McDonald’s Corporation (NYSE:MCD) released its earnings earlier this week, and simply put, they looked very good. After struggling to find its footing again in the “Fast Food 2.0” world, MCD stock is up 15% year-to-date, and it looks like the battleship is heading on a good course.
Earnings came in much higher than the Street expected and the much-followed same stores sales metric also rose. And net income was up 8% compared to the same quarter last year.
Bear in mind that while revenue rose, it’s still off almost 4% from the same quarter last year. And year-over-year sales growth has now been lower for seven consecutive quarters.
The turnaround is underway and there are positive signs it’s heading in the right direction, but there’s still some work to be done. Shares are up 26% in the past six months, which is quite a move for a stock some people thought wasn’t capable of making the transition to the new quality-focused fast food model.
But MCD has always been an innovator and after it was shaken from its torpor, it is showing once again why it’s such a force in the fast-food industry. With 36,000 stores in over 100 countries and sporting a $121 billion market cap, McDonald’s is rejuvenating its brand — and the choices it’s making seem to be paying off at the cash register.
Challenges Ahead for MCD Stock
Other good news in the earnings report was that non-U.S. sales are improving as well. Frequently, when the U.S. dollar is strong, like it is now, and local currencies are cheaper, once revenues are converted back into dollars, sales may not appear as robust as they are. The U.K., Canada, China and Japan all showed strong improvement.
This dividend aristocrat is a long-term investment, not a trade. McDonald’s is a steady grower and has raised its dividend every year for more than 40 years. Over the past decade, MCD stock has more than tripled the performance of the S&P 500.
The question in recent years was whether it could retain the top spot with competitors like Burger King and Tim Horton’s — both owned by Restaurant Brands International Inc (NYSE:QSR) — and Hardee’s challenging MCD’s burger business and Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread Co (NASDAQ:PNRA) nipping at its heels in burger alternatives.
McDonald’s market size is a moat in itself, but the competition is nimbler and usually less franchise driven, so it can pivot much quicker than Mayor McCheese and friends.
But it looks like McDonald’s has found a happy medium by going with its all-day breakfasts, $1 coffee and slimmed-down Mac Jr, as well trying out new programs for upgrading the beef on its iconic Quarter Pounder.
It will take more than these adjustments to stay viable, but MCD stock is showing that it’s up to the challenge.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.
