In Q4 2024, McDonald's Corporation reported revenues of $6.388 billion, reflecting a decrease of 0.28% year-over-year, primarily impacted by challenges in the U.S. market related to an E. coli outbreak which adversely affected the Company's operations. Adjusted earnings per share fell slightly to $2.83, down 4% compared to the prior year's constant currency figures, with net income recorded at $2.016 billion. While the full-year global comparable sales reflected a modest decline of 0.1%, the fourth quarter showed signs of improvement with a 0.4% increase in comparable sales, helped by strategic marketing efforts and value initiatives. Management remains cautiously optimistic about recovering sales momentum into 2025 due to targeted strategic actions and a focus on value, operational efficiency, and brand strength.
### Balance Sheet Health
- Total Assets: $55.182 billion
- Total Liabilities: $58.979 billion
- Shareholders’ Equity: -$3.797 billion
- Long-term Debt: $51.312 billion
### Profitability Ratios
- Net Profit Margin: 31.5%
- Operating Margin: 44.9%
- Return on Assets (ROA): 3.65%
- Return on Equity (ROE): -53.1% (indicative of negative equity)
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
6.39B
-0.28%
-7.07%
Gross Profit
3.68B
0.68%
-5.08%
Operating Income
2.87B
2.36%
-10.04%
Net Income
2.02B
-1.13%
-10.60%
EPS
2.81
-0.35%
-10.79%
Key Financial Ratios
currentRatio
1.19
grossProfitMargin
57.6%
operatingProfitMargin
44.9%
netProfitMargin
31.6%
returnOnAssets
3.65%
returnOnEquity
-53.1%
debtEquityRatio
-13.68
operatingCashFlowPerShare
$3.67
freeCashFlowPerShare
$2.55
dividendPayoutRatio
62.9%
priceToBookRatio
-54.73
priceEarningsRatio
25.76
Net Income vs. Revenue
Expense Breakdown
Management Commentary
### Management Commentary
- Chris Kempczinski, CEO, acknowledged that while 2024 did not meet expectations, the Company is focused on a strategic recovery, stating, "We have the right strategy, accelerating the arches...with significant growth opportunities ahead of us."
- The impact of the E. coli outbreak was prominent: "In the US, comp sales were down 1.4% for Q4... we expect to have fully recovered by the beginning of Q2."
- Ian Borden, CFO, emphasized the importance of value propositions: "Our marketing efforts to amplify traffic drivers are crucial. We’ve seen sequential improvement in baseline traffic performance..."
- There is confidence in future performance as the food safety issue resolves, with plans to leverage technology and innovation.
### Forward Guidance
Management indicated a target operating margin in the mid-to-high 40% range for 2025, which reflects optimistic recovery potential and highlights their commitment to returning excess free cash flow to shareholders.
"In 2024, global comp sales decreased 0.1%...comp sales were down 1.4% in the US amidst the impact of the E. coli outbreak."
— Chris Kempczinski
"The strength of our brand depends upon the absolute trust of our customers, and I'm pleased by the positive feedback we've received from so many regarding our rapid and transparent handling of this issue."
— Chris Kempczinski
Forward Guidance
Looking forward to 2025, McDonald's expects gradual stabilization in the operating environment, particularly in the U.S., with anticipated recovery from recent food safety issues. Their Accelerating the Arches strategy is positioned to capture underperforming market segments and attract customers back through value-oriented menu offerings. The target of over 2,200 new restaurants globally, including significant openings in China and the Middle East, supports growth aspirations. Management expects full-year operating margins above 46.3% driven by franchise performances, and a free cash flow conversion in the low to mid-80% range.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
MCD Focus
57.59%
44.90%
-53.10%
25.76%
CMG
24.80%
14.60%
9.08%
61.86%
BROS
25.70%
4.60%
0.67%
415.72%
DPZ
39.20%
19.00%
-4.28%
21.51%
YUM
44.40%
27.80%
-5.53%
22.20%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Despite facing challenging conditions in Q4 2024, McDonald's shows resilience and a strategic plan for recovery. The company’s focus on value through initiatives such as the McValue platform and the expansion of its menu offerings presents a growth opportunity. Additionally, as consumer trust is rebuilt post-E. coli incident, there is potential for increased traffic and improved profitability. While risks remain, particularly in a high inflation environment and a competitive market, McDonald's positioning, brand strength, and targeted strategic initiatives support a cautiously optimistic investment outlook.
Key Investment Factors
Growth Potential
With the ongoing expansion plan and initiatives to enhance menu offerings, McDonald's has the potential to regain and grow market share, particularly as they continue to recover from recent adverse events.
Profitability Risk
Key risks include the potential for prolonged inflationary conditions impacting cost structures, challenges in the competitive landscape, particularly in value-based offerings and consumer behavior shifts due to economic pressures, and potential regulatory risks related to food safety issues.
Financial Position
Despite a weak equity position, the company maintains robust revenue streams and cash flow, demonstrating operational resilience. However, the reliance on high-leverage financing may raise concerns about financial stability in adverse conditions.
SWOT Analysis
Strengths
Global brand recognition and strong market presence
Diverse and innovative menu offerings with value-driven initiatives
Focus on technology and operational efficiency improvements
Weaknesses
Negative shareholders' equity due to high debt levels
Recent operational challenges such as food safety incidents
Declining comparable sales in key markets
Opportunities
Expansion into emerging markets with new restaurant openings
Increased focus on digital sales channels and loyalty programs
Menu innovations that respond to evolving consumer preferences
Threats
Intense competition in the QSR industry, particularly regarding value offerings
Economic volatility affecting consumer spending power
Regulatory risk associated with food safety and labor practices