McDonald Corporation filed report (Form 10K) for fiscal year 2020 (year ended December 31, 2020) and it’s available on Securities Exchange Commission website. That report gives insight into company operations, financial results, impact of COVID-19 and future projections. During 2020 there were no material changes to the Company corporate structure or in its method of conducting business.
The Company’s franchisors operate restaurants in 119 countries. As of December 31, 2020, total number of restaurants reached 39,198. Out of total number of restaurants 36,521 restaurants are franchised (93%). McDonald’s franchised restaurants are owned and operated under one of the following structures: conventional franchise, development license or affiliate. Company’s business model based on franchising in order to deliver locally relevant customer experiences.
Under conventional franchise arrangement, the Company owns or secures a long term lease on land and building for the restaurant. Franchisee pays for equipment, decor, reinvestment of capital in business over time, etc. The ownership of real estate combined with the co-investment by franchisee support the highest performance level in the industry. The Company may co-invest with franchisees to fund improvements to restaurant or operations. Franchisees must meet rigorous standards and not to be passive investors. The conventional franchisees contribute to McDonald Corporation by paying rent, royalties (based on generated sales), initial fees paid upon the opening of new restaurant or grant of a new franchise.
Under development license of affiliate arrangement, licensees are responsible for managing business and operations, providing capital, developing and opening new restaurants. McDonald Corporation does not invest any capital under development license or affiliate arrangement. Company receives a royalty based on % of sales, initial fees upon the opening of a new restaurant or grant of a new license. Affiliate arrangements are used in limited number of foreign markets where the Company also has an equity investment and records its share of net result in Equity in earnings of unconsolidated affiliates.
During the global pandemic Company maintained its high food & packaging standards by using Company’s quality centers. The quality management system check everything including visiting suppliers manufacturing units. Company provides educational programs about food safety for employees. As a result of pandemic Company implemented a framework called Safety+ for enhanced hygiene and safety standards.
McDonald’s restaurants compete with international, national, regional and local competitors on the basis of price, convenience, service, experience, product quality, menu variety in a highly fragmented restaurant industry.
The Company discloses the impacts of environmental risks and opportunities in annual CDP Climate Change, CDP Forests, CDP Water reports. Food waste and ways to reduce it are priorities
McDonald Corporation franchises and operates restaurants in 119 countries, therefore subject to multiple foreign jurisdictions for rules and regulations. During the pandemic Company followed orders of local governments that limited working hours, dine-in, delivery and in some places mandatory restaurant closure.
McDonald’s 5 core values:
- Serve – We put our customers and people first.
- Inclusion – We open our doors to everyone.
- Integrity – We do the right thing.
- Community – We are good neighbors.
- Family – We get better together.
McDonald Corporation’s employees totaling 200,000 worldwide and over 2 million individuals who work in independent franchisee restaurants globally.
2020 financial performance
In 2020, global comparable sales decreased 7.7% as a result of COVID-19. Comparable guest counts were negative across all segments. Company’s strategic investment in delivery segment gas a positive impact on comparable sales in the second half of 2020. In 2020 consolidated revenue decreased 10%, systemwide sales decreased 7%, consolidated operating income decreased 19%. Operating margin decreased from 42.5% in 2019 to 38.1% in 2020. Diluted earnings per share decreased 20%. Nearly 1,000 restaurants were opened.
In 2020 Company’s total revenue was $19,208B. Total operating cost was $11,884B. Income before tax was 6,141B. Net income was 4,731B. Earnings per common share (diluted) was $6,61.
In December 2019, the Company’s Board of Directors authorized the purchase of up to $15B of the Company’s outstanding stock with no specified expiration date. In 2020 approximately 4.3 million shares were repurposed for $874.1 million under this program. In early March the Company suspended share repurchase from the open market. During the first quarter of 2020, both Standard & Poor’s (S&P) and Moody’s affirmed ratings. S&P put McDonald’s on negative outlook. S&P and Moody’s currently rate the Company’s commercial paper A-2 and P-2, respectively; and its long-term debt BBB+ and Baa1, respectively. In order to get access to debt capital markets, McDonald Corporation rely on credit rating agencies to assist short term and long term credit ratings.
During last 5 years McDonald Corporation outperformed S&P 500 index and Dow Jones industrial.
McDonald’s stock price recovered after sharp fall during the initial months of COVID-19 pandemic. Future outlook positive.
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