Filed under: Earnings reports, Good news, Management, Consumer experience, Competitive strategy, McDonald's (MCD)
As expected, McDonald's Corp. (NYSE:MCD) posted strong fourth quarter results. The market, however, seemd to react to the company's annoucement that it plans to invest $1.9 billion this year on opening new stores and revamping existing ones. Investors always react negatively when a company says it plans to put money back into the business.
9:30 a.m. -- I log onto the site for the call which features a picture of a salad. I know they are big sellers but has anyone actually seen anyone at McDonald's order a salad. Maybe I go there at the wrong times. Then I quickly realize that I am there one hour too early. I immediately secure a cafeinated beverage to wake up.
11:30 a.m. -- The call actually is starting. It's a pity since I am digging the bouncy, upbeat jingles. Finally, a company knows how to program hold music. There are pop, hip-hop and Spanish language versions of the jingle. Darn, it's over
11:31 a.m. -- Usual disclosures.
11:35 a.m.-- CEO Jim Skiner. I am pleased to report that 2006 was an outstanding year for McDonald's., Our revenues reached record high. We returned 5 billion to shareholders. Total shareoholder return was 35 percent. "As I said, an outstanding year."
Plan includes financial discipline. Strategy is growing by not just getting bigger. This year, we plan to open 800 new restaurants. 200 US., 150 Europe, 375 Asia. Invest $1 billion in existing restaurants. Our committment is to return at least $10 billion to shareholders. Our plan to win will continue to be operational roadmap.
Continue to add new menu items at breakfast and in chicken sandwiches in US.
1137; IN china. our key growth market. We have the most menu choices amongst our menu set. The drive through is abssolutely critcal to our long-term development. We'll also market breakfast nationally.
.. Our system has never been more alligned. McDonald's is a system that succeeds because we are a franchising org., We are committed to right balance of franchises versus owners.
Matthew Paull, CFO
Clearly we've reached a point where customers and investors agree that McDonalds is better. HIghest operating margins since 2000. US margins were up 30 basis points. The US fourth quarter margin increasis is especially meangingful because there was profit sharing in the year earlier period.
11:41. I can assure you that G&A control is a high priority for the management team. Total shars acquired in 06 were 98 million.
Lookin. The headwinds created by our old compensatipn programs (options) aren't nearly as strong. The company is granting fewer options.
We expect future buybacks to yeiled a meaningful decline in share count because of fewer options.
IN each of our major market in which the legal market is conducive to ranchises., They want less than 30 percent tob ecompany owned. More franchises in U.K. and Canada.
Licensing,
Given our menu . Beef and Chicken are clearly the primarily drivers. The company sees beef down, Chicken up in US, both up in Europe.
"WE are determined to get better at being better at everything we do." Gosh that's vague.
11:47. UBS Congrats. Why do analysts do that? It's annoying. Asks questions about UK market.
Paull: We do see positive signs In Europe.
Goldman: Development license agreements. Timing of agreements? IS the proceeds included in the $5 bln returned to shareohlders
Paull: Have'n't figured out what to do with the proceeds. WE are very, very confident that we will get this done.
"We''re not going to get into specifrics"
Citi: Latin America., company units. Why more company stores in Latin America?
MCD: We had some litigation with our franchiesses .We are through all of that now. We are doing a lot better in Latin America. Our margins improved dramticaly down there.
BofA: Menu price increase going into 07? Competition for breakfast?
Skinner: Breakfast. We're the clear leader. WE are very very proud of our breakfast items. Our delivery at breakfast will continue to improve. WE are focussed on it.
CFO: We've tried to raise prices at slightly below food away from home . If you look at 07, food away from home index, 3.6, slightly ahead from 2006. Certain restaurant companies want to get ahead of minimum wage pressure
For the last four years, when we raised prices to recover prices. saw guest count rise, "speaks to power of brand."
Bear: Plans for Coffee in 2007? US Minimum wage increase, any cost pressure?
Skinner: We have a number of thing in test that include speciality coffees, premium burgers. Breakfast burritos. The coffee has done very, very well for us.We are looking at the potential for speciality coffee in 07, Obviously, we will continue to. There is always going to be some pressure when the minum wage increases., We are paying above the minimum wage now. We don't expect to have a huge pressure with this. MCD pays above minimum wage
Lehman: Debt level?
CFO: WE are about 8.5 bln at the year end. expect to stay there. the average cash balance in 096,
Wachovia: POS system. Improvements?
Skinner: Yes there have been improvements . We still have huge upside potential. We've improved on the accuracy and yet we are not there. WE won't be satisfied. We've made progress but we continue work hard on this. It's a journey not a destination.
CFO: AT the end of 06. POS was in 7,000 in US. Most weren't in US.
Oyster Capital: Extended hours?
CFO: We're very happy with extended hos in the US, Now its expanding to other geographies. We're very satisfied with the margins that we get. The strategy is starting to spread to Asia.
CIBC: How many countries have above 30 percent corporate program?
CFO: Not many are like UK and Canda. Franchising laws and China and Russia aren't there
DB: traffic pickup because of ecoli scare
CFO: Mcdonald's looked into this and found no effect.,
MS: Gift card activations?
Skinner: Had an uptick. Had more sales of giftcards this year. Don't record them until they are spent. We expect them to be better.
Paull: WE adopted this better not just bigger. Internally, we had doubts ourself. WE ar efairly convinced that it is right for us. The specifics. WE are basically goign to be putting our money where are mouth is.
Skinner: Right peoiple are in the right place.,
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Yesterday's 
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Coffee served at Starbucks Corp. (NASDAQ: SBUX) locations in the American West and Northeast will 
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