After Two Years, McDonald's Quarterly Results Up in USA
Uplifted by its first quarterly same-store restaurant sales increase in the United States in two years, along with solid performances in China, Australia, the UK, Germany and Canada, McDonald's Corporation reported revenues of $6.62 billion and a profit $1.31 billion for the third quarter ending on September 30, 2015. While the result reflected a revenue decrease of 5.3%, the sales value would have risen by 7% were it not for the impact of exchange rates on various currencies.
"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 Steve Easterbrook, president and ceo of the Oak Brook, Illinois, USA-headquartered global fast food chain that operates restaurants at 36,000 locations serving nearly 69 million customers in over 100 countries each day.
Easterbrook continued, "I am encouraged by our operating performance for the quarter, with positive comparable sales across all segments, including the United States, as well as a sales recovery in China following the prior year supplier issue."
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 a targeted return of $8-9 billion in 2015.
The increase in global comparable sales amounted to 4.0%, reflecting positive results in all segments. In the United States third quarter comparables increased 0.9%. Introduction of the new Premium Buttermilk Crispy Chicken Deluxe sandwich and breakfast, including a return to classic recipe ingredients for McDonald's Egg McMuffin, contributed to the segment's performance.
Third quarter operating income declined 1% in the USA, however, as a result of incremental wage increases and benefits going to all eligible company-operated restaurant employees. Moving forward, rebuilding customer traffic remains a top priority for the segment.
Comparable sales for the international lead markets segment increased 4.6% for the third quarter. Operating income decreased 11%, however, though it increased 5% in constant currencies. Positive consumer response to multiple menu, service and value initiatives throughout most of the segment contributed to the 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 climbed 39% (68% in constant currencies). Emphasis on value and breakfast during the quarter contributed to China's sales recovery.
"The 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,” concluded Easterbrook. “As we begin the 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 regarding use of expired meat. 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.