Industry News | January 23, 2017

McDonald's Reflects on 'Year of Purposeful Change'

McDonald's Corporation announced results for the fourth quarter and year ended December 31, 2016.

"Throughout 2016, we worked diligently to lay the groundwork for our long-term future. We focused on driving changes in our menu, restaurants, and technology to deliver an enhanced McDonald's experience for our customers around the world," says McDonald's president and chief executive officer Steve Easterbrook. "We applied the necessary rigor and discipline to strengthen the company and our financial performance. Our efforts yielded a more streamlined and focused organization that generated solid fourth quarter and full year results, including our strongest annual global comparable sales growth since 2011 along with record franchisee cash flows in many of our major markets. I am confident that we're on the right path as we pursue our goal of being recognized by our customers as the modern, progressive burger company."

Fourth quarter highlights:

Global comparable sales increased 2.7 percent, including positive comparable sales in the International Lead, High Growth, and Foundational segments

Consolidated revenues decreased 5 percent (3 percent in constant currencies), due to the impact of refranchising.

Consolidated operating income increased 5 percent (7 percent in constant currencies).

Full year highlights:

Global comparable sales increased 3.8 percent, including positive comparable sales across all segments.

Consolidated revenues decreased 3 percent (flat in constant currencies), due to the impact of refranchising.

Consolidated operating income increased 8 percent (11 percent in constant currencies).

Fourth quarter comparable sales declined 1.3 percent in the U.S., reflecting the challenging comparison against the prior year launch of the very successful All-Day Breakfast. Operating income for the quarter decreased 11 percent, as the U.S. lapped a prior year gain on the strategic sale of a unique restaurant property. Entering 2017, McDonald's U.S. will continue to focus on growing guest traffic.

Comparable sales for the International Lead segment increased 2.8 percent for the quarter, reflecting strong comparable sales growth across most of the segment, led by the U.K. Fourth quarter operating income for the segment increased 1 percent (6 percent in constant currencies), fueled by sales-driven improvements in franchised margin dollars across most markets.

Fourth quarter comparable sales increased 4.7 percent in the High Growth segment led by strong performance in China and positive results across the entire segment. The segment's operating income rose 16 percent (18 percent in constant currencies), driven primarily by improved restaurant profitability in China, which benefited from recent VAT reform.

Fourth quarter comparable sales rose 11.1 percent in the Foundational markets led by very strong performance in Japan and certain markets in Latin America, as well as solid results across the segment's remaining geographic regions. For the segment, which includes Corporate SG&A and other costs, operating income increased for the quarter. These results primarily reflect a gain from the sale of McDonald's Singapore in connection with the Company's refranchising initiatives, as well as improved performance in Japan.

Easterbrook says, "For McDonald's, 2016 was a year of purposeful change as we focused on the key elements of our turnaround plan—strengthening our business to drive long-term sustainable growth by sharpening our focus on our customers, right-sizing our structure and putting the right talent in place to lead the company into the future. I'm confident that we are well-positioned to transition to a longer-term focus in 2017. Our refranchising efforts and financial discipline will enable us to direct our capital and G&A resources towards new strategic opportunities to deliver on our long-term strategy. We look forward to providing further details on our strategy and financial targets later this quarter. As we begin the first quarter of 2017, we are mindful of the comparison we face against first quarter 2016 results, which benefited from leap year, favorable weather and continued momentum from All-Day Breakfast in the U.S."

Results for the quarter and year benefited from stronger operating performance, and the year also benefited from higher gains on sales of restaurant businesses, mostly in the U.S.

Both periods were impacted by the company's ongoing refranchising and G&A initiatives:

In 2016, the quarter included $16 million of net pre-tax strategic credits consisting of a gain of $75 million from the sale of McDonald's Singapore to a developmental licensee, partly offset by restructuring charges, while the year included net pre-tax impairment and restructuring charges of $342 million.

In 2015, the fourth quarter and year included net pre-tax strategic charges of $74 million and $307 million, respectively, primarily consisting of impairment and restructuring charges.

In addition, fourth quarter 2015 included a gain of $135 million from the strategic sale of a unique restaurant property in the U.S.

News and information presented in this release has not been corroborated by QSR, Food News Media, or Journalistic, Inc.

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