McDonald's reports 11 percent profit, plans 1,300 new stores

McDonald's Corporation today announced strong results for the fourth quarter and year ended Dec. 31, 2011, fueled by growth across all of its global markets. The fourth quarter results included an 11 percent profit increase.

For 2011 in full, global comparable sales were up 5.6 percent, with positive comparable sales across all geographic segments for every quarter. Additionally, consolidated revenues hit a record-high $27 billion after jumping 12 percent.

McDonald's combined operating margin increased by 60 basis points, to 31.6 percent.

Consolidated operating income increased 14 percent (10 percent in constant currencies) with the U.S. up 6 percent, Europe up 15 percent (10 percent in constant currencies) and Asia/Pacific, Middle East and Africa (APMEA) up 27 percent (17 percent in constant currencies).

The company returned $6 billion to its shareholders through share repurchases and dividends. Diluted earnings per share at the year's end were $5.27, up 15 percent (11 percent in constant currencies). Behind these numbers, McDonald's was the top company listed on the Dow Jones Stock Market for 2011.

"During 2011, McDonald's continued momentum drove higher profitability and market share gains as we fortified our leadership position around the world," said Jim Skinner, CEO. "We are enhancing the customer experience – from our menu and service to our value and convenience – while giving more people more reasons to visit McDonald's more often."

Fourth quarter results

McDonald's beat analysts' expectations in the fourth quarter by nearly 4 cents. Net income was $1.38 billion, or $1.33 a share, compared to $1.24 billion, or $1.16 a share, last year, a 15 percent increase.

Additionally in Q4:

  • Global comparable sales increased 7.5 percent, with the U.S. up 7.1 percent, Europe up 7.3 percent and APMEA up 6.9 percent;
  • Consolidated revenues increased 10 percent;
  • Consolidated operating income increased 14 percent, with the U.S. up 15 percent, Europe up 10 percent and APMEA up 22 percent.

Global segment performances

McDonald's U.S. turned in its highest annual comparable sales performance since 2006. The company was buoyed by its value meals, core and new product offerings and updated restaurant designs.

Additionally, Skinner touted the chain's dollar menu at breakfast, which has been in place for more than two years and has "fortified our leadership position in breakfast." The McCafe line continues to attract new customers. For example, the seasonal peppermint mocha boosted beverage sales by 20 percent over this time last year.

In 2012, U.S. operations will continue to roll out handheld order takers and double drive-thrus to increase restaurant throughput.

Europe was lifted by France, the U.K., Russia and Germany. Emphasis on unique promotional food events, fourth-tier menu development and restaurant reimaging contributed to the segment's performance. Specifically, Germany featured several successful limited-time sandwiches. France received a lift from a hamburger bagel sandwich. McWraps and the 1955 burger also boosted sales.

In 2012, McDonald's will add 150 McCafe outlets to Europe's existing base of 1,500, and will also continue to roll out fourth-tier sandwiches, reimage restaurants and update its POS systems.

Asia/Pacific, Middle East and Africa's strong comparable sales were driven by robust value platforms, brand differentiating conveniences and locally-relevant menu options, such as the tuna muffin in Japan and new muffin sandwiches in Australia. Australia also found success with smoothies and frappes. McDonald's also opened a record 200 new restaurants in China in 2011.

2012 plans

McDonald's will plan to execute its Plan to Win strategy in 2012. Skinner said the company's efforts in the global space will intensify, as will its menu evolution, modernization and customer experience focus.

Also this year, McDonald's plans to invest about $2.9 billion of capital. About half of that sum will be used to open more than 1,300 new restaurants, while the other half will be allocated to investment in existing locations, including the reimaging of more than 2,400 units.

The 2012 Summer Olympic Games in London are also expected to provide a boost to McDonald's, which is a corporate sponsor of the event. The Olympic Village will harbor four McDonald's restaurants, including the biggest unit in the world.

"McDonald's begins 2012 with nearly nine years of positive momentum, a business model that delivers across a variety of market and economic conditions and global January sales that are expected to remain strong," Skinner said.

Earnings call highlights

New items: In its earnings call this morning, McDonald's announced it will roll out its limited-time promotion of Chicken McBites this week. Later this year, the chain will introduce blueberry banana nut oatmeal and Cherry Berry Chiller – a blended ice beverage – to its McCafe lineup.

Commodities: Pete Bensen, McDonald's chief financial officer, said the company expects food cost increases of 4.5 to 5.5 percent this year. In 2011, the company experienced a 4.9 percent increase in costs, mostly due to the staggering rise in beef prices. In response, the company shifted promotional focus to chicken offerings and returned the McRib to the menu for a limited time.

Menu prices: "Menu pricing has a significant impact on margins, and our philosophy remains intact for 2012: Where warranted, we will strategically take increases to offset some but not all of our higher costs," Bensen said.

Broadening accessibility: About 40 percent of McDonald's restaurants are now open 24/7, and 89 percent are open by 5 a.m.

Read more about operations management.

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