The FINANCIAL -- McDonald's Corporation on October 24 announced results for the third quarter ended September 30, 2017.
"We are serving more customers, more often by offering great tasting food at a good value with the quick service and friendly hospitality they expect from McDonald's," said McDonald's President and Chief Executive Officer Steve Easterbrook. "Our positive comparable sales and guest counts across all of our operating segments during the third quarter demonstrate broad-based momentum throughout our business that builds upon our strong first half of 2017."
Third quarter highlights:
Global comparable sales increased 6.0%, reflecting positive guest counts in all segments
Due to the impact of the Company's strategic refranchising initiative, consolidated revenues decreased 10% (12% in constant currencies)
Systemwide sales increased 7% in constant currencies, due to strong comparable sales performance and restaurant expansion
Consolidated operating income increased 44% (42% in constant currencies), which benefited from a gain of approximately $850 million on the sale of the Company's businesses in China and Hong Kong. Excluding the impact of the gain, as well as unrelated strategic charges, consisting of current quarter and prior year restructuring and non-cash impairment charges in connection with the Company's global G&A and refranchising initiatives, consolidated operating income increased 5% (3% in constant currencies), primarily due to strong comparable sales performance across all segments
Diluted earnings per share of $2.32 increased 55% (53% in constant currencies). Excluding the impact of the current year gain and these unrelated strategic charges, which total $0.56 per share, diluted earnings per share was $1.76. Excluding these 2017 items as well as the $0.12 per share of prior year strategic charges, the Company's diluted earnings per share increased 9% (7% in constant currencies)
Returned $2.9 billion to shareholders through share repurchases and dividends. In addition, the Company announced a 7% increase in its quarterly dividend to $1.01 beginning in the fourth quarter, demonstrating management's continued confidence in the Company's performance
In the U.S., third quarter comparable sales increased 4.1%, reflecting the national beverage and McPick 2 value promotions, along with the continued success of the Signature Crafted premium sandwich platform. Operating income for the quarter increased 6%, reflecting higher sales-driven franchised margin dollars and G&A savings.
Comparable sales for the International Lead segment increased 5.7% for the quarter, led by continued momentum in the U.K. and Canada, as well as positive results across all other markets. The segment's operating income increased 21% (17% in constant currencies), fueled by sales-driven improvements in franchised margin dollars.
In the High Growth segment, third quarter comparable sales increased 6.2%, led by strong performance in China and positive results across the majority of the segment. The segment's operating income for the quarter included a gain of approximately $850 million related to the refranchising of China and Hong Kong, partly offset by unrelated non-cash impairment charges. Excluding these items, the segment's operating income for the quarter increased 7% (3% in constant currencies), reflecting higher sales-driven margin dollars, according to McDonald's Corporation.
In the Foundational markets, third quarter comparable sales rose 10.2%, reflecting positive sales performance across all geographic regions. For the segment, operating income decreased due to the Company's refranchising initiatives and higher restaurant technology spending, partly offset by the benefit from comparison to the prior year's strategic charges.
"During the quarter, we refranchised our businesses in China and Hong Kong, reaching our target to refranchise 4,000 restaurants more than a year ahead of schedule," said McDonald's Chief Financial Officer, Kevin Ozan. "Completing this transaction brings us closer to the customers and communities we serve in these markets and creates a better opportunity to unlock their full growth potential. Our more heavily franchised structure will continue to drive shareholder value by providing a more stable revenue and income stream with higher returns on invested capital."
Steve Easterbrook concluded, "Our Velocity Growth Plan is the right strategy for McDonald's to achieve long-term, profitable growth and we are on track to succeed with our commitment and focus on execution. We've made progress in many areas of our business already, including optimizing our restaurant ownership mix and running better restaurants. At the same time, we also are making strides with initiatives such as delivery, mobile order and pay, as well as the Experience of the Future transformation of our restaurants that will make the experience more convenient, personalized and enjoyable for our customers."
Results for the quarter and nine months reflected stronger operating performance and G&A savings. The nine months also benefited from lower depreciation expense, primarily in China and Hong Kong, that in accordance with Held for Sale accounting rules ceased recording depreciation, and improved performance in Japan.
In addition, results for both periods benefited from the Company's sale of its businesses in China and Hong Kong, which closed on July 31, 2017. The Company recorded a pre-tax gain of approximately $850 million related to this sale. For the quarter, this gain was partially offset by $111 million of unrelated pre-tax non-cash impairment charges. Results for 2016 included pre-tax strategic charges of $128 million for the quarter and $357 million for the nine months, consisting primarily of charges related to the Company's global G&A and refranchising initiatives. Excluding the impact of these current year and prior year items, diluted earnings per share increased 9% (7% in constant currencies) for the quarter, and 15% (16% in constant currencies) for the nine months.
Foreign currency translation had a positive impact of $0.02 on diluted earnings per share for the quarter and a negative impact of $0.04 for the nine months.