McDonald's Corp. 'BBB+' Rating Affirmed On Improved Liquidity Assessment; Outlook Stable

  • Chicago-based quick-service restaurant (QSR) chain McDonald's Corp. currently generates robust free operating cash flow in the $5 billion to $6 billion range annually, by our estimates, and we expect further strengthening to over $7 billion annually in the coming two years as menu and technology initiatives grow market share globally.
  • As a result, we revised our liquidity assessment to strong from adequate, incorporating availability under McDonald's $3.5 billion line of credit.
  • We affirmed all of our ratings, including the 'BBB+' issuer credit rating, on McDonald's Corp.
  • The stable outlook reflects our expectation that the company will continue to execute its operational plans to renovate its U.S.-based stores and focus on delivery and moderate technology investments over the coming year.
NEW YORK (S&P Global Ratings) April 5, 2019--S&P Global Ratings today took the 
rating actions listed above. Our ratings on McDonald's Corp. reflects its 
leading global position in the QSR segment and our expectation that the 
company's operating performance will continue to improve in the next 12 month. 
Specifically, we expect benefits from store image remodeling and a focus on 
improved ingredients to drive positive traffic growth in the U.S. We also 
believe McDonald's will use its solid free operating cash flow to maintain 
stable credit metrics in line with recent levels, including lease-adjusted 
leverage close to the mid-3x range and funds from operations (FFO) to debt in 
the 20% area. We do not expect material changes to capital allocation plans 
through 2019, which include significant share repurchase activity. 

S&P Global Ratings' stable outlook on McDonald's Corp. reflects our 
expectation that the company's recent turnaround efforts will continue to 
drive positive U.S. guest counts and strong global comparable sales in the 
coming year. We also think results will benefit from cost reductions, and 
believe McDonald's will continue to prioritize allocating capital to 
shareholders, even as it executes on new strategies to improve operations in 
key markets.

We would lower the rating if McDonald's increases its return of capital to 
shareholders materially beyond its currently planned levels while experiencing 
limited improvements in traffic during the next year or two.

One scenario leading to a lower rating would be weak comparable sales in the 
U.S. and an incremental debt of more than $3 billion for shareholder returns 
above our expectations. This scenario would push leverage up toward 4x and 
lead us to remove the positive comparable rating analysis modifier, given a 
more aggressive financial policy and less cash available for debt repayment 
and investment in the business as compared to peers.

Longer term, a higher rating is unlikely even if the company's operating 
momentum continues to gain traction with consumers, which we expect. This is 
because we believe the company will remain focused on returning capital to 
shareholders in the coming two years.
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