Industry News | April 23, 2007

McDonald's Strong Q1 Report - Selling 1600 Restaurants

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McDonald's Corporation (NYSE:MCD) today announced strong operating results for the first quarter, reporting diluted earnings per share of $0.62, up 27% over prior year earnings of $0.49 per share, and up 38% over prior year earnings from continuing operations of $0.45 per share. The Company also provided the following highlights for the quarter:

--Revenues increased 11% (7% in constant currencies) driven by a global comparable sales increase of 6.3%

--Company-operated and franchised restaurant margins improved for the fifth consecutive quarter

--Consolidated results reflected double-digit growth in operating income

--The Company repurchased $1 billion of its stock

--The Company has reached an agreement that will result in the franchising of nearly 1,600 existing restaurants in Latin America and the Caribbean to a developmental licensee

Chief Executive Officer Jim Skinner commented, "Our customer-centric Plan to Win continues to drive McDonald's sustained momentum and is generating broad-based growth in our business. This quarter's results reflect higher revenues, increased customer visits and enhanced profitability as we keep our brand relevant through contemporary food and beverage offerings, modern restaurants and attractive everyday value. Our performance confirms that our emphasis on improving the McDonald's restaurant experience through focus on the 5 P's of People, Products, Place, Price and Promotion is the right strategy for our customers and McDonald's.

"In March, McDonald's U.S. business marked its 48th consecutive month of positive comparable sales -- a milestone not achieved since 1980. We continue to optimize our U.S. performance by focusing on strategic initiatives that build upon our fundamental strengths of unparalleled convenience, compelling value and menu choice and variety.

"Europe delivered strong growth in the first quarter fueled by robust comparable sales across the segment. I am encouraged by the progress of our European business and the momentum we've created through focused execution of the Plan to Win.

"Quarterly performance in our Asia/Pacific, Middle East and Africa segment was also strong with our ongoing commitment to everyday value and locally relevant products driving comparable sales and financial results across the segment.

"I'm also pleased to announce that we reached an agreement that will result in the franchising of nearly 1,600 existing restaurants in Latin America and the Caribbean to a developmental licensee organization led by Woods Staton. Woods is a highly respected entrepreneur in Latin America who has been a valued member of the McDonald's System for more than 20 years. As part of this transaction, McDonald's expects to receive approximately $700 million in cash proceeds from the sale of these operations, which will be coupled with a 20-year license arrangement. In line with our previous guidance, we expect to record an impairment charge of approximately $1.6 billion in the second quarter, which consists of about $800 million for the difference between the net book value of assets and the estimated cash proceeds, as well as $825 million for accumulated currency translation losses. The charge will be substantially all noncash. We anticipate the transaction to close in the next few months.

"For our customers and the McDonald's System, this transaction enables us to grow faster and become even more locally relevant in a part of the world that has exhibited strong demand for our Brand. For our shareholders, the strategic actions we're taking will reduce volatility and further solidify our commitment to generate strong returns and focus management's attention on the markets with the greatest impact on our results. We will use the proceeds received to increase the amount we expect to return to shareholders to at least $5.7 billion in 2007 and 2008 combined through dividends and share repurchases.

"Our priority remains to create long-term, profitable growth for all stakeholders. I am confident that the collective strength and alignment of McDonald's franchisees, suppliers and employees will continue to fuel our efforts and ensure that we sustain our momentum."