McDonald's(US:MCD)2024-02-21 16:00Global Restaurant Operations and Franchise Model - McDonald's total number of restaurants worldwide reached 41,822 by the end of 2023, with approximately 95% being franchised[8] - The company's revenue model includes sales from Company-operated restaurants and fees from franchised restaurants, with franchise agreements generally having 20-year terms[8] - McDonald's operates in over 100 countries, with significant reportable segments including the U.S. and International Operated Markets[8] - The company's heavily franchised business model represented approximately 95% of McDonald's restaurants worldwide at the end of 2023[53] - The U.S. segment is 95% franchised, International Operated Markets are 89% franchised, and International Developmental Licensed Markets & Corporate are 98% franchised as of December 31, 2023[169] - Total systemwide restaurants increased to 41,822 in 2023, up from 40,275 in 2022 and 40,031 in 2021[139] - Franchised restaurants accounted for 39,680 of the total systemwide restaurants in 2023, up from 38,169 in 2022 and 37,295 in 2021[139] - Company-operated restaurants decreased to 2,142 in 2023, down from 2,106 in 2022 and 2,736 in 2021[139] Financial Performance and Growth - Global comparable sales increased by 9.0% in 2023, driven by strong performance across all segments[28] - U.S. comparable sales increased by 8.7%, benefiting from strategic menu price increases and digital growth[28] - International Operated segment comparable sales increased by 9.2%, led by the U.K., Germany, and Canada[28] - International Developmental Licensed segment comparable sales increased by 9.4%, with strong performance across all regions[28] - Consolidated revenues increased by 10% to $25.5 billion, with Systemwide sales reaching $129.5 billion[29] - Operating income increased by 24% to $11.6 billion, with operating margin rising from 40% to 46%[29] - Diluted earnings per share increased by 39% to $11.56, and free cash flow grew by 32% to $7.3 billion[29] - The company opened over 2,000 new restaurants globally in 2023[29] - Total revenues for 2023 increased to $25,493.7 million, up from $23,182.6 million in 2022, representing a 10% growth[133] - Net income for 2023 rose to $8,468.8 million, compared to $6,177.4 million in 2022, a 37% increase[133] - Earnings per common share–diluted for 2023 were $11.56, up from $8.33 in 2022, a 39% increase[133] - Cash and equivalents increased significantly to $4,579.3 million in 2023 from $2,583.8 million in 2022, a 77% rise[135] - Total assets grew to $56,146.8 million in 2023 from $50,435.6 million in 2022, an 11% increase[135] - Long-term debt increased to $37,152.9 million in 2023 from $35,903.5 million in 2022, a 3% rise[135] - Retained earnings for 2023 were $63,479.9 million, up from $59,543.9 million in 2022, a 7% increase[135] - Comprehensive income for 2023 was $8,499.4 million, compared to $6,264.5 million in 2022, a 36% increase[134] - Net income for 2023 increased to $8,468.8 million, up from $6,177.4 million in 2022 and $7,545.2 million in 2021[136] - Cash provided by operations in 2023 was $9,611.9 million, compared to $7,386.7 million in 2022 and $9,141.5 million in 2021[136] - Capital expenditures in 2023 were $2,357.4 million, up from $1,899.2 million in 2022 and $2,040.0 million in 2021[136] - Total revenues for 2023 were $25.49 billion, with U.S. revenues at $10.57 billion and International Operated Markets at $12.38 billion[170] - Net property and equipment increased to $24.91 billion in 2023, driven by higher capital expenditures under the Accelerating the Arches strategy[171] - Revenues from franchised restaurants in 2023 were $15.44 billion, including $9.84 billion from rents and $5.53 billion from royalties[173] - Future gross minimum rent payments under franchise arrangements total $31.16 billion, with $14.97 billion from leased sites[174] - Total capital expenditures for 2023 were $2.36 billion, with $968.9 million in the U.S. and $679.5 million in International Operated Markets[170] - Depreciation and amortization expense for property and equipment in 2023 was $1.50 billion, up from $1.45 billion in 2022[171] - Total rent expense for 2023 was $1,542.3 million, compared to $1,476.1 million in 2022 and $1,560.3 million in 2021[177] - Variable rent payments for company-operated restaurants in 2023 were $56.1 million, up from $39.6 million in 2022[177] - Lease right-of-use asset and lease liability increased by approximately $950 million due to refined assumptions on renewal options[179] - Weighted-average remaining lease term for operating leases decreased to 17 years in 2023 from 18 years in 2022[178] - Weighted-average discount rate for operating leases increased to 4.0% in 2023 from 3.6% in 2022[178] - Total lease payments for 2024 are projected to be $1,204.3 million, with $1,126.3 million from operating leases and $78.0 million from finance leases[179] - Income before provision for income taxes in 2023 was $10,522.2 million, up from $7,825.4 million in 2022[190] - Gains on sales of restaurant businesses in 2023 were $103.2 million, compared to $59.8 million in 2022[182] - Impairment and other charges in 2023 totaled $362.3 million, including $290 million related to the Accelerating the Arches growth strategy[186] - Current tax provision for 2023 was $2,739.8 million, a 37.4% increase from $1,993.7 million in 2022[191] - Deferred tax provision for 2023 was $(686.4) million, a 98.5% increase from $(345.7) million in 2022[191] - Net deferred tax (assets) liabilities for 2023 were $(1,342.0) million, a 179.9% increase from $(479.5) million in 2022[192] - The company had net operating loss carryforwards of $1,112.8 million as of December 31, 2023, with $924.8 million having an indefinite carryforward[192] - Gross unrecognized tax benefits totaled $587.7 million as of December 31, 2023, a 9.2% decrease from $647.0 million in 2022[194] - The effective income tax rate for 2023 was 19.5%, a decrease from 21.1% in 2022[195] - Total liabilities for unfunded nonqualified supplemental benefit plans were $402.7 million as of December 31, 2023, a 6.0% increase from $380.0 million in 2022[196] - The company had a line of credit agreement of $4.0 billion as of December 31, 2023, expiring in June 2028[198] - The weighted-average interest rate of short-term borrowings was 5.4% as of December 31, 2023, based on $119.9 million of foreign currency bank line borrowings and $347.6 million of commercial paper outstanding[198] - Total debt obligations increased to $39,345.3 million in 2023 from $35,903.5 million in 2022[200] - Share-based compensation expense rose to $175.2 million in 2023, up from $166.7 million in 2022[202] - Total unrecognized compensation cost related to nonvested share-based compensation was $176.5 million as of December 31, 2023[202] - The intrinsic value of stock options exercised in 2023 was $304.0 million, compared to $242.2 million in 2022[204] - Cash received from stock options exercised in 2023 was $259.8 million, with a tax benefit of $69.2 million[204] - The fair value per option granted in 2023 was $54.35, up from $42.12 in 2022[204] - Outstanding stock options at the end of 2023 were 10.5 million with a weighted-average exercise price of $189.78[205] - The total fair value of RSUs vested in 2023 was $127.2 million, compared to $110.3 million in 2022[207] - The tax benefit realized from RSUs vested in 2023 was $25.1 million[207] - Nonvested RSUs at the end of 2023 were 1.2 million with a weighted-average grant date fair value of $238.21[207] Digital and Delivery Growth - The company plans to increase its 90-day active loyalty users from over 150 million to 250 million by 2027, and grow annual Systemwide sales to loyalty members from over $20 billion to $45 billion by 2027[33] - Delivery is available in over 35,000 restaurants across about 100 markets, representing over 85% of McDonald's restaurants, with plans to increase the percentage of delivery business originating from the mobile app to 30% by 2027[34][35] - McDonald's has more than 27,000 drive-thru locations globally, including nearly 95% of its approximately 13,500 U.S. locations, and plans to include drive-thrus in the vast majority of new restaurant openings[36] Expansion and Development Plans - The company plans to open more than 2,100 new restaurants globally in 2024, contributing to nearly 4% new unit growth, and targets expansion to 50,000 restaurants by the end of 2027[37] - The company expects net restaurant unit expansion to contribute nearly 2% to 2024 Systemwide sales growth, with full-year 2024 selling, general, and administrative expenses of about 2.2% of Systemwide sales[42] - The company expects 2024 operating margin to be in the mid-to-high 40% range, with capital expenditures between $2.5 and $2.7 billion, more than half directed towards new restaurant unit expansion[43] - The company expects to achieve a free cash flow conversion rate in the 90% range for 2024 and over the long term, with net restaurant unit expansion of about 2.5% of Systemwide sales growth[43] Diversity, Equity, and Inclusion (DEI) - Women globally in Company-owned and operated markets were paid 99.96 cents on the dollar in base pay on average compared to men for similar work in 2023[17] - The company's DEI strategy includes efforts to improve the representation of women globally and underrepresented groups in the U.S[15] - The company's annual incentive plan includes financial performance metrics and strategic measures related to DEI ambitions, holding executives accountable for progress[16] Training and Development - McDonald's Hamburger University provides training for Company employees, franchisees, and their eligible employees, with multiple campuses worldwide and online resources[17] Ethical Recruitment and Labor Practices - McDonald's became a member of the Leadership Group for Responsible Recruitment in 2023, focusing on ethical recruitment practices for migrant workers[17] Cybersecurity and Risk Management - The company's Board of Directors oversees the enterprise-wide risk management (ERM) framework, including cybersecurity risk, through the Public Policy & Strategy Committee (PPS Committee), which receives regular updates on cybersecurity matters from management[120] - The company's cybersecurity risk management programs are informed by the National Institute of Standards and Technology (NIST) Cybersecurity Framework and are designed to prevent incidents and ensure business continuity[121] - The company engages third-party providers for cybersecurity assessments, testing, and audits, including vulnerability testing and tabletop exercises, to evaluate the effectiveness of its cybersecurity programs[121] - Cybersecurity threats and incidents in 2023 did not materially affect the company's results of operations, financial condition, or business strategy[121] - The company provides mandatory cybersecurity training for employees and additional scenario-based training for key stakeholders to enhance incident prevention and reporting[121] Real Estate and Property Management - The company owns and leases real estate primarily for its restaurant business, focusing on long-term sales and profit potential through site analysis and cost control measures[129] - McDonald's real estate portfolio management is critical, as changes in location desirability or failure to adapt to consumer trends could negatively impact Systemwide sales and profitability[113] Executive Leadership - The company's executive officers include Jonathan Banner (Chief Global Impact Officer), Ian Borden (Global CFO), and Christopher Kempczinski (President and CEO), among others, with extensive industry experience[130] Supply Chain and Supplier Relations - The company relies on independent suppliers to meet high standards and specifications, with occasional disputes arising over compliance and business relationships[124] - Supply chain interruptions could increase costs or reduce revenues, with potential impacts from shortages, inflationary pressures, and transportation issues[111] Franchisee Relations - The company faces occasional disputes with franchisees over issues such as quality, service, cleanliness, and franchise grants, renewals, and terminations[123] - McDonald's heavily franchised business model relies on the financial success and cooperation of franchisees, with risks including franchisee sales trends and operational issues[112] Regulatory and Legal Compliance - The company is subject to various government regulations and occasionally involved in litigation or proceedings related to advertising, franchising, health, safety, and employment laws[128] - Increasing regulatory and legal complexity, including compliance with food safety, marketing, and environmental regulations, could raise costs and expose McDonald's to litigation risks[114] Tax and Financial Risks - Changes in tax laws or unanticipated tax liabilities could materially impact McDonald's financial results, particularly with adjustments from tax audits or new tax policies[115] - A decrease in McDonald's credit ratings or an increase in funding costs could negatively impact profitability and financial flexibility[118] Economic and Market Risks - Unfavorable economic conditions, including inflation and currency fluctuations, could adversely affect McDonald's business and financial results[116] - Health epidemics or pandemics could disrupt supply chains, labor availability, and consumer behavior, negatively impacting McDonald's operations and financial outlook[116] - Volatility in commodity costs, such as beef, chicken, and pork, could adversely affect McDonald's profitability due to unpredictable market factors[117] - Severe weather, natural disasters, or climate change could disrupt operations, supply chains, and consumer confidence, affecting McDonald's results and prospects[119] Shareholder Returns and Capital Allocation - The company repurchased 11.1 million shares of its stock for $3.1 billion in 2023[52] - The Company returned approximately $7.6 billion to shareholders through dividends and share repurchases in 2023[87] - The company repurchased 3,140,369 shares of common stock in Q4 2023 at an average price of $273.53 per share, with approximately $6.28 billion remaining under the share repurchase program[103] - The company has paid dividends on common stock for 48 consecutive years through 2023, with a policy of increasing dividends annually[102] - McDonald's cumulative total shareholder returns from 2018 to 2023 were $187, compared to $207 for the S&P 500 Index and $180 for the Dow Jones Industrials[100] Innovation and Product Development - The company plans to implement "Best Burger" operational changes to improve burger quality across nearly all markets by 2026[32] - McCrispy is set to be offered in nearly all markets by the end of 2025, with expansions into wraps and tenders[32] - The company's success depends on its ability to innovate and differentiate the McDonald's experience, balancing customer value and convenience with profitability[106] - The company's ability to anticipate and address industry trends and evolving consumer preferences is critical for maintaining competitive advantages[106] Labor and Workforce Challenges - Company employees totaled over 150,000 worldwide as of year-end 2023, with approximately 70% based outside of the U.S[14] - Labor challenges, including availability and cost, could adversely impact McDonald's operations and customer satisfaction levels[112] Food Safety and Brand Reputation - Food safety concerns could adversely affect McDonald's brand, reputation, and financial results, with potential impacts from food-borne illnesses, contamination, or tampering[113] Information Technology and Security - Information technology system failures or security breaches could disrupt operations, harm reputation, and lead to financial losses, including risks from AI tools and third-party systems[113] Foreign Currency and Interest Rate Risks - The company's largest net asset exposures at year-end were: British Pounds Sterling ($1,080 million), Australian Dollars ($1,015 million), Canadian Dollars ($703 million), Polish Zloty ($571 million), and New Zealand Dollars ($238 million)[92] - A 10% adverse change in foreign currency rates or a 1 percentage point adverse change in interest rates from 2023 levels would not materially affect the company's results of operations, cash flows, or the fair value of its financial instruments[91] - The company generates approximately 65% of its operating income from international operations, with significant reinvestment in foreign jurisdictions to support growth[91] - The company has $15 billion of authorized borrowing capacity, with $9.7 billion outstanding as of December 31, 2023, and $4.0 billion available under a committed line of credit[91] - The company has guaranteed loans totaling approximately $193 million as of December 31, 2023, with no carrying value for these guarantees on the balance sheet[91] Derivatives and Hedging Activities - The company had derivatives outstanding with an equivalent notional amount of $1.9 billion to hedge forecasted foreign currency denominated cash flows as of December 31, 2023[161