Employees: 420 000
Fiscal year ends: 31 December
Headquarter: One McDonald’s Plaza, Oak Brook, Illinois
Products: Uniform menu
Rating (long-term): A-2 / BBB+ (S&P), P-2 / Baa1 (Moody’s)
Competitors: Starbucks Corp., Yum Brands Inc., Darden Restaurants
The Company operates and franchises McDonald’s restaurants, which serve
a locally-relevant menu of quality food and drinks sold at various price points
in more than 100 countries. McDonald’s global system is comprised of both
Company-owned and franchised restaurants. McDonald’s franchised
restaurants are owned and operated under one of the following structures –
conventional franchise, developmental license or affiliate.
The Company is primarily a franchisor, with more than 80% of
McDonald’s restaurants owned and operated by independent franchisees.
McDonald’s organizational structure with the following segments:
• U.S. – the Company’s largest segment
• International Lead Markets – established markets including Australia, Canada, France, Germany, the U.K. and related markets
• High Growth Markets – markets including China, Italy, Korea, Poland, Russia, Spain, Switzerland, the Netherlands
• Foundational Markets & Corporate – the remaining markets in the McDonald’s system, each of which is believed to have potential
The Company’s revenues consist of sales by Company-operated restaurants and fees from restaurants operated by franchisees.
In 2015, revenue was down 8%, Operating expenses increased by 5%, Operating Income decrease of 10% and Net income is down 10%. Basic EPS was flat.
With these poor metrics, the company hasn’t plenty of room to grow.
Profitability is Stable:
Currently, the company has a relatively large $30.8 billion in Total Liabilities. In 2015 Liabilities increased by 44% making a huge impact on company’s ROE (increase of 43%) .
Meanwhile, ROA ratio is stable, Gross, Operating and Net margins are high.
Financial health is Stable:
What’s disturbing for McDonald’s is their cash flow allocation.
Specifically, McDonald’s operating cash flow has been inadequate for years to pay for stock repurchasing, dividends and capital expenditure. Debt has been satisfying the shortfall, and accumulating against declining stockholder equity.
McDonald’s has being buying its shares voraciously for the past 15 years. It is debatable how long McDonald’s can sustain buybacks as it appears to be transitioning from a growth stock to a value stock.
It seems like MCD is now spending its entire free cash flow and more in buying back stock and paying for dividend and capex with borrowed money. Nevertheless, the current situation is stable.
Valuation price: -14% to the current price
Last stock splits: 3:2 (29.03.1966), 2:1 (07.05.1968), 2:1 (23.05.1969), 3:2 (21.05.1971), 2:1 (22.05.1972), 3:2 (14.09.1982),
3:2 (05.09.1984), 3:2 (25.06.1986), 3:2 (08.06.1987), 2:1 (02.06.1989), 2:1 (07.06.1994), 2:1 (12.02.1999)
Share repurchase: (2015) 61.8m shares / $6,2m; (2014) 33.1m shares / $3,2m; (2013) 18.7m shares / $1,810m; (2012) 28.1 / $2,605; (2011) 41.9 / $3,373; (2010) 37.8 / $2,648;(2009) 50.3 / $2,854; (2008) 69.7 / $3,981; (2007) 77.1 / $3,949
History
1940: Restaurant opened by brothers Richard and Maurice McDonald in San Bernardino, California.
1948: Introduction of the “Speedee Service System” established the principles of the modern fast-food restaurant
April 15, 1955: The present McDonald’s corporation dates its founding to the opening of a franchised restaurant by Ray Kroc, in Des Plaines, Illinois.
1961: Kroc purchased the McDonald brothers’ equity in the company and led its worldwide expansion.
1963: One billion hamburgers sold; Ronald McDonald made his debut; The 500th restaurant opened; McDonald’s net income exceeded $1 million.
April 21, 1965: McDonald’s Corporation went public, common shares were offered at $22.50 per share.
1967: McDonald’s went international with restaurant openings in Canada and Puerto Rico
1968: The Big Mac was introduced; The 1,000th restaurant opened in Des Plaines, Illinois
Disclosure: Billion Trader has no positions in any stocks mentioned, the valuation is based on the own model developed and tested by Billion Trader. Billion Trader is not responsible for any loss arising from information provided.