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McDonald's to Investors: The Global Growth Plan Is Working

By Demitri Kalogeropoulos - Oct 29, 2019 at 12:00PM

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Here are some highlights from the fast-food giant's latest earnings call.

McDonald's (MCD -0.35%) growth strategy involves applying what's working in international arenas like France and the U.K. to its home market, which has been struggling with falling customer traffic. The fast-food titan last week revealed that this approach hasn't yet delivered a complete rebound for the U.S. segment. Yet the company is still posting impressive global growth.

In a conference call with analysts, CEO Steve Easterbrook and his team discussed what they saw as their best growth opportunities as Mickey D's closes out fiscal 2019 and prepares for a new year. Let's look at a few highlights from that presentation.

Two men and two women eating in a fast-food restaurant

Image source: Getty Images.

Solid results

We're pleased with our continued top-line growth momentum. Global [comparable store] sales increased 5.9% for the quarter, and each of the operating segments contributed meaningfully to our growth. We also grew global guest counts.
-- CFO Kevin Ozan

McDonald's standout markets included the U.K., Japan, China, and France, which set another all-time high in market share. The international segment overall attracted higher customer traffic to more than offset another slight decline in the U.S.

Executives credited successful promotions, digital ordering and delivery, and the move to never-frozen beef for supporting the gains. McDonald's 6% comps increase translated into an additional $1.5 billion in global sales and kept the chain's expansion pace roughly steady despite surging competition.

Digital and delivery

For 2019, we expect delivery to drive $4 billion or roughly 4% of global systemwide sales. That's up from 1 billion just three years ago. And it's now available from about 23,000 McDonald's restaurants in over 80 countries.
-- Easterbrook

The digital delivery market is getting crowded. Investors saw evidence of that change in early October when Domino's (DPZ 0.26%) cited the flood of third-party aggregators while lowering its growth outlook. McDonald's U.S. sales are pressured by the same trends, but management is as bullish as ever about the potential for this sales channel.

That's because digital sales carry twice the average check size, are growing at a double-digit rate across several markets, and earn higher customer satisfaction. Easterbrook said the fast-food chain still has work to do, especially in raising awareness in the U.S. division. But all indications are that digital ordering and delivery will be a huge growth driver for years to come.

Investing in restaurants

We've [upgraded] about 1,500 [U.S.] restaurants this year and remain on track to complete about 2,000 projects by year-end. The U.S. now has over 9,000 [remodeled] restaurants, roughly two-thirds of the U.S. market.
-- Ozan

McDonald's main growth project is its remodeling program, which involves upgrading the U.S. store base with a refreshed look while adding new technologies like ordering kiosks and home delivery. These moves have supported robust growth in a fiercely competitive market. But they haven't brought the U.S. up to executives' expectations. McDonald's still sees a return to rising customer traffic as a key priority and the company's biggest opportunity going forward.

While investors wait for signs of improving momentum here, they can celebrate the fact that Mickey D's has already achieved a few key long-term objectives such as bringing operating margin to a market-thumping 44% of sales and boosting cash flow. Those financial wins mean the company will easily meet its three-year goal of returning $25 billion to shareholders by the end of 2019, at which point McDonald's will be free to announce another, similarly ambitious long-term return program.

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