McDonald’s: Reports Second Quarter 2016 Results

Oak Brook / IL. (mdc) McDonald’s Corporation announced results for the second quarter ended June 30, 2016. «At McDonald’s, we are focused on meeting our customers’ needs for high quality, affordable food and beverage choices», said McDonald’s President and Chief Executive Officer Steve Easterbrook. «Our second quarter performance, which marks our fourth consecutive quarter of positive comparable sales across all business segments, provides a clear indication that customers are responding to the steps we’re taking to deliver the menu and value options they want at the convenience of McDonald’s. We’re making steady progress on transforming our business to satisfy the needs of our customers around the world, despite a challenging environment in several key markets». Second quarter highlights:

• Global comparable sales increased 3.1 percent, reflecting positive comparable sales in all segments
• Due to the impact of refranchising, consolidated revenues decreased 4 percent (1 percent in constant currencies)
• Consolidated operating income was relatively flat (increased 3 percent in constant currencies), which included approximately 230 million USD of previously announced strategic charges, consisting primarily of non-cash impairment charges related to the Company’s ongoing refranchising and G+A initiatives, as well as the decision to relocate the Company’s headquarters
• Diluted earnings per share of 1.25 USD, decreased 1 percent (increased 1 percent in constant currencies), which included strategic charges totaling 0.20 USD per share. Excluding the impact of these strategic charges and prior year restructuring charges of 0.04 USD per share, diluted earnings per share increased 13 percent in constant currencies
• Returned 4.1 billion USD to shareholders through share repurchases and dividends. This brings the cumulative return to shareholders to 24.4 billion USD against our targeted return of about 30 billion USD for the three-year period ending 2016

In the U.S., second quarter comparable sales increased 1.8 percent, with continued contributions from All Day Breakfast and McPick 2 despite softening industry growth during the quarter. Operating income for the quarter rose 10 percent, reflecting higher sales-driven franchised margins and higher gains from restaurant refranchising. McDonald’s U.S. begins the second half of the year focused on adding more breakfast sandwich favorites – Biscuits, McMuffins and McGriddles – to the All Day Breakfast menu this fall. This platform extension will be complemented by initiatives around core menu enhancements and restaurant operations designed to deliver an outstanding customer experience.

Comparable sales for the International Lead segment increased 2.6 percent for the quarter, led by positive performance in the U.K., Canada and Australia, and slightly positive results in Germany. Operating income for the quarter increased 4 percent (7 percent in constant currencies), driven by improved franchised margins.

In the High Growth segment, second quarter comparable sales increased 1.6 percent, led by positive comparable sales performance in China and Russia, along with solid performance across various other markets. The segment’s operating income rose 25 percent (32 percent in constant currencies) fueled by improved results in China.

Second quarter comparable sales rose 7.7 percent in the Foundational markets, reflecting very strong performance in Japan and many other markets. For the segment, operating income for the quarter declined due to the impact of strategic charges associated with the Company’s ongoing refranchising and G+A initiatives.

Steve Easterbrook concluded, «Enhancing the customer experience, running great restaurants and strengthening our competitive position to become a modern progressive burger company takes discipline and dedication. I am confident in our System’s ability to stay the course and execute our turnaround plan to achieve our goals. We are on the right path to changing the way customers think about McDonald’s by getting closer to the communities we serve and harnessing one of our System’s key competitive strengths – the entrepreneurial spirit of our dedicated franchisees – as we lay the foundation for future growth».

Results for the quarter and six months benefited from stronger operating performance and higher gains on sales of restaurant businesses. Both periods were impacted by approximately 230 million USD of strategic charges, consisting primarily of non-cash impairment charges incurred in the quarter related to the Company’s ongoing refranchising and G+A initiatives, as well as the decision to relocate the Company’s headquarters.

Results also benefited from comparison to the prior year’s charges of 45 million USD in the second quarter 2015 and 240 million USD for the six months 2015. Excluding the impact of the current and prior year charges, diluted earnings per share increased 13 percent in constant currencies for the quarter, with no significant impact for the six months. This supplemental information is provided to help investors understand the impact of the current and prior year charges on the Company’s results.

Foreign currency translation had a negative impact of 0.02 USD and 0.06 USD on diluted earnings per share for the quarter and six months, respectively.