The FINANCIAL -- McDonald's Corporation on January 30 announced results for the fourth quarter and year ended December 31, 2017.
"2017 was a strong year for McDonald's as customers responded to the many ways we are making their experience more convenient and enjoyable," said McDonald's President and Chief Executive Officer Steve Easterbrook. "We served more customers more often, achieved our best comparable sales performance in six years, gained share in markets around the world and made tremendous progress with growth platforms such as delivery, mobile order and pay and Experience of the Future."
Fourth quarter highlights:
Global comparable sales increased 5.5%, reflecting positive guest counts in all segments
Due to the impact of the Company's strategic refranchising initiative, consolidated revenues decreased 11% (15% in constant currencies)
Systemwide sales increased 8% in constant currencies
Consolidated operating income increased 9% (6% in constant currencies)
Diluted earnings per share of $0.87 decreased 40% (42% in constant currencies), reflecting a net tax cost associated with the Tax Cuts and Jobs Act of 2017 ("Tax Act"), which totaled $0.84 per share. Excluding the impact of the Tax Act, diluted earnings per share was $1.71, an increase of 19% (16% in constant currencies)
Full year highlights:
Global comparable sales increased 5.3%, reflecting positive guest counts in all segments
Due to the impact of the Company's strategic refranchising initiative, consolidated revenues decreased 7% (8% in constant currencies)
Systemwide sales increased 7% in constant currencies
Consolidated operating income increased 23% (23% in constant currencies), which benefited from a gain of approximately $850 million on the sale of the Company's businesses in China and Hong Kong. Excluding the impact of the gain, as well as current and prior year impairment and strategic charges, consolidated operating income increased 9% (9% in constant currencies)
Diluted earnings per share increased 17% (17% in constant currencies)
Returned $7.7 billion to shareholders through share repurchases and dividends. In addition, the Company announced a 7% increase in its quarterly dividend to $1.01 beginning in the fourth quarter, demonstrating management's continued confidence in the Company's performance
On January 25, 2018, McDonald's Board of Directors declared a quarterly cash dividend of $1.01 per share of common stock payable on March 15, 2018 to shareholders of record at the close of business on March 1, 2018.
In the U.S., fourth quarter comparable sales increased 4.5% as a result of strong performance of core menu items featured under the McPick 2 platform and beverage value, as well as strong consumer response to the new Buttermilk Crispy Tenders and delivery. Operating income for the quarter increased 4%, reflecting higher franchised margin dollars and G&A savings, partly offset by lower Company-operated margin dollars.
Comparable sales for the International Lead segment increased 6.0% for the quarter, led by continued momentum in the U.K. and Canada, as well as positive results across all other markets. The segment's operating income increased 14% (7% in constant currencies), fueled by sales-driven improvements in franchised margin dollars.
In the High Growth segment, fourth quarter comparable sales increased 4.0%, led by strong performance in China and positive results across the majority of the segment, partly offset by continued challenges in South Korea.
In the Foundational markets, fourth quarter comparable sales rose 8.0%, reflecting positive sales performance across all geographic regions.
"For 2018, we plan to invest about $2.4 billion of capital, the majority of which will be dedicated to reinvesting in our existing locations through accelerated deployment of Experience of the Future in the U.S.," said McDonald's Chief Financial Officer Kevin Ozan. "Our development plans also include the opening of about 1,000 new McDonald's restaurants, 75% of which will be funded by our expanded network of developmental licensees and affiliates around the world. At the same time, we plan to continue making meaningful investments in technology to modernize the customer experience and redefine convenience. I'm confident that now is the opportune time to strategically invest in our business and our restaurants to drive profitable growth and become an even better McDonald's."
Steve Easterbrook concluded, "Our Velocity Growth Plan is working and we're focused on aggressive execution in 2018 to achieve the even greater ambitions we have for our business and brand in the years ahead. With the commitment the McDonald's system has to running great restaurants and maximizing our growth initiatives, we are confident that we will accelerate our momentum by capitalizing on our strong business model and distinct brand advantages in convenience, menu variety and value."
Results for the quarter and year reflected stronger operating performance, G&A savings and improved performance in Japan, which enabled the reversal of a valuation allowance on a deferred tax asset in Japan.
Foreign currency translation had a positive impact of $0.04 for the quarter and no impact for the year on diluted earnings per share.
In December 2017, the U.S. government enacted the Tax Act, which makes broad and complex changes to the U.S. tax code, including a transition to a new territorial tax system for U.S. corporate taxpayers. As such, the Company incurred a deemed repatriation tax on its undistributed foreign earnings. In addition, the Tax Act provided for a reduction of the U.S. corporate tax rate from 35% to 21%, which resulted in the revaluation of the Company's deferred tax assets and liabilities. The Company's 2017 results include estimates based on these changes, which may be refined and adjusted throughout the measurement period ending on December 22, 2018.
Outlined below is additional information for the quarter and full year:
Fourth quarter diluted earnings per share of $0.87 decreased 40% (42% in constant currencies). Included in the quarter results is:
approximately $700 million, or $0.84 per share, of net tax cost as a result of the Tax Act, consisting primarily of $1.2 billion of tax cost on deemed repatriation of foreign earnings, partly offset by a benefit of $500 million due to revaluing deferred tax assets and liabilities to the lower enacted U.S. corporate tax rate. This net incremental tax cost for the quarter increased the tax rate by 35.5 percentage points to 62.9%.
Excluding the above, fourth quarter net income was $1.4 billion, an increase of 15% (12% in constant currencies), diluted earnings per share was $1.71, an increase of 19% (16% in constant currencies), and the fourth quarter tax rate was 27.4%. The lower tax rate for the quarter compared with the prior year was primarily due to foreign tax law changes.
Full-year diluted earnings per share of $6.37 increased 17% (17% in constant currencies). Included in full-year results are:
approximately $700 million, or $0.82 per share, of net tax cost associated with the Tax Act; and
a pre-tax gain of approximately $850 million on the sale of the Company's businesses in China and Hong Kong, offset in part by $150 million of current year restructuring and impairment charges in connection with the Company's global G&A and refranchising initiatives, for a net benefit of $0.53 per share.
Excluding the above items, as well as the $342 million or $0.28 per share of prior year strategic charges, full year net income was $5.4 billion, an increase of 10% (10% in constant currencies), and diluted earnings per share was $6.66, an increase of 16% (16% in constant currencies).