The FINANCIAL — McDonald’s Corporation on October 22 announced results for the third quarter ended September 30, 2015.
“Consumers have more choices than ever about where to dine, and our operational growth-led turnaround is focused on appealing to customers in the areas that matter most to them – great-tasting, high-quality food, convenience and value,” said McDonald’s President and Chief Executive Officer Steve Easterbrook. “I am encouraged by our operating performance for the quarter, with positive comparable sales across all segments, including the U.S., as well as sales recovery in China following the prior year supplier issue. I am confident in the fundamental strength of the McDonald’s System and our ability to drive initiatives that are focused on delivering the greatest benefit for our customers.”
The following third quarter results included a benefit from comparison to the 2014 China supplier issue:
Global comparable sales increase of 4.0%, reflecting positive comparable sales in all segments
Consolidated revenues decrease of 5% (increase of 7% in constant currencies)
Consolidated operating income decrease of 2% (increase of 10% in constant currencies)
Diluted earnings per share of $1.40, an increase of 28% (44% in constant currencies), due in part to a benefit from comparison to the prior year’s increase in tax reserves related to certain foreign tax matters
In addition, the Company returned $3.1 billion to shareholders through share repurchases and dividends. This brings the year-to-date return to shareholders to $7.1 billion against our targeted return of $8-9 billion in 2015.
In the U.S., third quarter comparable sales increased 0.9%, the segment’s first quarterly comparable sales increase in two years. The introduction of the new Premium Buttermilk Crispy Chicken Deluxe sandwich and breakfast, including a return to the classic recipe ingredients for McDonald’s iconic Egg McMuffin, contributed to the segment’s performance. U.S. third quarter operating income declined 1% as a result of our incremental investment in wages and benefits for all eligible Company-operated restaurant employees, which is designed to improve restaurant performance and enhance our employer brand. Moving forward, rebuilding customer traffic remains a top priority for the segment, according to McDonald’s Corporation.
Comparable sales for the International Lead Markets segment increased 4.6% for the third quarter led by strong performance in Australia, the U.K. and Canada and positive results in Germany. Third quarter operating income decreased 11% (increased 5% in constant currencies). Positive consumer response to multiple menu, service and value initiatives throughout most of the segment contributed to the segment’s performance.
In the High Growth Markets segment, third quarter comparable sales increased 8.9%, reflecting very strong comparable sales performance in China and positive performance in most other markets. Operating income increased 39% (68% in constant currencies). Emphasis on value and breakfast during the quarter contributed to China’s sales recovery.
Easterbrook concluded, “Third quarter marked an important step in the Company’s global turnaround – the reorganization of our business from a geographically focused structure to business segments that combine markets with similar characteristics and opportunities for growth. As we begin fourth quarter, comparable sales are expected to be positive in all segments. While still in the early stages, we believe our turnaround plan is starting to generate the change needed to reposition McDonald’s as a modern, progressive burger company.”
For the quarter and nine months, results benefited from comparison to the prior year’s increase in tax reserves related to certain foreign tax matters and the China supplier issue. These items had a negative impact on diluted earnings per share of $0.41 in the third quarter 2014.
For the nine months, results were negatively impacted by approximately $240 million of pre-tax strategic charges incurred during the first half of this year, primarily related to store closing costs, restructuring charges and other asset write-offs as part of the refranchising initiative.
Foreign currency translation had a negative impact of $0.17 and $0.39 on diluted earnings per share for the quarter and nine months, respectively.
THE FOLLOWING DEFINITIONS APPLY TO THESE TERMS AS USED THROUGHOUT THIS RELEASE
Comparable sales represent sales at all restaurants and comparable guest counts represent the number of transactions at all restaurants, whether operated by the Company or by franchisees, in operation at least thirteen months including those temporarily closed. Some of the reasons restaurants may be temporarily closed include reimaging or remodeling, rebuilding, road construction and natural disasters. Comparable sales exclude the impact of currency translation. Comparable sales are driven by changes in guest counts and average check, which is affected by changes in pricing and product mix. Typically, pricing has a greater impact on average check than product mix. Management reviews the increase or decrease in comparable sales and comparable guest counts compared with the same period in the prior year to assess business trends.
Information in constant currency is calculated by translating current year results at prior year average exchange rates. Management reviews and analyzes business results excluding the effect of foreign currency translation and bases incentive compensation plans on these results because they believe this better represents the Company’s underlying business trends.