McDonald’s (NYSE: MCD) - the world's largest chain of fast food restaurants. At the end of 2021, the American company operated in 119 countries and had more than 40 000 restaurants.
At the end of January, McDonald's presented a report for the fourth quarter of 2021, within which the company managed to maintain double-digit growth rates. Basic moments:
- revenue increased by 13%, to $6.009 billion, against the consensus forecast of $6.03 billion;
- global like-for-like sales increased by 12,3%, which is much better than market expectations — 10,7%;
- operating profit in the fourth quarter added 12%, to $2.397 billion, and if you do not take into account one-time factors, which were in the fourth quarter of 2020, to na 23%;
- net income per share increased by 18%, c 1,84 to 2,18 $. Looking at the adjusted figure, then he grew even stronger - on 31%, to 2,23 $, when forecasting 2,34 $.
Let's figure it out, why, with such controversial results, McDonald's shares rose after the publication of the report.
Sales structure of the company
The company's business is divided into two divisions. The first deals with the direct management of McDonald's fast food restaurants.. The second receives commission income from the sale of franchises.
Sales geography. In addition to the business division, there is also a geographical: McDonald's operates in three markets and serves customers from 119 countries. In the first place - the local, American market, in this country the company has the largest number of franchise restaurants.
In second place are international markets, which includes France, Canada, Germany, United Kingdom, Australia, Russia – until March 2022, Italy, Spain and others. This segment brings the chain the maximum income due to the largest number of restaurants under its own management.. Developing countries round out the top three, in which partner companies operate under a license or are affiliated enterprises. The current division includes China, Japan, Brazil, Philippines, South Korea and other countries.
McDonald's revenue by business division:
- direct control — 42%;
- franchises — 57%;
- other proceeds — 1%.
McDonald's revenues by geographical division:
- USA - 37%;
- international markets — 53%;
- developing countries — 9%;
- other proceeds — 1%.
Moving on to Q4 2021 results, it is worth noting, that the company's revenue increased year-on-year by 13% thanks to strong results in international markets, who grew by 19%. The weakest indicators are growth by 6% - American restaurants showed the chain amid the new wave of COVID-19.
Sales structure of the company, billion dollars
| Business division | 4к2020 | 4к2021 | The change |
|---|---|---|---|
| Direct control | 2,233 | 2,539 | 14% |
| Franchises | 2,985 | 3,392 | 14% |
| Other revenue | 0,095 | 0,079 | −17% |
The company's sales structure by business division, billion dollars
| By sales geography | 4к2020 | 4к2021 | The change |
|---|---|---|---|
| USA | 2,057 | 2,217 | 8% |
| International Markets | 2,676 | 3,184 | 19% |
| Developing countries | 0,485 | 0,529 | 9% |
| Other revenue | 0,095 | 0,079 | −17% |
Sales structure of the company by geography, billion dollars
Profit
McDonald's net profit in the fourth quarter of 2021 increased by 19%, to $1.639 billion, or 2,18 $ per share. The adjusted figure increased by 31%, to 2,23 $, due to one-time factors: in the current quarter, a loss was recorded 0,05 $ per share after the sale of McD Tech Labs, and in the fourth quarter of 2020, vice versa, profit in the amount of 0,14 $, mainly related to the sale of shares in McDonald's Japan.
Like-for-like sales, a key performance indicator in retail, rose from −1.3 to −1.3 12,3% thanks to the shock results of the "international markets" segment: This division has grown more than any other, from −7.4 to 16,8%, against the background of a low base of the previous period.
Key financial results of the company, billion dollars
| 4к2020 | 4к2021 | The change | |
|---|---|---|---|
| Revenue | 5,314 | 6,009 | 13% |
| Operating profit | 2,143 | 2,397 | 12% |
| Net profit | 1,377 | 1,639 | 19% |
| Comparable sales | −1,3% | 12,3% | 13,6 P. P. |
| net debt | 33,991 | 30,914 | −9% |
Management forecasts
After the publication of financial results for the fourth quarter of 2021, management announced its forecast for 2022.
Restaurant chain growth: McDonald's this year plans to open more than 1800 establishments around the world, 500 — under its own management, 1300 — by franchise. This will result in an increase in total sales in constant currency by 1,5%, and to, that commercial, general and administrative expenses will be at the level of 2.2-2.3% of revenue.
The company expects, that its operating profitability will be 40%, general interest expenses, based on current interest rates and foreign exchange rates, will not change in comparison with 2021, and the effective income tax rate for the whole of 2022 will be in the range of 20 to 22%.
Management plans, that in 2022, McDonald's capital expenditures will be between $2.2 billion and $2.4 billion., out of which 50% will be aimed at opening new restaurants in the U.S. and international markets, and about 40% – for the modernization of old ones.
Market analysts' view
This section presents the opinions of analysts of three investment houses about McDonald's.
BTIG, McDonald's recommendation is "buy", target price - 295 $. Company analysts believe, that investors should be encouraged by the planned increase in the network in 2022, which could be a record in the last six years, as well as a forecast of management's operating profitability: McDonald's plans to survive the labor and product crisis, only marginally reduced profitability..
Cowen, recommendation – "above the market", target price - 275 $. The company's analysts like McDonald's plan of action to maintain a high level of sales in the United States, based on last year's success, while personnel problems presumably peaked in December 2021..
Bank of America, recommendation - "neutral", target price - 270 $. Company analysts believe, that McDonald's fourth-quarter results were strong, but showed less growth potential compared to previous quarters, Management plans and Bank of America's own forecast. The main reason is the stabilization of the results: revenue and profitability.
What's the bottom line?
McDonald's published moderately negative financial indicators for the fourth quarter of 2021: The company's revenue increased by 13% against the market forecast 13,5%, adjusted net profit — on 31% against 37%. But the management managed to completely neutralize the negative effect of these results due to a strong forecast for 2022.: the company plans to open more than 1800 restaurants against 876 last year, operating profitability against the background of problems with personnel will fall slightly, to 40% against 45% in 2021.
Are McDonald's shares interesting at the current price?? Investors better wait for the correction and buy at the price 200 $ and below, this corresponds to the value of the EV multiplier / EBITDA = 16. According to this assessment, the company's shares could be bought in 2016-2020.. Current EV / EBITDA = 17.
