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McDonald's profits up for quarter and year

by Chaya Babu
Jan 22, 2010

McDonald’s Corp. reported strong fourth quarter and full year profit increases, 24 percent and 6 percent, respectively, largely due to global comparable sales growth, beating analysts’ expectations for both time periods.

For the fourth quarter ended Dec. 31, McDonald’s earned $1.2 billion, or $1.11 per diluted share, up from $985.3 million, or 87 cents per diluted share, in the year-earlier period. The average analyst estimate was $1.02.

Earnings for the full year ended Dec. 31, 2009 were $4.5 billion, or $4.11 per diluted share, up from $4.3 billion, or $3.76 per diluted share in the prior year. The analysts estimated $3.97.

The quarter saw top-line growth of 7 percent to $6.0 billion from $5.6 billion; however, for the full year, sales dropped to $22.7 billion from $23.5 billion, a 3 percent decrease.

In 2009, selling, general, and administrative expenses fell 5 percent to $2.2 billion from $2.4 billion in 2008, and company-operated restaurant expenses fell 7 percent to $12.7 billion from $13.7 billion.             

David Tarantino, a senior research analyst at Robert Baird & Co., wrote in a report, “We remain confident in the outlook [for 2010], as we believe strength in international markets led by Europe, company-wide margin expansion, helped by benign cost environment, and continued share repurchases can support double-digit EPS growth even if domestic trends remain sluggish.”

In a conference call with analysts, CEO Jim Skinner said, “2009 marked our sixth consecutive year of positive comparable sales in every area of the world, a feat that underscores the ongoing strength and relevancy of our Plan-to-Win business strategy.”  Global comparable sales, or sales from restaurants in operation at least 13 months, grew 4 percent in 2009, with the U.S. up 3 percent, Europe up 5 percent, and Asia/Pacific, Middle East and Africa up 3 percent.

Skinner named the primary drivers of the “Plan-to-Win strategy” as more menu variety and choice, better restaurant operations, greater convenience, everyday predictable low prices and ongoing restaurant investment.

McDonald’s operating margin grew to 30 percent for the year, up from 27 percent in the prior year.  “Total margin dollars from McDonald’s restaurants reached a record $8.8 billion in 2009,” said CFO Peter Bensen in the call.  “Franchise margin dollars, which represents nearly $6 billion of the total, grew at a faster pace as we continued to execute our refranchising strategy.”

Bensen added that the company refranchised more than 1,100 restaurants in the past two years and expects to continue with a "couple hundred" more in 2010.

In keeping with McDonalds’ $15 billion to $17 billion cash-return-to-shareholders target for 2007 to 2009, the company returned $5.1 billion to shareholders in 2009 through shares repurchased and dividends paid, bringing the total to $16.6 billion.

“Going forward, our philosophy regarding the use of our cash flow remains unchanged. Our first priority is to reinvest in the business,” said Skinner.  “After that, we expect to return all of our free cash flow over the long term to investors through a combination of dividends and share repurchase.” Skinner expressed confidence that McDonald’s will continue to deliver positive results for shareholders. 

Bensen said the company expects to benefit in the next couple of quarters from changing currency exchange rates.

McDonald’s stock closed at $63.39, up 19 cents.