McDonald’s to invest $2.1 billion in opening 1,000 restaurants

Though the onset of the global recession has led to most large corporations worldwide reporting a decline in profits, McDonald's, the world's largest hamburger chain has announced strong operating results for the fourth quarter and full year 2008 and plans to invest around $2.1 billion to open 1,000 restaurants this year and reinvest in their existing locations.

The 2008 net profit soared 80 per cent from its previous year, mainly due to growing demand from consumers searching for low-cost meals in a deepening global recession.
It recorded a net profit of $4.3 billion dollars for the full year compared to $2.3 billion in 2007.

The global sales increased 6.9 per cent, including US 4.0 per cent, Europe 8.5 per cent, and Asia/Pacific, Middle East and Africa 9.0 per cent. Its operating income increases in the US was 8 per cent, Europe 23 per cent (17 per cent in constant currencies) and Asia/Pacific, Middle East and Africa 33 per cent (28 per cent in constant currencies).

Its earnings per share at $3.76 dollars reflect an increase of 16 per cent, exceeding the market forecasts of $3.63 dollars.

The return of $5.8 billion to shareholders through shares repurchased and dividends paid, including a 33 per cent increase in the quarterly cash dividend to $0.50 per share for the fourth quarter – bringing the current annual dividend rate to $2.00 per share.

"2008 was a strong year for McDonald's," said chief executive officer Jim Skinner. "Through our strategic focus on menu choice, food quality and value, the average number of customers served per day increased to more than 58 million in 2008. Comparable sales and guest counts were positive across all segments for every quarter, and the Company delivered double-digit growth in operating income for the fourth quarter and the year. "

Announcing the results, Skinner said ''For 2009, we plan to invest $2.1 billion of capital to open about 1,000 new McDonald's restaurants and reinvest in our existing locations.''

The strong yearly results came despite a sharp 23 per cent decline in fourth-quarter net profit to $985.3 million from $1.27 billion, a year earlier, which included a large tax-related benefit. Fourth-quarter earnings per share at 87 cents, was above the expected earnings of 83 cents by analysts.

The consolidated operating income increase by 11 per cent (20 per cent in constant currencies) to $1.5billion from $1.35billion last year.

Revenue fell 3 per cent to $5.57bn from $5.75bn in the quarter that ended December 31. The company said it was hit by a stronger dollar in many foreign markets, including Australia, Britain, Canada and Europe.

However, global same-store sales rose 7.2 per cent. Same-store sales increased 10 per cent in the Asia/Pacific, Middle East and Africa markets, 7.6 per cent in Europe and 5 per cent in the United States.

The earnings per share was $0.87 compared with earnings per share of $1.06 in fourth quarter 2007, which included a 2007 net benefit of $0.33 per share related to certain tax items.

The company said its US business benefited from the addition of the southern style chicken biscuit and sandwich, improved service at its drive-through windows and the expansion of its McCafe specialty coffees.

Despite prices of beef, cheese and other ingredients rising, the company reported an 8 per cent fall in total operating costs and expenses. However, during the quarter these costs rose 10 per cent both in US and Europe, indicating that the company expects commodity prices to increase in 2009.

Sharp increase in cost of ingredients is likely to have an impact on the company's profit, inspite of McDonald having a franchise based business, which protects it from major cost hikes.

McDonald's has seen rise in its sales in the economic recession, mainly due its low prices and its large number of its outlets around the world. The company anticipates increased business flow in its fast-food restaurants as recession-conscious consumers will look for low prices food outlets.