McDonald's' CEO Discusses Q1 2012 Results - Earnings Call Transcript

McDonald's (MCD)

Q1 2012 Earnings Call

April 20, 2012 10:00 am ET

Executives

Kathy Martin -

James A. Skinner - Vice Chairman, Chief Executive Officer and Chairman of Executive Committee

Donald Thompson - President, Chief Operating Officer and Director

Peter J. Bensen - Chief Financial Officer and Executive Vice President

Analysts

David Palmer - UBS Investment Bank, Research Division

David E. Tarantino - Robert W. Baird & Co. Incorporated, Research Division

Jason West - Deutsche Bank AG, Research Division

Andrew M. Barish - Jefferies & Company, Inc., Research Division

Jeffrey Andrew Bernstein - Barclays Capital, Research Division

John S. Glass - Morgan Stanley, Research Division

Matthew J. DiFrisco - Lazard Capital Markets LLC, Research Division

Joseph T. Buckley - BofA Merrill Lynch, Research Division

Sara H. Senatore - Sanford C. Bernstein & Co., LLC., Research Division

John W. Ivankoe - JP Morgan Chase & Co, Research Division

Keith Siegner - Crédit Suisse AG, Research Division

Steve Marrs - Citizens Business Bank

Howard W. Penney - Hedgeye Risk Management LLC

Presentation

Operator

Hello, and welcome to McDonald's April 20, 2012, Investor Conference Call. At the request of McDonald's Corporation, this conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Ms. Kathy Martin, Vice President of Investor Relations for McDonald's Corporation. Ms. Martin, you may begin.

Kathy Martin

Thank you, and good morning, everyone. With me on the call are: Chief Executive Officer Jim Skinner; Chief Operating Officer Don Thompson; and Chief Financial Officer Pete Bensen. Today's conference call is being webcast live and recorded for replay via phone, webcast and podcast.

And before I turn it over to Jim, I want to remind everyone that, as always, the forward-looking statements in our earnings release and 8-K filing also apply to our comments. Both documents are available on our website, www.investor.mcdonalds.com, as are reconciliations of any non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. So now I'd like to turn it over to Jim. Jim?

James A. Skinner

Thank you, Kathy, and good morning, everyone. As you know, I recently announced my retirement after 41 years with McDonald's and almost 8 years as CEO. Time is right for me to make this decision dollars as our business continues to be very strong.

For the quarter, comparable sales were up 7.3%, operating income increased 9% in constant currencies and EPS reached $1.23, an 8% increase in constant currencies. Our system is aligned and focused and we have an outstanding leader in Don to step in and continue our momentum. I'm extremely confident in Don and his leadership team, and I know the business is in very capable hands. I also know that our system of outstanding operators, suppliers and employees will continue working together to drive our results. And let me say it's been a pleasure working with all of you in the investment community over all these years. I appreciate your continued engagement and your interest our business as well as your thoughtfulness when you put together your viewpoints and your assessment of McDonald's. I wish you all well. And with that, I'll turn it over to Don to discuss the quarter's results around the world.

Donald Thompson

Thanks, Jim. And thank you for your tremendous leadership and all you've done for McDonald's. You're a terrific partner, a mentor. And you'll definitely be missed. Well, good morning, everyone. I'm pleased to share McDonald's latest quarterly results, which reflect the strength of our business. Our continued momentum remains a system-wide effort with positive trends continuing in every area of the world.

In the U.S., comparable sales increased 8.9% for the quarter and operating income rose 10%. Europe's comparable sales were up 5% and operating income grew 8% in constant currencies. And in Asia/Pacific, Middle East and Africa, or what we call APMEA, comp sales grew 5.5% and operating income was up 7% in constant currencies. Our momentum is continuing into April, with global comparable sales growth expected to be about 4%. We are pleased with these results, particularly given the headwinds we faced on both the top and bottom lines, and the fact that we'll continue to face these headwinds throughout the rest of the year. The economic climate remains challenging, with varying degrees of consumer confidence, economic pressures and inflationary costs. And our success in this volatile environment is a testament to our Plan to Win and our relentless focus on customers needs. Around the world, we continue to gain market share in an industry with minimal to negative growth.

We also remain committed to our proven plan and to executing against our 3 global priorities, which are: optimizing our menu, modernizing the customer experience and broadening accessibility to brand McDonald's. In the U.S., our strong sales were the result of a focus on our core and new products as well as value and convenience. The mild winter weather also benefited sales and traffic but to a lesser extent. This momentum helped offset some of the headwinds and margin challenges we're facing due to pressures like commodities that we've mentioned before.

We continue to meet our customers desire for a great breakfast during the quarter by advertising our increasingly popular wholesome choices menu, which includes a great selection of items with no more than 300 calories each, like our oatmeal, the Egg McMuffin, and fruit and yogurt parfait. We also featured our iconic Big Mac, which lifted sales of both Big Macs and Mac Snack Wraps. In January, the U.S. launched Chicken McBites, a bite-sized chicken offering. McBites contributed to the growth of the overall chicken sales by providing a tasty solution that is shareable and a great snack. We often say that the power of our system lies in our ability to learn from each other then share, then scale ideas, and McBites is a great example of that. The product originated in Australia, and its positioning as a promotional food event came out of Europe. This approach significantly reduces time-to-market compared with developing a product from scratch. You can expect to see us share even more menu ideas, given the strong global pipeline that we can tap into.

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