McDonald’s Corporation
CEO : Mr. Christopher J. Kempczinski
Quarterly earnings growth(YoY,%)
| Period | Revenue | Operating Income | EPS | Release Date |
|---|---|---|---|---|
| 2022 Q4 | -1.4% YoY | 7.5% | 18.2% | 2023-01-31 |
Ian F. Borden says,
Global Comparable Sales and Market Share
- Global comparable sales were up double digits for Q4 2022, indicating top-line momentum and global strength for the brand.
- The company gained share across most of its major markets.
Digital Channels
- The company leveraged its digital channels to achieve nearly 13% comp sales growth in its international operated markets in Q4 2022.
- McDonald’s UK launched the McCrispy Chicken Sandwich, which drove a meaningful lift to the chicken category, and the popular Reindeer Ready holiday campaign returned for the sixth consecutive year.
- In Canada, digital channels were utilized for the return of McDonald’s Monopoly to elevate the experience and accelerate top-line momentum and sales.
- In Germany, the first My McDonald’s branded affordability campaign was launched, which featured daily offers alongside mobile order messaging to drive full digital platform engagement.
U.S. Market Performance
- U.S. comp sales were up over 10% for Q4 2022, and the collective decisions to put the brand at the center of marketing, simplifying menus, strengthening the digital business, and recommitting to the core have resonated with consumers and are continuing to drive growth.
- Higher average check supported by strategic price increases as well as positive guest counts contributed to the performance this quarter.
- Memorable marketing campaigns, including collaborations with Cactus Plant Flea Market, Blue Buckets, and McRib, brought nostalgia to customers, fueling top-line momentum with limited added complexity in restaurants.
International Developmental License Markets
- Comp sales were up over 16% for Q4 2022, with strong sales growth across all geographies in the segment.
- Japan achieved an impressive 29th consecutive quarter of positive comp sales, while China faced challenges due to COVID-related government restrictions, resulting in some temporary closures and limited operation.
- Despite the ongoing operating challenges, the company opened over 700 new restaurants last year, an all-time high.
Company-Operated Margins and Free Cash Flow Profile
- Company-operated margins were just over 15% for Q4 2022, reflecting the continued pressure from elevated commodities, wages, as well as higher energy costs.
- Franchise restaurants, which represent 95% of the global portfolio, contributed nearly 90% of the total restaurant margins, reflecting the stability of the business model.
- CAPEX spend for the year was approximately 1.9 billion, which included remaining reinvestment to substantially complete the experience of the future efforts in the U.S. market.
- After reinvesting in the business, the free cash flow conversion was nearly 90% for the year.
Christopher J. Kempczinski: Thanks, Ian. As we look ahead to 2023, macroeconomic uncertainties will persist and we expect to continue to face headwinds. Our base case for a mild to moderate recession in the U.S. and one that will be a little deeper and longer in Europe is unchanged from what we shared on our Q3 earnings call. We also expect inflationary costs to continue to pressure our margins, which Ian will discuss in greater detail. In this environment, we must maintain our disciplined approach to pricing. We need to balance passing through our pricing on our menus while maintaining our strong position on value with our customers. Our positive guest count performance in 2022 demonstrates our success so far in balancing these competing demands, and we need to remain judicious with pricing actions. Ongoing communication with our franchisees regarding the magnitude and pace of pricing will remain essential. Our franchisees are focused on the long term and time and again that approach has been rewarded. As long as we continue to do the right things for the customer, we can always work through short term challenges. McDonald’s understands that customerâs perception on value is made up of more than just the price of our food. It’s also about the experience we provide. Our modernization efforts have had a significant impact on improving our customers experience, and this is also improving how our customers think of our brand. Now that we are nearly fully modernized, our attention is turned to being laser focused on our operations and running great restaurants. In 2022, we reengaged most of our system on maintaining operational excellence in our restaurants through our Performance and Customer Excellence program, also known as PACE. This restaurant assessment and consulting tool, which is currently deployed in 30 markets, was suspended during COVID. Along with providing new tools, this represents a new way of working for our field teams that help us market target organizational and restaurant support for key growth drivers. This renewed focus will help protect McDonald’s brand standards for an outstanding customer experience every single day. Restarting PACE in 2022 led to strong operational improvements in several key markets as a result of a more dedicated consulting and coaching time to support lower performing restaurants. For example, the UK saw improved customer satisfaction, speed of service, and overall experience for these restaurants. In Spain, restaurants that had the lowest customer satisfaction scores in the drive-thru improved to be at the same level as top-performing restaurants by the end of 2022. Additionally, as a result of this program, France saw increases of 30% in customer satisfaction scores at locations with the lowest scores. PACE clearly drives operational improvements, which provides a better customer experience that in turn drives business performance. This month, the U.S. also restarted PACE, and we expect to see similar operational benefits in our largest market in 2023. I’ll now turn it back to Ian to talk in more detail about our 2023 outlook says,
Macroeconomic uncertainties and inflationary costs
- The company expects macroeconomic uncertainties to persist and recession in the US and Europe.
- Inflationary costs will continue to pressure margins.
- Maintaining a disciplined approach to pricing is crucial.
- Franchisees’ communication regarding pricing magnitude and pace will remain essential.
Customer value perception and experience
- Customer value perception is not only about the price but also the experience provided.
- Modernization efforts have significantly improved the customers’ experience and the company’s brand perception.
- The focus is now on operations and running great restaurants.
- PACE program helps to protect McDonald’s brand standards for an outstanding customer experience.
Operational improvements through PACE
- PACE program led to significant operational improvements in several key markets, such as the UK, Spain, and France.
- The renewed focus will help protect McDonald’s brand standards for an outstanding customer experience every single day.
- The US restarted PACE, and the company expects to see similar operational benefits in 2023.
2023 outlook
- Macro-economic uncertainties and inflationary costs will continue to pressure margins.
- Customer count performance is positive, demonstrating success in balancing pricing and value.
- The focus is on continuing to maintain strong value for customers while balancing pricing.
- Franchisees’ communication regarding pricing magnitude and pace will remain essential.
Conclusion
- McDonald’s faces macroeconomic uncertainties and inflationary costs that will continue to pressure margins.
- Customer value perception and experience are essential for the company’s success.
- The PACE program helps to protect McDonald’s brand standards for an outstanding customer experience.
- The company plans to maintain strong value for customers while balancing pricing.
Q & A sessions,
Impact of Inflationary Pressures on Margins
- The company-operated margin percent will be hampered in the near term due to significant inflationary headwinds across commodities, labor, and utilities, and the full year 2023 company-operated margin percent will be slightly lower than Q4 2022 results.
- The elevated cost environment is also impacting restaurant cash flow for franchisees, particularly in European markets. McDonald’s financial strength and scale give them the ability to provide temporary and targeted support, ultimately keeping the entire system aligned on proactively investing to drive long-term growth, which will have an impact of between $100 million to $150 million in 2023.
Projected Growth in New Unit Openings
- McDonald’s plans to spend between $2.2 billion and $2.4 billion in 2023 on capital expenditures, about half of which will be dedicated to new unit openings globally.
- The company plans to open about 1,900 restaurants in 2023, with over 400 of these openings in the U.S. and IOM segments, where strong returns are expected.
- The remaining 1,500-or-so new restaurants, including about 900 in China, will be across the IDL markets, and the strategic partners will provide the capital for these restaurant openings.
Expected Interest Expense and Effective Tax Rate
- The company is projecting interest expense to increase between 10% and 12% compared to 2022 primarily due to higher average rates on debt balances.
- The effective tax rate for the year is expected to be between 20% and 22%.
Outlook for Operating Margin and G&A
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No bad stock 