Fitch affirms McDonald's ratings, outlook is stable
Sept. 10, 2012
by Meat&Poultry Staff
CHICAGO – McDonald’s Corp. received A/F1 ratings on its debt and credit facilities, according to Fitch Ratings. McDonald's had $13.6 billion of total debt as of June 30.
• The company's ratings were:
• Long-term Issuer Default Rating (IDR) at 'A';
• Bank credit facilities at 'A';
• Senior unsecured debt at 'A';
• Short-term IDR at 'F1'; and
• Commercial paper at 'F1'.
Fitch said the ratings reflect McDonald's substantial cash flow generation, financial flexibility and leading global market position. McDonald's has roughly 34,000 units and more than $85 billion in system-wide sales, Fitch said. The company's cash flow from operations gained at a 10 percent compound annual rate since 2003 to $7.2 billion in 2011.
Operating cash flow is forecast to remain strong at an estimated $7 billion in both 2012 and 2013, despite global economic challenges and rising commodity costs, Fitch said.
"Reinvesting in its business and returning cash to shareholders while maintaining leverage appropriate for its 'A' credit rating are the foundation of McDonald's financial strategy," the ratings agency said.
McDonald's business model gives the company a unique competitive advantage and strengthens its credit profile, according to Fitch. As of June 30, franchisees and affiliates operated 81 percent of McDonald's 33,735 units while the remaining 19 percent were company-operated.
Revenue from franchise operations represented 32 percent of McDonald's $27 billion of total revenue in 2011. McDonald's owns about 45 percent of the land and 70 percent of the buildings for its chain of restaurants.
McDonald's reported a 3 percent gain in both revenue and operating income to $13.5 billion and $4.1 billion, respectively for the six months ended June 30, 2012.
"McDonald's has repeatedly proven its ability to operate in difficult environments," Fitch said. "Annual global same-store sales (SSS) have only declined twice in the past 16 years, despite multiple economic recessions.
"Consistent quality food at a good value, healthier menu options, convenience, and an extensive procurement and logistics infrastructure should benefit McDonald's in an increasingly challenged global restaurant industry environment," Fitch added.