Business context and reporting period
Arcos Dorados Holdings Inc. operates and franchises McDonald’s restaurants in 20 Latin American and Caribbean countries and territories under master franchise agreements. This Form 20-F reports audited U.S. GAAP results for the fiscal year ended December 31, 2023, with comparisons to 2022 and 2021. It is an annual report, not a standalone fourth-quarter filing; the supplied text does not provide separate Q4 results.
At year-end, the system comprised 2,361 restaurants: 1,678 company-operated and 683 franchised. The company reported 2023 revenue of $4.332 billion; systemwide restaurant sales, including franchisee sales not recorded as company revenue, were $5.616 billion.
Financial performance and position
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $4,331.9 million | $3,618.9 million | +19.7% |
| Operating income | $314.0 million | $264.4 million | +18.8% |
| Operating margin | 7.2% | 7.3% | Down 0.1 percentage point |
| Adjusted EBITDA | $472.3 million | $386.6 million | +22.2% |
| Adjusted EBITDA margin | 10.9% | 10.7% | Up 0.2 percentage point |
| Net income attributable to Arcos Dorados | $181.3 million | $140.3 million | +29.2% |
| Basic and diluted EPS | $0.86 | $0.67 | +28.4% |
| Net cash from operating activities | $382.0 million | $345.4 million | +$36.5 million |
| Capital expenditures | $360.1 million | $217.1 million | +$143.0 million |
Revenue growth reflected higher traffic and average checks, restaurant additions, and local pricing. Systemwide comparable sales increased 34.6%; sales growth on a constant-currency basis was 37.6%. Currency movements materially affected reported results: management said depreciation, mainly in Argentina and Venezuela, reduced company-operated restaurant sales by $728.7 million compared with the prior year. Argentina’s peso depreciated 357.4% against the U.S. dollar in 2023, as reported in the filing.
Operating costs rose 19.8%, slightly faster than revenue. Food and paper costs increased 18.8% but declined to 35.2% of company-operated sales; payroll costs increased 18.1% and declined to 19.1% of those sales. Royalty fees rose 28.1% to $249.3 million, or 6.0% of sales, reflecting the scheduled MFA rate increase. Net interest expense and other financing results fell to $32.3 million from $43.8 million; derivative losses increased to $13.2 million. The effective tax rate was 34.4%, versus 37.8%.
Cash and cash equivalents were $196.7 million, down from $266.9 million; short-term investments were $50.1 million, bringing cash, equivalents and short-term investments to $246.8 million. Operating cash flow was more than offset by $380.3 million of investing outflows, principally restaurant and property investment. Cash declined by $70.3 million, including a $60.1 million adverse exchange-rate effect. Working capital was negative $236.4 million.
At December 31, 2023, the balance sheet showed $29.5 million of short-term debt and $714.8 million of long-term debt, including the current portion. Management cited total financial debt of $728.1 million including interest payable and net of a $23.7 million derivative fair-value offset; debt presentations differ because of this treatment. Principal senior notes outstanding were $379.3 million due 2027 at 5.875% and $334.2 million due 2029 at 6.125%. The 2023 notes were repaid at maturity. The company reported a 1.02x net indebtedness-to-EBITDA ratio and compliance with applicable financial ratios at year-end.
Material changes and management commentary
- Revenue, operating income, net income and Adjusted EBITDA increased, while operating margin edged down. Growth was driven by traffic and average-check gains, but reported U.S.-dollar sales were significantly affected by exchange rates.
- Systemwide restaurants increased by 49 net to 2,361. The company opened 81 restaurants and closed 32; it also reimaged 241 existing restaurants.
- Capital spending increased substantially to $360.1 million. The company said the 2022–2024 growth and investment plan calls for at least 200 new restaurants and modernization of at least 400, with approximately $650 million of capital expenditures over the plan period.
- Digital channels accounted for 50% of systemwide sales, or $2.8 billion, in 2023. Management cited continued growth in delivery and drive-thru, alongside recovery in dine-in and other restaurant channels.
- Management said operations and profitability reached record highs in 2023. It expects ongoing effects from inflation, exchange-rate volatility and currency controls; the filing provides no specific 2024 revenue or earnings guidance.
Outlook, risks, contingencies and unusual items
- Franchise agreement dependence: Rights to operate McDonald’s restaurants depend on the MFAs, whose initial term runs through August 2, 2027. Any extension is at McDonald’s discretion and is not assured. The agreements impose investment, operating, financial-ratio and other requirements; material breach can trigger termination or McDonald’s acquisition rights.
- Investment and royalties: The 2022–2024 plan requires substantial openings and reinvestment. McDonald’s growth support is conditional on compliance; the company expects an effective royalty rate of about 6.0% of sales in 2024.
- Macroeconomic and currency exposure: Local-currency revenue, U.S.-dollar debt and imported inputs expose results and cash flows to devaluation. Argentina’s exchange controls restrict access to foreign currency and cross-border remittances; inflation, price controls and further currency restrictions could affect margins, liquidity and the ability to move funds.
- Debt and liquidity: The company relies partly on non-committed credit lines, which may be withdrawn or repriced. Debt agreements restrict certain actions and include covenants and events of default. Management reported compliance at year-end; the JPMorgan $25 million revolving facility was renewed in February 2024 to mature in February 2026.
- Contingencies: The recorded provision for contingencies was $59.2 million before judicial deposits; the net balance was $50.6 million. The filing also identifies reasonably possible losses of $511–$576 million for certain tax, customs, labor and civil matters, and $250 million of potential challenges relating to interpretation of income-tax laws for 2009–2017. The filing says no formal claim had been made for the latter matters; outcomes and timing remain uncertain.
- Other operational risks: Key exposures include food and labor cost inflation, supply interruptions, competition, food safety, labor disputes, cyber and data-protection incidents, severe weather, social unrest, and legal or regulatory changes. The company reported no cybersecurity threat in 2023 that materially affected or was reasonably likely to materially affect its business, but said undetected incidents cannot be ruled out.
- Sustainability-linked notes: The 2029 notes may step up from 6.125% to 6.250% or 6.375% beginning May 2026 if specified 2025 emissions targets are not met or externally verified. The company’s 2023 filing does not establish whether those future targets will be achieved.
- Dividends: The company paid $0.19 per share for 2023. In March 2024, it declared $0.24 per share for payment in four installments, subject to the company’s legal, liquidity and debt requirements.
Investor verification priorities
- Separate underlying sales and comparable-sales growth from inflation, pricing and currency translation effects, especially in Argentina and Venezuela.
- Track operating margin, food and labor costs, and the higher McDonald’s royalty burden against continued growth in revenue and Adjusted EBITDA.
- Assess returns on the elevated capital program and the resulting effect on cash, working capital and debt; verify progress against the 2022–2024 opening and modernization commitments.
- Monitor Argentina’s exchange controls and the company’s ability to remit cash and service obligations, as well as liquidity available from committed versus non-committed facilities.
- Review MFA renewal developments before the 2027 expiry, covenant compliance, and the conditions attached to McDonald’s growth support.
- Follow developments and potential financial exposure in the disclosed tax, customs, labor and civil matters, including the distinction between recorded provisions and reasonably possible losses.
- Verify progress toward the 2029 notes’ sustainability performance targets and the related interest-rate step-up risk.