McDonald’s 4Q14 Earnings Call Notes

This post is part of a series of posts called “Company Notes.” These posts contain quotes and exhibits from earnings calls, conference presentations, analyst days and SEC filings. Full transcripts can be found at Seeking Alpha

Operating income down 15%

“In constant currencies, operating income was down 15% for the fourth quarter and 8% for the year. Earnings per share was down 14% for the quarter and 11% for the full year, both in constant currencies.”

Negative trends are beginning to moderate in Germany

“over to Germany; negative trends are beginning to moderate with the month of December marking the highest comparable sales performance in more than two years. ‘”

China recovering after supplier issue

“Fourth quarter comparable sales in China were negative 6.7% due to the lingering impact of the supplier issue. Each month of the quarter showed sequential improvements, reflecting the positive impact of our ongoing customer recovery efforts in the market.”

Broad based challenges in the US

“he underperformance of our U.S. business; throughout 2014, our results reflect the impact of ongoing broad-based challenges, including operating in an increasingly competitive marketplace and the sluggish industry growth.”

This is a market share game, it’s always going to be a market share game

“In the near-term, this is a market share game; it’s always going to be a market share game. So we trust and we expect to see a more customized approach from our owner operators in terms of owner operator-driven business plan locally, it’s based on the customer insights and the unique competitive sets in the marketplace.”

Low inflation plus higher min wage, healthcare expense going to hit operating margins by 20 bps

“Having said that, we are in a relatively low inflation environment, so pricing as I noted in my commentary, pricing will still be probably below our average if you assume the low inflationary environment continues. At the same time, multiple states are increasing minimum wages. We’ve got National Healthcare impacting 2015 for the first time. That’s going to hit the McOpCo margin for about 20 basis points.’

Margin pressure as variables don’t head in the right direction in 2015

“historically we’ve talked about a 2% to 3% — I’m sorry, 2% to 3% comp needed to maintain margins in the U.S., and again that’s been modeled in what we called a normal year. So when you have normal commodity inflation, normal price elasticity and ability to raise prices normal wage inflation et cetera. So a lot of those variables are a little bit out of whack for 2015. So the prices I already addressed we don’t see getting to our historical levels. Wages will probably grow a little faster than normal, especially if you throw in the healthcare impact of that. So again as we think about it, especially in this first half of the year U.S. margin will continue to be a little bit under pressure.’

Localization of relevant products, enhancing chefs

” we’re seeing this localization of what more locally relevant products that are being drawn or pulled from the marketplace as they get into the customer insights. We’re looking at building our culinary talent to support our talented U.S. chefs. We’re including our supplier team of chefs. We got some outside consultants who will bring a fresh and forward thinking perspective on our menu vision”

We have to make sure our definition of quality matches with our consumers

“We have to make sure that our quality aligns with the consumers’ definition of quality moving forward. So we’re going to be very aggressive in that area looking at — we’re working with our own operators to revise our product vision for a very different future, as led by the consumer from the provenance to the label ingredients, to the processes we use to bring the food from farm to table. We’ve opportunities to clean up our ingredient list and enhance the taste.”