News

McDonald's Q3 results support chain's 2016 initiatives

October 21, 2016

McDonald's today reported Q3 financial results that show the chain is holding its own in a softening market, but the brand is also pledging to continue strongly on the path it's been taking this year toward becoming — in CEO Steve Easterbrook's words — "a modern, progressive burger company."

For the third quarter, ending Sept. 30, the giant chain reported the following key financial highlights: 

• 3.5 percent increase in global comparable sales, with positive comparable sales in all segments.
• 3 percent drop in consolidated revenues due to the impact of refranchising.
• 5 percent boost in consolidated operating income (7 percent in constant currencies), including $128 million in previously announced strategic charges related to restructuring and non-cash impairment charges from company's G&A and refranchising initiatives.
• 7 percent increase in diluted earnings per share of $1.50  (9 percent in constant currencies),including 12 cents per share in strategic charges.  
• $3.4 billion returned to shareholders through repurchases and dividends, bringing cumulative return of $27.8 billion to shareholders against a target of $30 billion for the three years ending 2016. 
• 6 percent increase in dividend begins in Q4.

Easterbrook said in a news release that the brand is continuing its way forward as a customer-centric and responsive QSR chain. 

"Customers today are more informed and demand greater choice and variety when they dine out. That's why we're evolving the McDonald's experience to provide more high quality, affordable food and beverage options and convenient solutions for customers on the go. Our third quarter results — including our fifth consecutive quarter of positive comparable sales across all segments as well as improved restaurant profitability — are a testament to the progress," he said. 

Easterbrook said that although the overall food service industry is showing some softening, McDonald's Q3 comparable sales grew 1.3 percent nationally, thanks largely to the chain's all-day breakfast offering, McPick 2 value menu and introduction of preservative-free Chicken McNuggets. Operating income rose 8 percent for the quarter nationally, which Easterbrook said reflects improved restaurant profitability and gains from refranchising. 

Internationally, comparable sales grew 3.3 percent in Q3, with strong U.K. sales and positive results in Australia, Canada and Germany. Operating income grew 2 percent internationally (5 percent in constant currencies) thanks to sales-driven improvements in franchised margin dollars across most markets.

In the high-growth segment, Q3 comparable sales grew 1.5 percent with nearly all markets showing positive performance, though that was offset by negative comparable sales in China where protests around South China Sea events had an effect, particularly in comparison to last year's very strong results there. Improved restaurant profitability in China helped raise operating income 8 percent (10% in constant currencies) in China, thanks to VAT reform.

In foundational market, Q3 comparable sales rose 10.1 percent, with strong performance in Japan and solid results other geographic regions. G&A expenses and other costs dropped this quarter, as Japan's contribution to the segment's bottom-line profitability was offset by strategic charges with other global G&A and refranchising initiatives.

"We are putting the customer at the center of everything we do and are directing our resources toward those innovations and investments that will strengthen our ability to deliver a better McDonald's experience over time," Easterbrook said.

Our customers, system and shareholders are best served when we direct our focus and energy towards executing against these critical customer expectations. Looking ahead, we are focused on growing global comparable sales and serving more customers while being mindful of the near-term challenges in several markets. We remain committed to driving long-term, profitable results while pursuing our goal of being recognized by our customers as a modern, progressive burger company."