Industry News | September 17, 2002

McDonald's Third Quarter 2002 Update

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McDonald's Corporation (NYSE: MCD - News) announced today that it is lowering its 2002 earnings expectations for the full year, primarily due to lower than expected sales in the U.S. and Europe in the third quarter and a more cautious outlook on the fourth quarter. The Company currently expects 2002 earnings per share to be $1.43 or better, excluding charges in the first quarter(1). Including the charges, the Company expects annual earnings per share to be $1.31 or better, compared with $1.25(2) in 2001. The Company expects third quarter 2002 earnings per share of $.38 to $.39, compared with $.42 last year including special items and $.38 excluding special items(3). These expectations reflect a foreign currency translation benefit of one to two cents for the third quarter, and one to three cents for the year. McDonald's also reported that Systemwide sales for the first two months of third quarter 2002 were $7.5 billion, up 3 percent compared with the same period in 2001.

Jack Greenberg, Chairman and Chief Executive Officer, noted, "The U.S. marketplace continues to be extremely competitive and customers have many choices. This is why we have recently announced an acceleration of our plans to give customers even better value, service, menu choice and experience. In addition, the U.S. system will feature a more focused, consistent national advertising message. These actions are designed to move our U.S. business to a higher level, strengthen our competitive position and increase restaurant sales and profits for the company and our franchisees. However, it will take time before we see the full benefit of these initiatives in our earnings. We will launch our national value advertising in October as we continue to enhance restaurant-level training and service systems.

"In connection with this plan, beginning in 2003, we will further enhance customers' experience through targeted investments in sales building initiatives over the next 18 to 24 months. As part of this plan, we expect to invest $300 million to $400 million in existing U.S. franchised restaurants in 2003. The funding decisions will be made on an individual restaurant basis for those restaurants meeting specified standards and will be based on return on investment criteria. To fund the additional capital expenditures related to U.S. initiatives, we expect to moderate share repurchases to approximately $500 million in 2003 as well as reduce global new restaurant openings."

Greenberg added, "In Europe, sales were weaker than expected, particularly in Germany where the economy continues to contract and in the U.K, where retail sales have slowed. In addition, our marketing messages in these countries did not resonate as well with consumers as we had hoped. Therefore, we are making adjustments and are optimistic that sales in these countries will improve in the fourth quarter as our aggressive marketing plans feature new tastes and value. France continued to perform well in the first two months of the quarter."

(1) The charges excluded from the guidance of $1.43 or better include afirst quarter 2002 non-cash charge of $43 million, pre and after tax ($.04 per share), primarily related to the impairment of assets in Latin America and the closing of underperforming restaurants in Turkey, as a result of continued economic weakness. This guidance also excludes a first quarter 2002 non-cash charge of $99 million after tax ($.08 per share) for the cumulative effect of adopting SFAS 142, "Goodwill and Other Intangible Assets".

(2) Includes $253 million of net pretax expense ($143 million after tax or $.11 per share) consisting primarily of special charges related to the U.S. business reorganization and other global change initiatives and the closing of 163 underperforming restaurants in international markets, partly offset by a gain on the initial public offering of McDonald's Japan.

(3) Third quarter 2001 results included a $137 million after-tax gain related to the initial public offering of McDonald's Japan and after-tax charges of $84 million, related to the closing of 154 under-performing restaurants in international markets and the write-off of technology costs. These charges and gain totaled $.04 per share.