McDonald's reports strong Q4

by Erica Shaffer
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All-day breakfast at McDonald's restaurants begins in October.
Consumers are responding to McDonald's all-day breakfast.

OAK BROOK, Ill. – The turnaround at McDonald’s Corp. is turning in results as the burger chain’s earnings for the fourth quarter and full year beat analyst expectations.

McDonald’s transition to all-day breakfast boosted comparable sales 5.7 percent. McDonald’s began testing all-day breakfast in select markets in 2014. In December 2015, The NPD Group reported that lapsed customers were returning to McDonald’s along with rising lunch visits.

For the quarter ended Dec. 31, 2015, McDonald’s reported net income of $1.2 billion, or $1.31 per diluted share, compared to earnings of $1.1 billion, or $1.13 per diluted share in the year-ago quarter. Revenues for the quarter declined 4 percent to $6.34 billion, down from $6.57 billion a year ago. 

Steve Easterbrook, president and CEO of McDonald's Corp.
Steve Easterbrook, president and CEO of McDonald's

“We took bold, urgent action in 2015 to reset the business and position McDonald’s to deliver sustained profitable growth,” Steve Easterbrook, president and CEO, said in a statement. “We ended the year with momentum, including positive comparable sales across all segments for both the quarter and the year - a testament to the swift changes we made and the early impact of our turnaround efforts. We enter 2016 committed to managing the business for the long term and aligned as a system around the critical imperative that we must run great restaurants each and every day for our valued customers.”

Comparable sales in the company’s International Lead segment advanced 4.2 percent on strong performances in the United Kingdom, Canada and Australia. Operating income for the quarter declined 5 percent (rising 8 percent in constant currencies). “Positive consumer response to multiple menu, service and value initiatives contributed to the segment's performance, while macro-economic concerns, particularly in France, negatively impacted quarterly sales performance,” the company said.

The High Growth segment registered a 3 percent increase in comparable sales on positive results in Russia and China. Operating income jumped 27 percent (45 percent in constant currencies) due in part to an increase in the segment’s franchised margins.

McDonald's Japan restaurant in a city
Weak results in Japan dragged on earnings in McDonald's Foundational segment.

Comparable sales for the fourth quarter increased 5.9 percent in the Foundational segment led by broad-based strength in Asia and Europe. Charges related to global refranchising efforts and weak results in Japan dragged on operating income.

Full-year results included $4.53 billion, or $4.80 per diluted share, down from $4.76 billion, or $4.82 per diluted share, a year ago. Revenues declined to $25.41 billion from $27.44 billion a year ago.

“In November, we announced financial goals in conjunction with our business turnaround plan,” said Kevin Ozan, CFO. “We outlined specific targets to return about $30 billion to shareholders through a combination of dividends and share repurchases for the three-year period ending 2016, plans to refranchise about 4,000 restaurants by the end of 2018 and reduce our net annual G&A spending by $500 million, the vast majority of which will be realized by the end of 2017.

“These targets are designed to enhance long-term shareholder value while supporting the work underway to reignite our business results,” he said.

Ozan added that capital expenditures in 2016 are expected to remain at about $2 billion — divided between opening new restaurants and reinvesting in existing restaurants.

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