McDonald's(MCD) - 2024 Q3 - Quarterly Results

Financial Performance - Net income decreased 3% to $2,255 million for the quarter and$6,207 million for the nine months, with diluted earnings per share decreasing 1% to $3.13 and 2$8.59 respectively[9] - Foreign currency translation negatively impacted diluted earnings per share by $0.01 for the quarter and$0.04 for the nine months[9] - Revenues increased 3% to $6,873 million for the quarter and 2$19,532 million for the nine months, with a 4% increase in company-owned and operated sales to $2,656 million for the quarter[13][14] - Franchised revenues increased 1$4,094 million for the quarter, with U.S. franchised revenues up 1% to $1,851 million[14] - Total other revenues increased 39$124 million for the quarter[14] - Total revenues increased by 2% to $19.532 billion for the nine months ended September 30, 2024, compared to$19.088 billion in the same period in 2023[16] - U.S. company-owned and operated sales grew by 1% to $2.417 billion, while international operated markets saw a 1$4.278 billion[16] - International developmental licensed markets & corporate segment revenue surged by 26% to $777 million, driven by the acquisition of McDonald's business in Israel[16] - Comparable sales in the U.S. increased by 0.7$37.743 billion for the nine months ended September 30, 2024[21] - Total restaurant margins increased by 1% to $10.969 billion, with franchised margins representing approximately 90$63 million for the nine months, primarily due to investments in digital and technology[25] - Systemwide sales growth rates remained stable at 1% for both the U.S. and international operated markets[20] - Total other revenues surged by 21% to $304 million, reflecting strong performance in non-core business segments[16] - Gains on sales of restaurant businesses decreased to$22 million for the nine months ended September 30, 2024, compared to $46 million in the same period in 2023, primarily due to fewer sales in the International Operated Markets and the U.S.[26] - Equity in earnings of unconsolidated affiliates increased to$143 million for the nine months ended September 30, 2024, driven by higher earnings in China and improved performance in Japan[26] - Operating income decreased by 1% to $3,188 million for the quarter ended September 30, 2024, and remained flat at$8,844 million for the nine months, reflecting pre-tax charges related to restructuring and business transactions[27] - Non-GAAP operating income increased by 2% to $3,286 million for the quarter and by 1$9,131 million for the nine months, excluding charges related to restructuring and business transactions[28] Dividends and Share Repurchases - The company paid dividends of $1.2 billion for the quarter and$3.6 billion for the nine months, with a 6% increase in the quarterly cash dividend to $1.77 per share declared in September 2024[9] - The company repurchased 1.7 million shares for$444 million during the quarter, bringing total repurchases for the nine months to 8.3 million shares for $2.3 billion[9] Franchise Operations - Franchised restaurants represented approximately 95$46 million for the quarter and $146 million for the nine months related to the Accelerating the Organization strategy[9] - The company's Accelerating the Arches growth strategy focuses on maximizing marketing, committing to core menu items, and doubling down on digital, delivery, drive-thru, and restaurant development to drive Systemwide sales, operating income, and free cash flow growth[42] Global Expansion and Capital Expenditures - The company expects net restaurant unit expansion to contribute nearly 2$2.5 and $2.7 billion, with over half directed towards new restaurant unit expansion in the U.S. and International Operated Markets[34] - The company plans to open more than 2,100 restaurants globally in 2024, including 500 in the U.S. and International Operated Markets, and expects over 1,600 net restaurant additions[34] - Systemwide restaurants increased by 1,621 to 42,819 as of September 30, 2024, with significant growth in China (961 restaurants) and other International Developmental Licensed Markets[36] Digital and Technology Investments - The company is building one of the world's largest consumer platforms to enhance customer experience and fuel engagement, leveraging investments in digital engagement and delivery[42] - The company is investing in technology, digital engagement, and delivery to transform the customer experience, including mobile ordering, payment systems, and drive-thru technologies[45] Risks and Challenges - The war in the Middle East negatively impacted systemwide sales and revenue, particularly in the International Developmental Licensed Markets & Corporate segment[6] - The company faces risks from evolving consumer preferences, including nutritional, health, and environmental concerns, which could impact brand perception and financial results[43] - The company's success depends on anticipating and responding to shifting consumer demographics, industry trends, and effective execution of pricing, promotional, and marketing plans[44] - The company operates in a highly competitive IEO (Informal Eating Out) segment, competing with traditional, fast-casual, and non-traditional market participants like convenience stores and online retailers[46] - The company's global operations are subject to risks from differing cultural, regulatory, geopolitical, and economic environments across over 100 countries[48] - Supply chain interruptions, including shortages, inflationary pressures, and transportation issues, could increase costs or reduce revenues[49] - The company's heavily franchised business model relies on the financial success and cooperation of franchisees, whose performance directly impacts revenues[50] - Labor challenges, including availability, cost, and compliance with complex employment laws, could adversely impact operations and customer satisfaction[51] - Food safety concerns, including a multistate E. coli outbreak in October 2024, could adversely affect the company's brand, reputation, and financial results[53] - The company's real estate portfolio, valued at significant levels, is subject to risks from changing consumer preferences, economic factors, and external events like natural disasters, which could impact sales and profitability[54] - Information technology system failures, including cybersecurity breaches, could disrupt operations, lead to reputational damage, and result in financial losses[55] - Increasing regulatory and legal complexity, including compliance with food safety, environmental, and data protection laws, could raise costs and expose the company to litigation risks[56] - Changes in tax laws or unfavorable tax resolutions could materially impact the company's financial results[57] - Unfavorable macroeconomic conditions, including inflation and currency fluctuations, could adversely affect consumer spending and the company's financial performance[58] - Health epidemics or pandemics could disrupt supply chains, labor availability, and consumer behavior, negatively impacting the company's business and financial results[58] - Volatility in commodity prices, particularly for beef and chicken, could adversely affect restaurant profitability due to unpredictable factors like climate conditions and government regulations[59] - A decrease in credit ratings or an increase in funding costs could negatively impact the company's profitability and financial flexibility[60] - Increasing focus on environmental and social impact matters, including climate change and sustainability initiatives, could expose the company to additional operational and reputational risks[61] - Severe weather conditions, natural disasters, and climate change can adversely affect the company's results and prospects by impacting consumer behavior, supply availability, and local operations[62] - Climate change may increase the frequency and severity of weather-related events and natural disasters, further impacting the company's operations[62] - Insurance proceeds for risks related to severe weather or disasters may be delayed or insufficient to cover losses fully[62] Free Cash Flow and Future Outlook - The company expects a free cash flow conversion rate in the 90% range for 2024[34]