McDonald's(MCD) - 2025 Q2 - Quarterly Report

Part I. Financial Information This section presents McDonald's unaudited financial statements, management's analysis, market risk, and controls Item 1. Financial Statements This section presents McDonald's unaudited condensed consolidated financial statements, including the balance sheet, income statement, comprehensive income, cash flows, and shareholders' equity, along with detailed notes providing context on accounting policies, restaurant operations, strategic initiatives, and segment performance Condensed Consolidated Balance Sheet This statement provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheet Highlights (in millions) | Metric | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------- | :------------ | :---------------- | :----- | | Cash and equivalents | $1,876 | $1,085 | +$791 | | Total current assets | $5,601 | $4,599 | +$1,002 | | Net property and equipment | $27,039 | $25,295 | +$1,744 | | Total assets | $59,555 | $55,182 | +$4,373 | | Short-term borrowings | $602 | $— | +$602 | | Total current liabilities | $4,298 | $3,861 | +$437 | | Long-term debt | $40,801 | $38,424 | +$2,377 | | Total shareholders' equity (deficit) | $(2,760) | $(3,797) | +$1,037 | Condensed Consolidated Statement of Income This statement details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statement of Income Highlights (in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YoY Change (%) | 6M 2025 | 6M 2024 | YoY Change (%) | | :---------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Total revenues | $6,843 | $6,490 | 5% | $12,799 | $12,659 | 1% | | Revenues from franchised restaurants | $4,213 | $3,940 | 7% | $7,874 | $7,663 | 3% | | Sales by Company-owned restaurants | $2,458 | $2,461 | (0%) | $4,590 | $4,816 | (5%) | | Operating income | $3,232 | $2,920 | 11% | $5,880 | $5,655 | 4% | | Net income | $2,253 | $2,022 | 11% | $4,121 | $3,951 | 4% | | Diluted EPS | $3.14 | $2.80 | 12% | $5.74 | $5.46 | 5% | | Dividends per common share | $1.77 | $1.67 | 6% | $3.54 | $3.34 | 6% | Condensed Consolidated Statement of Comprehensive Income This statement reports net income and other comprehensive income components from non-owner sources Condensed Consolidated Statement of Comprehensive Income Highlights (in millions) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Net income | $2,253 | $2,022 | $4,121 | $3,951 | | Foreign currency translation adjustments | $237 | $69 | $307 | $(46) | | Cash flow hedges | $(97) | $2 | $(164) | $39 | | Defined benefit pension plans | $(13) | $— | $(20) | $1 | | Total other comprehensive income (loss) | $127 | $71 | $123 | $(6) | | Comprehensive income | $2,380 | $2,093 | $4,244 | $3,945 | Condensed Consolidated Statement of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statement of Cash Flows Highlights (in millions) | Metric | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | :------ | :------ | | Cash provided by operations | $1,998 | $1,689 | $4,426 | $4,079 | | Cash used for investing activities | $(869) | $(846) | $(1,641) | $(3,338) | | Cash used for financing activities | $(555) | $(869) | $(2,098) | $(4,530) | | Cash and equivalents at end of period | $1,876 | $792 | $1,876 | $792 | Condensed Consolidated Statement of Shareholders' Equity This statement outlines changes in equity accounts, including net income, dividends, and share repurchases Condensed Consolidated Statement of Shareholders' Equity Highlights (in millions) | Metric | Dec 31, 2024 | June 30, 2025 | Change | | :-------------------------------- | :----------- | :------------ | :----- | | Total shareholders' equity (deficit) | $(3,797) | $(2,760) | +$1,037 | | Net income (6 months) | N/A | $4,121 | N/A | | Other comprehensive income (loss) (6 months) | N/A | $123 | N/A | | Common stock cash dividends (6 months) | N/A | $(2,530) | N/A | | Treasury stock purchases (6 months) | N/A | $(953) | N/A | Notes to Condensed Consolidated Financial Statements These notes offer detailed explanations and disclosures supporting the condensed consolidated financial statements Basis of Presentation This section outlines the accounting principles and assumptions underlying the financial statements - The financial statements are unaudited and include all normal recurring adjustments, but results for the quarter and six months ended June 30, 2025, do not necessarily indicate full-year results[20] Restaurant Information This section provides details on the company's restaurant count and ownership structure Restaurant Count by Ownership Type | Restaurants at June 30, | 2025 | 2024 | | :---------------------- | :--- | :--- | | Conventional franchised | 22,171 | 21,892 | | Developmental licensed | 9,373 | 8,815 | | Foreign affiliated | 10,515 | 9,531 | | Total Franchised | 42,059 | 40,238 | | Company-owned and operated | 2,054 | 2,168 | | Total Systemwide restaurants | 44,113 | 42,406 | Per Common Share Information This section explains the calculation of diluted earnings per common share, including dilutive effects - Diluted earnings per common share calculation includes the dilutive effect of share-based compensation, which was 3.1 million shares for the quarter ended June 30, 2025, and 3.2 million shares for the six months ended June 30, 2025[23] Recent Accounting Pronouncements This section addresses recently issued accounting standards and their potential impact on financial disclosures - The FASB issued ASU 2023-09 (Income Taxes) effective for fiscal years after December 15, 2024, and ASU 2024-03 (Expense Disaggregation) effective for fiscal years after December 15, 2026. The Company is currently assessing the impact of these ASUs on its consolidated financial statement disclosures[24][25] Accelerating the Organization This section outlines restructuring charges incurred as part of the 'Accelerating the Organization' initiative - The Company incurred $109 million in restructuring charges related to its 'Accelerating the Organization' initiative for the six months ended June 30, 2025, with total charges of $580 million since 2023 and an expected $300 million in 2025[27][28][30] Equity Method Investments This section details significant investments accounted for under the equity method, including earnings contributions - Primary equity method investments include partial ownership in Grand Foods Holding (mainland China, Hong Kong, Macau) and McDonald's Japan Holdings Co., Ltd, with equity in earnings of $94 million for the six months ended June 30, 2025[32][36] Income Taxes (Notes) This section provides details on the effective income tax rates for the reported periods - The effective income tax rate was 21.3% for the quarter ended June 30, 2025 (up from 20.9% in 2024), and 20.6% for the six months ended June 30, 2025 (up from 20.4% in 2024)[37] Fair Value Measurements This section details fair value measurements of the company's financial instruments, particularly debt obligations - At June 30, 2025, the fair value of the Company's debt obligations was estimated at $39.8 billion, compared to a carrying amount of $41.4 billion, classified as Level 2 within the valuation hierarchy[39] Financial Instruments and Hedging Activities This section describes the company's use of financial instruments and derivatives for hedging global market risks - McDonald's uses foreign currency denominated debt and derivative instruments to mitigate global market risks, with $15.4 billion of third-party foreign currency denominated debt and $2.4 billion of foreign currency derivatives designated as net investment hedges as of June 30, 2025[41][46] Franchise Arrangements This section outlines the revenue streams derived from the company's franchised restaurant operations Revenues from Franchised Restaurants (in millions) | In millions | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :---------- | :------ | :------ | :------ | :------ | | Rents | $2,677 | $2,523 | $4,990 | $4,904 | | Royalties | $1,517 | $1,402 | $2,847 | $2,728 | | Initial fees | $18 | $16 | $37 | $31 | | Total | $4,213 | $3,940 | $7,874 | $7,663 | Segment Information This section presents financial data broken down by the company's global operating segments - McDonald's operates under three global segments: U.S. (95% franchised), International Operated Markets (89% franchised), and International Developmental Licensed Markets & Corporate (99% franchised), with segment performance evaluated based on operating income[50][52] Segment Revenues (Q2 2025 vs Q2 2024, in millions) | Segment | Q2 2025 | Q2 2024 | | :-------------------------------------- | :------ | :------ | | U.S. | $2,781 | $2,698 | | International Operated Markets | $3,462 | $3,147 | | International Developmental Licensed Markets & Corporate | $600 | $645 | | Total Revenues | $6,843 | $6,490 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on McDonald's financial condition and results of operations for the quarter and six months ended June 30, 2025, highlighting key performance drivers, strategic initiatives, and future outlook, including the impact of global events and currency fluctuations Basis of Presentation (MD&A) This section establishes the context for reading the Management's Discussion and Analysis of Financial Results - This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) should be read in conjunction with the accompanying Condensed Consolidated Financial Statements and the audited consolidated financial statements in the 2024 Annual Report on Form 10-K[55] Overview This section provides a high-level summary of the company's global operations and franchised business model - McDonald's operates over 44,113 restaurants globally, with approximately 95% franchised, leveraging a heavily franchised business model for stable revenue and cash flow, complemented by Company-owned restaurants for operational training and innovation[57][60][61][65] Strategic Direction This section details the 'Accelerating the Arches' growth strategy and future restaurant expansion plans - The 'Accelerating the Arches' growth strategy focuses on 'M-C-D' (Maximize Marketing, Commit to Core menu, Double Down on 4D's: Digital, Delivery, Drive Thru, Restaurant Development) and three technology-enabled platforms (Consumer, Restaurant, Company) to drive growth and efficiency[69][72][73][75][76] - The Company plans to open about 2,200 new restaurants (gross) in 2025, progressing toward a targeted expansion to 50,000 restaurants by the end of 2027, which would be the fastest period of restaurant unit growth in Company history[75] Second Quarter and Six Months 2025 Financial Performance This section summarizes the company's key financial performance metrics for the second quarter and six months of 2025 - Global comparable sales increased 3.8% for the quarter and 1.4% for the six months ended June 30, 2025. Consolidated revenues increased 5% (4% in constant currencies) for the quarter and 1% (1% in constant currencies) for the six months[78][80] The Following Definitions Apply to these Terms as Used Throughout this Report This section provides definitions for key financial terms used consistently throughout the report - Key financial terms are defined, including 'constant currency' (excluding foreign currency translation effects), 'comparable sales' (sales at restaurants open at least 13 months, excluding currency and hyperinflationary markets), 'Systemwide sales' (sales at all restaurants, Company-owned and franchised), and 'free cash flow' (cash from operations less capital expenditures)[82] CONSOLIDATED OPERATING RESULTS This section provides a consolidated overview of the company's operating performance, including revenues and net income Consolidated Operating Results (Q2 & 6M 2025 vs 2024, in millions, except per share data) | Metric | Q2 2025 | Q2 2024 | YoY Change (%) | 6M 2025 | 6M 2024 | YoY Change (%) | | :---------------------------------- | :------ | :------ | :------------- | :------ | :------ | :------------- | | Total revenues | $6,843 | $6,490 | 5% | $12,799 | $12,659 | 1% | | Operating income | $3,232 | $2,920 | 11% | $5,880 | $5,655 | 4% | | Net income | $2,253 | $2,022 | 11% | $4,121 | $3,951 | 4% | | Diluted EPS | $3.14 | $2.80 | 12% | $5.74 | $5.46 | 5% | Impact of the War in the Middle East This section addresses the negative impact of the Middle East conflict on Systemwide sales and revenue - The war in the Middle East continues to negatively impact Systemwide sales and revenue, primarily in the International Developmental Licensed Markets, and is expected to persist until the war concludes and macroeconomic conditions recover[84] Impact of Foreign Currency Translation This section analyzes the effect of foreign currency translation on consolidated operating results - Foreign currency translation had a positive impact on consolidated operating results for both periods, primarily reflecting the strengthening of most major currencies against the U.S. Dollar, contributing $124 million to Q2 2025 revenues and $10 million to 6M 2025 revenues[85][87] Net Income and Diluted Earnings per Share This section provides an overview of the changes in net income and diluted earnings per share - Net income increased 11% (9% in constant currencies) to $2,253 million for the quarter and 4% (4% in constant currencies) to $4,121 million for the six months. Diluted earnings per share increased 12% (10% in constant currencies) to $3.14 for the quarter and 5% (5% in constant currencies) to $5.74 for the six months[88][89] - During the quarter, the Company paid $1.3 billion in dividends ($1.77 per share) and repurchased 1.7 million shares of stock for $506 million[90] Revenues (MD&A) This section analyzes the drivers behind the company's total revenue growth for the reported periods - Total revenues increased 5% (4% in constant currencies) for the quarter and 1% (1% in constant currencies) for the six months, driven by positive sales performance in the International Operated Markets and a significant increase in Other revenues (92% for Q2, 85% for 6M)[95] Comparable Sales This section details comparable sales growth across the company's various operating segments Comparable Sales Growth | Segment | Q2 2025 | Q2 2024 | 6M 2025 | 6M 2024 | | :-------------------------------- | :------ | :------ | :------ | :------ | | U.S. | 2.5% | (0.7)% | (0.5)% | 0.9% | | International Operated Markets | 4.0% | (1.1)% | 1.6% | 0.7% | | International Developmental Licensed Markets | 5.6% | (1.3)% | 4.5% | (0.8)% | | Total | 3.8% | (1.0)% | 1.4% | 0.4% | Systemwide Sales and Franchised Sales This section reports the growth in total Systemwide sales and sales from franchised restaurants - Systemwide sales increased 8% (6% in constant currencies) for the quarter and 4% (4% in constant currencies) for the six months. Franchised sales grew 9% (7% in constant currencies) for the quarter and 4% (4% in constant currencies) for the six months[98][99] Restaurant Margins This section analyzes the profitability of both franchised and company-owned restaurant operations - Franchised margins reflected sales-driven growth across all segments for both periods, representing approximately 90% of total restaurant margin dollars. Company-owned and operated margins were impacted by ongoing inflationary cost pressures and negative sales performance in the U.S.[102] Selling, General & Administrative Expenses (MD&A) This section discusses the changes and drivers of selling, general, and administrative expenses - Selling, general and administrative expenses increased 1% (flat in constant currencies) for the quarter due to higher incentive-based compensation, and decreased 2% (2% in constant currencies) for the six months, primarily due to comparison to prior year convention costs[107] Other Operating (Income) Expense, Net (MD&A) This section explains the components and changes in other operating income and expense, net - The increase in asset dispositions and other (income) expense, net for both periods reflected higher asset write-offs, store closing costs, and litigation settlements, partly offset by higher equity in earnings of unconsolidated affiliates[105][108] Operating Income (MD&A) This section analyzes the factors contributing to the company's operating income growth - Operating income increased 11% (8% in constant currencies) for the quarter and 4% (4% in constant currencies) for the six months, primarily reflecting positive operating results due to sales-driven growth in Franchised margins across all segments[109][111] Interest Expense (MD&A) This section discusses the changes in interest expense, driven by debt balances and interest rates - Interest expense increased 4% (3% in constant currencies) for the quarter and 3% (3% in constant currencies) for the six months, driven by higher average debt balances and, for the six months, higher average interest rates[113] Nonoperating (Income) Expense, Net (MD&A) This section details the components of nonoperating income and expense, net, including interest income - Nonoperating (income) expense, net was $(18) million for the quarter and $(76) million for the six months, with interest income decreasing for the six months due to lower average cash balances and lower average interest rates[114] Income Taxes (MD&A) This section covers the effective income tax rate and the potential impact of new tax legislation - The effective income tax rate was 21.3% for the quarter ended June 30, 2025, and 20.6% for the six months. The Company is currently assessing the impact of new U.S. tax legislation (Public Law Number 119-21) enacted July 4, 2025[119] Cash Flows (MD&A) This section analyzes the company's cash flows from operating, investing, and financing activities - Cash provided by operations totaled $4.4 billion for the six months ended June 30, 2025, exceeding capital expenditures by $3.1 billion. Cash used for investing activities decreased by $1.7 billion compared to the prior year, primarily due to a prior-year acquisition of McDonald's China business[116][117] Outlook This section presents the company's financial and operational expectations and guidance for the upcoming year - For 2025, McDonald's expects net restaurant unit expansion to contribute slightly over 2% to Systemwide sales growth, SG&A expenses around 2.2% of Systemwide sales, operating margin in the mid-to-high 40% range, and capital expenditures between $3.0 billion and $3.2 billion for approximately 2,200 new restaurants[122] Recent Accounting Pronouncements (MD&A) This section refers to the detailed discussion of recent accounting pronouncements found elsewhere in the report - Recent accounting pronouncements are discussed in the 'Recent Accounting Pronouncements' section in Part I, Item 1 of this report[121] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there were no material changes to the Company's disclosures regarding quantitative and qualitative market risk from its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to market risk disclosures were reported compared to the 2024 Annual Report on Form 10-K[182] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025. The Company is undergoing a multi-year technology and operating model transformation to modernize processes and create efficiencies, which has led to modifications in internal control procedures, but no material changes to internal control over financial reporting were reported - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[183] - The Company is undergoing a multi-year technology and operating model transformation to modernize processes and create efficiencies, which includes implementing new systems and centralizing functions, leading to modified processes to enhance internal control over financial reporting[184][185] - Except for changes related to the ongoing transformation, there has been no change in the Company's internal control over financial reporting during the fiscal quarter ended June 30, 2025, that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[186] Part II. Other Information This section includes disclosures on legal proceedings, risk factors, equity sales, other information, and exhibits Item 1. Legal Proceedings This section states that there were no material changes to the Company's disclosures regarding legal proceedings from its Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to legal proceedings disclosures were reported compared to the 2024 Annual Report on Form 10-K[188] Item 1A. Risk Factors This section outlines various risks that could adversely affect McDonald's business, financial condition, and results of operations, categorized into strategy and brand, operations, legal and regulatory, and macroeconomic and market conditions Cautionary Statement Regarding Forward-Looking Statements This section provides a cautionary statement regarding the forward-looking nature of certain statements in the report - This report contains forward-looking statements about future events and circumstances, which reflect expectations but are not guarantees of performance, and the Company does not undertake to update such statements except as required by law[123] STRATEGY AND BRAND This section identifies risks associated with business strategy execution, brand value, and market trend adaptation - Risks include the inability to successfully evolve and execute business strategies (e.g., Accelerating the Arches), preserve brand value, anticipate industry trends, effectively execute pricing/marketing plans, or generate expected results from technology investments[125][127][129][132] OPERATIONS This section covers operational risks including global scope, supply chain, franchise model, labor, and food safety - Operational risks encompass challenges from global scope (cultural, regulatory, geopolitical), supply chain interruptions, inherent risks in the franchise business model (franchisee financial success, cooperation, operational problems), labor availability and cost issues, food safety concerns, and ineffective real estate portfolio management[139][142][143][147][151][152] LEGAL AND REGULATORY This section addresses risks arising from legal complexity, potential litigation, and changes in tax or accounting regulations - Legal and regulatory risks include increasing complexity (restaurant operations, food safety, marketing, privacy), potential litigation (class actions, employment claims), challenges to the franchise business model, changes in tax laws, and adverse effects from new accounting standards or impairment charges[158][159][160][163][164][166] MACROECONOMIC AND MARKET CONDITIONS This section identifies risks stemming from macroeconomic conditions, currency fluctuations, health crises, and operating costs - Macroeconomic risks include unfavorable general economic conditions (inflationary pressures, consumer spending), currency exchange rate fluctuations, health epidemics/pandemics, changes in commodity and operating costs, decreased credit ratings, and increasing focus on environmental and social impact matters[167][168][169][173][174][176][181] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's common stock repurchases during the quarter ended June 30, 2025, as part of its publicly announced share repurchase program Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs | | :----------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------------------- | :------------------------------------------------------------------------------------ | | April 1-30, 2025 | 262,109 | $308.86 | 262,109 | $14,472,464,530 | | May 1-31, 2025 | 577,352 | $316.54 | 577,352 | $14,289,711,770 | | June 1-30, 2025 | 819,559 | $295.83 | 819,559 | $14,047,263,491 | | Total | 1,659,020 | $305.09 | 1,659,020 | N/A | Item 5. Other Information This section discloses Rule 10b5-1 trading plans adopted by officers and directors during the quarter, specifically noting one plan by Manu Steijaert for the exercise and sale of stock options - Manu Steijaert, EVP – President, IOM, adopted a Rule 10b5-1 trading plan on May 27, 2025, to sell 19,701 securities (exercise and sale of stock options) by December 31, 2025[192][193] Item 6. Exhibits This section lists the exhibits filed with the 10-Q report, including certifications from the Chief Executive Officer and Chief Financial Officer, and XBRL-related documents - The report includes Rule 13a-14(a) Certifications from the Chief Executive Officer and Chief Financial Officer, Certification pursuant to 18 U.S.C. Section 1350, and various Inline XBRL Taxonomy Extension documents[194] Signature This section provides the official signature and date of the report's submission - The report was signed by Ian F. Borden, Executive Vice President and Global Chief Financial Officer, on August 6, 2025[196]