Europe is the biggest segment for McDonald’s Corporation, with more than 40% of its revenues derived from the region. Due to the European debt woes, the stock has slumped nearly 15% so far in 2012. However, we believe this situation is not as grim as the market is anticipating.
Firstly, due to the franchising nature of the restaurant chain (more than 80% of McDonald’s restaurants worldwide are franchised), the more accurate way of judging a region’s importance is its percentage contribution to operating profits or total franchisee sales. Since the franchisee sales by region are not available for McDonald’s, we consider operating profit. Due to a higher proportion of company-operated restaurants in Europe, the region’s revenue contribution is higher than its operating profit contribution. Read more.