Arcos Dorados Holdings Inc.

McDonald's master franchisee for Latin America with brand-driven returns well above sector, weighed down by currency and country risk plus high leverage.

Strengths

• ROE 27.5% (72nd pct), ROIC 15.2% (76th pct) and interest coverage 26.7x (100th pct)
• Durable McDonald's brand, scale across the region and rising earnings (+43%) with a strong cash position (87th pct)

Risks

• High leverage (D/E 1.46, 86th pct) and dependence on the MFAs, which McDonald's can terminate on material breach
• Heavy exposure to Argentine/Brazilian currency devaluation, exchange controls and expropriation risk

Notable findings

• Customer concentration~63% of revenue from one customer/distributor — $ 212,116 $ 148,759 $ 181,274 Plus (Less): Net interest expense and other financing results 13,660 47,238 32,275 Loss (Gain) from derivative instruments 3,078 (941) 13,183 Foreign currency