McDonald's(MCD)2024-11-07 17:44Financial Performance - Total revenues for Q3 2024 were $6.873 billion, a 2.7% increase compared to $6.692 billion in Q3 2023[9] - Net income for Q3 2024 was $2.255 billion, a 2.7% decrease compared to $2.317 billion in Q3 2023[9] - Earnings per diluted share for Q3 2024 were $3.13, a 1.3% decrease compared to $3.17 in Q3 2023[9] - Operating income for Q3 2024 was $3.188 billion, a 0.6% decrease compared to $3.208 billion in Q3 2023[9] - Net income for the nine months ended September 30, 2023, was $6,430 million[17] - Net income for the nine months ended September 30, 2024, was $6,207 million[18] - Total revenues for the quarter increased by 3% to $6,873 million, driven by a 4% increase in sales from company-owned restaurants and a 1% increase in revenues from franchised restaurants[67] - Net income for the quarter decreased by 3% to $2,255 million, with diluted earnings per share down 1% to $3.13[67] - For the nine months, total revenues increased by 2% to $19,532 million, with net income decreasing by 3% to $6,207 million[67] - Operating income for the quarter decreased by 1% to $3,188 million, while for the nine months, it remained flat at $8,844 million[67] - Total revenues for the quarter increased by 3% to $6,873 million, with a 2% increase excluding currency translation[78] - Total revenues for the nine months increased by 2% to $19,532 million, with a 2% increase excluding currency translation[79] - GAAP net income decreased by 3% to $6,207 million in 2024 compared to $6,430 million in 2023[75] - Non-GAAP net income decreased by 3% to $6,425 million in 2024 compared to $6,598 million in 2023[75] Cash Flow and Capital Expenditures - Capital expenditures for Q3 2024 were $794 million, a 39.3% increase compared to $570 million in Q3 2023[15] - Cash provided by operations for Q3 2024 was $2.736 billion, a 9.7% decrease compared to $3.029 billion in Q3 2023[15] - Cash and equivalents at the end of Q3 2024 were $1.221 billion, a 65.1% decrease compared to $3.496 billion at the end of Q3 2023[15] - Cash used for investing activities increased by $2.3 billion to $4.6 billion for the nine months 2024, primarily due to increased ownership in McDonald's China and acquisition of McDonald's Israel[100] - Cash used for financing activities increased by $1.8 billion to $5.6 billion for the nine months 2024, driven by lower issuances and higher net repayments of long-term financing[100] - Cash provided by operations totaled $6.8 billion for the nine months 2024, exceeding capital expenditures by $4.8 billion[100] Restaurant Operations and Growth - Total systemwide restaurants as of September 30, 2024, were 42,819, compared to 41,198 in 2023[25] - Conventional franchised restaurants increased to 21,864 in 2024 from 21,761 in 2023[25] - Developmental licensed restaurants grew to 9,077 in 2024 from 8,450 in 2023[25] - Foreign affiliated restaurants increased to 9,814 in 2024 from 8,843 in 2023[25] - Company-owned and operated restaurants decreased to 2,064 in 2024 from 2,144 in 2023[25] - The company plans to open more than 2,100 new restaurants globally in 2024, contributing to nearly 4% new unit growth[60] - The company targets 50,000 restaurants by the end of 2027, aiming for the fastest period of restaurant unit growth in its history[60] - The company plans to open more than 2,100 restaurants globally in 2024, including 500 in the U.S. and International Operated Markets[103] Franchise Performance - Revenues from franchised restaurants for Q3 2024 were $4.094 billion, a 1.2% increase compared to $4.047 billion in Q3 2023[9] - Approximately 95% of the company's 42,819 McDonald's restaurants were franchised as of September 30, 2024[53] - Franchised restaurants represented approximately 95% of McDonald's restaurants worldwide at September 30, 2024[77] - Franchisee sales growth is critical to the company's revenue, as franchised restaurants contribute significantly to margins through rent and royalties based on a percentage of sales[115] - Franchisees' ability to invest in major initiatives and obtain financing at reasonable rates is essential for the company's future growth and operational results[115] Comparable Sales and Market Performance - Global comparable sales decreased 1.5% for Q3 2024 and 0.2% for the nine months[63] - U.S. comparable sales increased 0.3% for Q3 2024 and 0.7% for the nine months, driven by average check growth and digital/delivery growth[63] - International Operated Markets segment comparable sales decreased 2.1% for Q3 2024 and 0.3% for the nine months, impacted by France and the U.K.[63] - International Developmental Licensed Markets segment comparable sales decreased 3.5% for Q3 2024 and 1.7% for the nine months, driven by Middle East and China[63] - Consolidated revenues increased 3% (2% in constant currencies) for Q3 2024 and 2% (2% in constant currencies) for the nine months[63] - Systemwide sales were flat (flat in constant currencies) for Q3 2024 and increased 1% (1% in constant currencies) for the nine months[63] Restructuring and Strategic Initiatives - The company incurred $146 million in restructuring charges related to the Accelerating the Organization initiative in the nine months ended September 30, 2024, primarily for professional services costs[30] - The company expects to incur approximately $250 million in restructuring charges in 2024, primarily related to professional services costs, as part of the Accelerating the Organization strategy[31] - The company acquired an additional 28% ownership stake in Grand Foods Holding for $1.8 billion in cash, increasing its equity ownership to 48%[33] - The carrying amount of the company's investments in equity method investees exceeded its proportionate share of the net assets by $1.4 billion as of September 30, 2024[33] - Revenue from equity method investments was $402 million for the nine months ended September 30, 2024, compared to $364 million for the same period in 2023[34] Tax and Debt - The effective income tax rate was 20.7% for both the quarters ended 2024 and 2023, and 20.5% and 19.7% for the nine months ended 2024 and 2023, respectively[36] - The fair value of the company's debt obligations was estimated at $38.8 billion as of September 30, 2024, compared to a carrying amount of $39.6 billion[37] - Interest expense increased by 13% for the nine months, driven by higher average debt balances and interest rates[97] - The effective income tax rate was 20.5% for the nine months ended 2024, up from 19.7% in the same period in 2023[99] Derivatives and Hedging - The total fair value of derivative instruments designated as hedging was $8 million in assets and $160 million in liabilities as of September 30, 2024[40] - The total fair value of derivative instruments not designated as hedging was $141 million in assets and $6 million in liabilities as of September 30, 2024[40] - The company recognized a $22 million gain on the fair value of interest rate swaps and a corresponding loss on the fair value of the related hedged debt instrument to interest expense for the nine months ended September 30, 2024[42] - As of September 30, 2024, the company had derivatives outstanding with an equivalent notional amount of $2.2 billion to hedge forecasted foreign currency denominated cash flows[43] - The company had derivatives outstanding with a notional amount of $500 million to hedge forecasted cash flows related to anticipated bond issuances as of September 30, 2024[43] - $14.3 billion of the company's third-party foreign currency denominated debt, $560 million of intercompany foreign currency denominated debt, and $1.8 billion of foreign currency derivatives were designated to hedge investments in certain foreign subsidiaries and affiliates as of September 30, 2024[44] - The company was required to post $122 million of collateral due to the negative fair value of certain derivative positions as of September 30, 2024[46] Dividends and Share Repurchases - The company paid a dividend of $1.67 per share, totaling $1.2 billion for the quarter, and repurchased 1.7 million shares for $444 million[73] - The company declared a 6% increase in its quarterly cash dividend to $1.77 per share, payable on December 16, 2024[73] - Common stock cash dividends for the nine months ended September 2024 were $4.867 billion, up from $3.325 billion in the same period of 2023[18] Risks and Challenges - Labor challenges, including availability and cost, could negatively impact operations, customer satisfaction, and franchisee profitability[117] - Food safety concerns, such as the October 2024 E. coli outbreak investigation, could harm the company's brand, reputation, and financial results[119] - Real estate portfolio management is crucial, as undesirable locations or failure to adapt to market trends could adversely affect systemwide sales and profitability[120] - Information technology system failures or security breaches could disrupt operations, harm customer experiences, and result in reputational damage or financial losses[122] - Increasing regulatory and legal complexity, including compliance with employment laws and food safety regulations, could raise costs and expose the company to litigation risks[123] - Changes in tax laws or unfavorable tax resolutions could materially impact the company's financial results[125] - Unfavorable economic conditions, including inflation and currency fluctuations, could adversely affect consumer spending and the company's financial performance[126] - Health epidemics or pandemics could disrupt labor availability, supply chains, and consumer behavior, negatively impacting the company's business and financial results[126] International Operations - The war in the Middle East negatively impacted systemwide sales and revenue, particularly in the International Developmental Licensed Markets & Corporate segment[68] - Revenue growth in the International Developmental Licensed Markets & Corporate segment is primarily due to the acquisition of McDonald's business in Israel[81] - The Company provided royalty relief and/or deferral of cash collection for certain franchisees impacted by the war in the Middle East[77] Digital and Loyalty Initiatives - The company plans to increase 90-day active loyalty users to 250 million by 2027 and grow annual Systemwide sales to loyalty members to $45 billion by 2027[60] - The company expects to increase the percentage of Systemwide delivery sales originating from its mobile app to 30% by 2027[60] - Systemwide sales to loyalty members are measured across approximately 50 markets, representing an aggregation of the prior four quarters of sales to loyalty members active in the last 90 days[65] Operating Costs and Expenses - Selling, general, and administrative expenses decreased by 5% ($33 million) for the quarter, primarily due to lower incentive-based compensation[91] - The company incurred net pre-tax charges of $52 million for the quarter and $142 million for the nine months, primarily related to transaction costs and non-cash impairment charges[73] - Impairment and other charges for the nine months totaled $287 million, primarily due to transaction costs and non-cash impairment charges[92] - Operating margin for the nine months was 45.3%, down from 46.3% in the previous year, reflecting inflationary cost pressures and increased investments[94] Future Outlook - The company expects net restaurant unit expansion to contribute nearly 2% to 2024 Systemwide sales growth in constant currencies[103] - Full-year 2024 Selling, general, and administrative expenses are expected to be about 2.2% of Systemwide sales[103] - The company expects 2024 operating margin to be in the mid-to-high 40% range[103] - 2024 capital expenditures are projected to be between $2.5 and $2.7 billion, with over half directed towards new restaurant unit expansion[103] - The company expects to achieve a free cash flow conversion rate in the 90% range for 2024[103] - Interest expense for 2024 is expected to increase approximately 11% due to higher average interest rates and debt balance[103]