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What Drove McDonald’s 1Q17 Revenue?

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Apr. 27 2017, Published 1:25 p.m. ET

Revenue sources

In an aim to optimize its operations, McDonald’s (MCD) has been refranchising its restaurants, and this effort caused the company’s revenue to fall 3.9% to ~$5.7 billion in 1Q17. During the quarter, company-owned restaurants generated 60.1% of MCD’s total revenue, while franchised restaurants made up 39.9%.

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Business segments

McDonald’s classifies its operations into the following four segments, based on characteristics and growth opportunities:

  • United States
  • International Lead Markets
  • High-Growth Markets
  • Foundational Markets (including corporate activities)

United States

In 1Q17, MCD’s United States segment generated ~$1.9 billion in revenue, which made up 34% of the company’s total revenue. Revenue from this segment fell 4.5% YoY (year-over-year) due to refranchising. The company operated 110 fewer company-owned restaurants YoY in 1Q17. However, some of these declines were offset by SSSG (same-store sales growth) of 1.8% and the increased number of franchised restaurants.

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International Lead Markets

This segment generated revenues of ~$1.6 billion in 1Q17, accounting for 29% of the company’s total revenue. Revenue from the segment fell 4.9% YoY due to a decrease of 135 company-owned restaurants YoY. However, its SSSG of 2.8% and an increase of 185 franchised restaurants YoY offset some of these revenue declines.

High-Growth Markets

In 1Q17, this segment’s revenue grew 6.6% from ~$1.4 billion to ~$1.5 billion. This revenue growth was driven by positive SSSG of 3.8%, the addition of 70 company-owned restaurants, and the addition of 253 franchised restaurants.

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Foundational Markets

This segment posted revenue of $566.2 million, which represents a decline of 20.6% from $713.3 million in 1Q16. The segment operated 393 fewer company-owned restaurants YoY, which led to the decline in revenue.

Peer comparisons

By comparison, Restaurant Brand International (QSR) posted a revenue growth of 9% for 1Q17, while peers Jack in the Box (JACK) and Wendy’s (WEN) are expected to post revenue growth of 2.4%, and -25.4%, respectively, for the quarter.

Below, we’ll examine McDonald’s 1Q17 SSSG in greater detail.

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