This summary is based on the third quarter fiscal 2008 earnings call conducted by McDonalds Corp. (MCD) on 26 January, 2009.
Management:
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Vice Chairman, Chief Executive Officer: James A. Skinner
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Chief Financial Officer: Peter J. Bensen
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President, Chief Operating Officer: Ralph Alvarez
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Vice President, Investor Relations: Mary Kay Shaw
Key Investors Issues
- Net income was $985 million or 87 cents per share, down 23% from $1.3 billion or $1.06 a share in 2007.
- Revenues were down 3% to $5.6 billion from $5.7 billion in the prior year.
Full Year Highlights:
- Revenues were up 3% to $23.5 billion.
- Net income was up 80% to $4.3 billion or $3.76 a share.
- The firm returned $5.8 billion to shareholders through dividends and share repurchases for a total of $11.5 billion toward the $15 to $17 billion three-year target.
Fourth Quarter Highlights
Net income was $985 million or 87 cents per share, down 23% from $1.3 billion or $1.06 a share in 2007 due to weaker operating expenses and tax benefits in the prior year .
- The firm has taken action to further enhance the overall profitability and returns by controlling G&A spending, which has declined as a percent of revenues over the last several years, by leveraging the entrepreneurial spirit of owner operators.
- The shift in ownership mix benefited combined operating margin by 110 basis points.
- In 2008 the firm re-franchised 675 restaurants primarily in the U.S. and Europe as part of the target to re-franchise 1,000 to 1,500 restaurants by the end of 2010.
- Consolidated franchise margins increased 50 basis points for the quarter driven by strong comparable sales in every area of the world partly offset by a franchise margin percent decline in Europe.
While Europe’s franchise margin percent is down due to re-franchising and costs related to re-imaging and extended hours, total franchise margin dollars are up in constant currencies.
- Revenues were down 3% to $5.6 billion from $5.7 billion in the prior year as consolidated company operated margins remained flat.
- In the U.S., the firm drove comparable sales and visits by staying focused on customer’s ongoing desire for menu variety, beverage choice, everyday affordability and convenience.
- At the same time effective initiatives to optimize ownership mix and manage costs enabled the U.S. business to deliver a solid company operating margins of 18.8%.
- In Europe, company operated margins rose 50 basis points with comparable sales and re-franchising benefits were partly offset by higher commodity and labor costs.
In Asia Pacific Middle East and Africa, momentum continued with nearly all countries posting positive comparable sales.
- Strong segment comp sales were offset by higher commodity costs and slowing comp sales in China.
- Australia’s comparable sales and margin performance remained exceptionally strong, but its contribution to APMEA’s company operated margin was offset by the 25% decline in the Australian dollar.
- Currency translation negatively impacted revenue by nearly $500 million and earnings per share by 7 cents.
Operational Insights:
- Continued success is the direct result of a focus in alignment around five factors driving the Plan to Win.
- These include menu variety and beverage choice, better restaurant operations, convenience in daypart expansion, everyday predictable low prices and ongoing restaurant reinvestment.
- In the United States, comp sales increased 5% and 4% for the year driving operating income growth of 11% and 8% respectively.
- U.S. has grown market share in dollars and customer visits by leveraging its breakfast, chicken, beverage, and convenience strategies.
After completing the specialty coffee rollout in mid-year, the firm will continue to build the beverage business by beginning to introduce smoothies, frappes and bottled drinks.
- In Europe comparable sales were up 7.6% for the quarter and 8.5% for the year. In constant currencies, operating income grew at 13% and 17% for the quarter end year respectively.
- The number of visits customers are making to McDonalds has grown despite the decline in overall traffic within Europe’s informal eating out category.
- While many countries in Europe are seeing an economic slowdown, the European business remains strong as the three-tier menu remains the main growth driver.
- The firm also continues to make progress with the implementation of the bridge operating platform or BOP which enables restaurants to provide menu variety because it simplifies operations and helps improve quality.
- A focus on daypart expansion is making McDonalds more convenient and providing incremental sales in an increasing number of European markets.
Eighty percent of restaurants currently offer some form of extended hours, and in markets like the U.K. and Germany the firm is seeing a halo effect on the breakfast business.
- Drive-through optimization is also playing a part in growth as the firm has seen a significant opportunity to grow this part of the business by continuing to maximize efficiency capacity on order accuracy.
- In the area of re-imaging, the firm continue to make progress in many of the major markets, e.g. in Germany, it is closing in on the goal to re-image 100% of restaurants with only about 200 remaining.
- Asia Pacific, Middle East and Africa comp sales were up 10% for the quarter and 9% for the year, driven by Australia, China and Japan with most other markets positively contributing as well.
- Convenience also continues to drive results in APMEA, 42% of APMEA’s restaurants are open 24 hours, a 30% increase over the prior year, and the focus on extended hours is driving business during the morning hours.
Key questions and answers from the fourth quarter earnings call conducted by McDonalds Corp. (MCD) on 26 January, 2009.
