McDonald’s just unveiled its plans for 2016.
At its big investor meeting on Tuesday, McDonald’s CEO Steve Easterbrook announced that the company would look to “re-franchise” another 4,000 of its restaurants and that the company would not pursue a REIT structure.
Ahead of the announcement, shares of the company were halted for trading.
After resuming trade near 1:40 p.m. ET, the stock was up as much as 1.1%.
As for financial updates, Easterbook said the company’s board has authorised a 5% increase in its quarterly dividend.
Easterbook added that McDonald’s now plans to return $US30 billion to shareholders for the 3-year period ending 2016. This is a $US10 billion increase from the company’s previous capital return target, and Easterbook said McDonald’s would fund most of this increase with debt.
For the three-year period ended in 2013, the company returned $US16.4 billion to shareholders.
In 2016, the company expects same-store sales to rise 3%-5%, operating income to grow 5%-7%, and expects capital expenditures to total $US2 billion. The company detailed its financial plan in a press release, which you can find here.
Re-franchising restaurants means the company will look to sell locations that are currently company-owned and sell them to a franchisee that operates the restaurant and pays a royalty to McDonald’s.
McDonald’s chief administrative officer Pete Bensen added that the company plans to be 93% franchise — meaning third-parties would operate all but 7% of the company’s restaurants — by the end of 2018. Over the long term, the company wants to be 95% franchised.
A REIT structure would have seen the company spin-off its real estate holdings into a separate entity.
REITs, or real estate investment trusts, are entities designed to control a company’s real estate assets and pay out a significant dividend based on these assets’ income streams (i.e. rent), and capital appreciation (or the value of the building increasing).
Bensen said that while the company’s board “thoroughly evaluated” the possibility of spinning its real estate holdings into a REIT, the board decided the plan posed a number of risks, including recent commentary from the IRS regarding its tax treatment of proposed REIT structures.
The most recent news out of McDonald’s came late last month when the company reported third-quarter earnings that beat expectations as US sales rose 0.9%, the first increase for the company’s US sales in two years. Shares of the company gained 8% following this news.
We’d note that last month, Walmart shares fell about 10% as company executives spoke at an investor meeting in which the company warned that profits would decline in the coming years.
And so while it remains to be seen how the market takes McDonald’s news on Tuesday, the company seems eager to avoid any massive stock move akin to what Walmart dealt with last month.
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