107 | ) | ||
Total International Lead Markets | 6,987 | 6,921 | 66 | |||
High Growth Markets | ||||||
Conventional franchised | 1,809 | 1,712 | 97 | |||
Developmental licensed | 131 | 128 | 3 | |||
Foreign affiliated | 3,276 | 2,903 | 373 | |||
Total Franchised | 5,216 | 4,743 | 473 | |||
Company-operated | 1,089 | 1,141 | (52 | ) | ||
Total High Growth Markets | 6,305 | 5,884 | 421 | |||
Foundational Markets & Corporate | ||||||
Conventional franchised | 573 | 554 | 19 | |||
Developmental licensed | 6,997 | 6,770 | 227 | |||
Foreign affiliated * | 2,899 | 2,894 | 5 | |||
Total Franchised | 10,469 | 10,218 | 251 | |||
Company-operated | 180 | 182 | (2 | ) | ||
Total Foundational Markets & Corporate | 10,649 | 10,400 | 249 | |||
Systemwide | ||||||
Conventional franchised | 21,685 | 21,366 | 319 | |||
Developmental licensed | 7,225 | 6,945 | 280 | |||
Foreign affiliated | 6,175 | 5,797 | 378 | |||
Total Franchised | 35,085 | 34,108 | 977 | |||
Company-operated | 2,770 | 3,133 | (363 | ) | ||
Total Systemwide | 37,855 | 37,241 | 614 |
• | Continue to innovate and differentiate the McDonald’s experience, including by preparing and serving our food in a way that balances value and convenience to our customers with profitability; |
• | Capitalize on our global scale, iconic brand and local market presence to enhance our ability to retain, regain and convert key customer groups; |
• | Utilize our new organizational structure to build on our progress and execute against our business strategies; |
• | Augment our digital and delivery initiatives, including mobile ordering, along with Experience of the Future (“EOTF”), particularly in the U.S.; |
• | Identify and develop restaurant sites consistent with our plans for net growth of Systemwide restaurants; |
• | Operate restaurants with high service levels and optimal capacity while managing the increasing complexity of our restaurant operations and create efficiencies through innovative use of technology; and |
• | Accelerate our existing strategies through growth opportunities, investments and partnerships. |
• | 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, judgments or consent decrees, which may require us to make disclosures or take other actions that may affect perceptions of our brand and products; |
• | 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; and |
• | The scope and terms of insurance or indemnification protections that we may have. |
• | The unpredictable nature of 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 U.S., 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; |
• | 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, driven in part by expectations about our performance; 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 corporate actions and market and third-party perceptions and assessments of such actions, such as those we may take from time to time as we implement our strategies in light of changing business, legal and tax considerations and evolve our corporate structure. |
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