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McDonald's selling its Russia business won't pummel profits: analyst

McDonald's (MCD) unloading its operations in Russia in the wake of the country's devastating war on Ukraine may not deal a huge blow to the restaurant chain's bottom line.

The Golden Arches has 950 plus units in Russia that remain temporarily closed. The store base represents about 2% of McDonald's system-wide sales, calculates Jefferies analyst Andy Barish. Looking further, McDonald's Russia business hauls in roughly $2.25 billion of the company's annual sales, but only represents about 3% of its operating income, per Barish's calculations.

The relatively small ratio on operating income reflects a high mix of company-operated locations — which carry higher costs for McDonald's — in the country.

Barish estimates McDonald's generated $275 million in operating profits from Russia last year, resulting in an 11% to 12% margin for the market. That is below the international market more broadly for McDonald's of 18.7% last year and a 20% range historically for the segment.

A sign with the logo is on display near a McDonald's restaurant in Moscow, Russia May 16, 2022. REUTERS/Evgenia Novozhenina
A sign with the logo is on display near a McDonald's restaurant in Moscow, Russia May 16, 2022. REUTERS/Evgenia Novozhenina

McDonald's last year generated $23.2 billion in sales and north of $10 billion in operating profits.

The restaurant giant said Monday that after 30 years operating in Russia — an arrival that came with much fanfare in the country — it would exit the Russia market entirely. The move follows a decision by nearly 1,000 companies to curtail operations in Russia, according to the Yale School of Management. The move by the Golden Arches came amid intense pressure on corporations to exit Russia.

McDonald's has started a process to find a buyer for the restaurant assets. The fast food company said it would incur a non-cash impairment charge of $1.2 billion to $1.4 billion on its Russia assets.

The company reiterated its full year financial guidance, excluding the decision on Russia.

"We applaud the management and Board for making a values-based decision in line with ESG principles! The financial impact should be relatively modest and to some extent has already been discounted by the market," Barish said in a note to clients.

The long-time restaurant analyst reiterated a buy rating on McDonald's with a $306 price target.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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