Burger behemoth McDonald’s Corporation expects Q1 2002 earnings per share to be US$.29 – US$.30 excluding the charges noted below.
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Jack Greenberg, chairman and CEO noted: “Based on expected Q1 results and our outlook for the year, we expect annual earnings per share to be toward the lower end of our previously announced range of US$1.47 – US$1.54 in constant currencies*, excluding the charges noted below. If foreign currency exchange rates remain where they are today, we expect annual 2002 earnings per share to be negatively impacted by about 2 cents. In the Q1, we expect the per share currency impact to be neutral to negative one cent.”
The company expects to record a Q1 non-cash charge of approximately US$45m, pre and after tax (US$.03/share), primarily related to the impairment of assets in Latin America and the closing of 32 underperforming restaurants in Turkey, as a result of continued economic weakness. Including this US$45m charge, are expected Q1 earnings per share of US$.26 – US$.27, before the cumulative effect of the accounting change described below.
McDonald’s is required to adopt SFAS No. 142, “Goodwill and Other Intangible Assets”, effective 1 January 2002. SFAS 142 indicates that goodwill will no longer be amortised but will be subject to annual impairment tests. In 2001, amortisation of goodwill was about US$30m after tax (US$.02/share). The elimination of goodwill amortisation to benefit 2002 net income by a similar amount.
As a result of initial goodwill impairment tests, Greenberg noted that the company expects a non-cash charge of about US$100m after tax (US$.08/share), in the Q1 for the cumulative effect of this accounting change. The impaired goodwill is primarily in Latin America, where economies have weakened significantly over the last several years.
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By GlobalDataMcDonald’s systemwide sales for the first two months of 2002 were US$6.2bn, up 3% in constant currencies over the same period last year. Sales should improve as the year progresses and constant currency sales are expected to increase 6 – 7% for the year.
Greenberg added: “Our European business is performing well. European sales increased 8% for the first two months of the year in constant currencies. We are pleased with the progress in Europe and expect high-single digit increases in this segment’s constant currency sales and operating income for the Q1.
“For the year, Europe’s constant currency sales are expected to increase in high-single digits while constant currency operating income is expected to increase in high-single to low double-digits (excluding special charges of US$45.8m in 2001).
“In the US, sales grew 3% for the first two months of 2002. We believe our US initiatives will drive the business forward, and expect sales to increase in the low-single digits for the quarter, and mid- single digits for the year as we gain momentum.
“In the Q1, we expect US operating income to decline in the low to mid-single digits, as a result of about US$22m of payments to owner/operators to facilitate the introduction of a front counter team service system. Excluding these payments, we expect US operating income to increase in the low-single digits for the Q1. For the year, we expect US operating income to increase in mid-single digits (including the US$22m of payments to owner/operators in 2002 and excluding special charges of US$181m in 2001).
“Sales in our Asia/Pacific/Middle East/Africa segment (APMEA) continue to be affected by weak economies in several markets. In addition, concerns about the safety of Japanese beef continue to impact sales, even though McDonald’s Japan only uses beef from Australia and New Zealand. APMEA’s constant currency sales declined 2% for the first two months of the year. In the second half of the year, we expect improvement in this segment as we are hopeful consumer concerns in Japan will ease and we face easier comparisons.”
In Latin America, which continues to be affected by weak economies, constant currency sales declined 3% for the first two months of the year. Constant currency sales in Canada increased 2% quarter-to-date. Partner Brands’ sales increased 11% quarter-to-date, primarily due to expansion and positive comparable sales.
* Information in constant currencies excludes the effect of foreign currency translation on reported results, except for hyperinflationary economies, such as Russia, whose functional currency is the US Dollar.
Constant currency results are calculated by translating the current year results at prior year monthly average exchange rates.
