McDonald’s Corporation (NYSE:MCD) beat analyst estimates for its fourth quarter, but the stock fell in the pre-market anyway.

President and CEO Steve Easterbrook called it a “strong year,” although for the quarter, sales, net income, and fully-diluted earnings were all down from a year ago.

Operating income was the only key metric in the black this quarter when you include the impact from the tax cuts, up by 9%, to $2.144 billion. But that is the key to the whole thing.

Analysts had been expecting $1.59 per share of earnings, while the company delivered $1.71. Analysts had been expecting $5.23 billion in revenue, the company delivered $5.34 billion. Same store sales growth had been expected at 4.3% but came in at 4.5%.

While the focus of reporting on the company today will be on its prices, or its market share, the real story is the turnaround Easterbrook is managing. Easterbrook is changing how McDonald’s operates and the process is still ongoing.

The History Of The McDonald’s Franchise

McDonald’s pioneered franchising decades ago. Back then Roy Kroc looked for couples who would be devoted to their stores, who would clean the parking lots and who would make sure every rule he laid down was followed, so every Happy Meal would be like any other, wherever you bought it.

The company later grew its top line by buying out franchisees, aiming to maintain uniformity and obedience to franchise rules.

But Easterbrook is changing the script yet again. He is re-franchising McDonald’s, this time looking for corporate entities that will be focused on both quality — as the first owners were — and on growth — as McDonald’s was when it was buying franchises back.

In 2015 Easterbrook CEO with the mission of turning around near-term results, but it turns out he had a long-term plan, and that plan is now bearing fruit.

The Math

Being a franchiser is a lot more profitable than being a franchisee.

Franchisees have a business to run, one over which they have limited control. They are at the mercy of their local markets, and they have a host of day-to-day problems to deal with.

Franchisers, on the other hand, make money rain or shine. They charge franchisees for supplies, for marketing and for just being in business. They look at the big picture, while the franchisees sweat the small stuff, and they bring more of their revenue to the bottom line, with more regularity, than any franchisee.  Selling franchises is also profitable.

Re-franchising means that corporate revenue declines, but it means profitability goes up. By seeking corporate owners, which will take dozens of stores at once, Easterbrook is also seeking partners that will understand both their roles and that of the larger company.

It’s the difference between a mom-and-pop store and, say, The Coca-Cola Co (NYSE:KO). Easterbrook’s “Vision 2020” plan, aimed at the top-line growth corporate franchisees seek, is alienating mom-and-pop franchises who are bearing the costs. 

But the latest quarterly results show the plan is working.

The Bottom Line For MCD Stock

The MCD fall following earnings is putting McDonald’s on sale.

When stocks go down, people look for internal reasons. Franchisee revolt, they may claim. Lower revenues, they may scream. Junk food, they will complain.

Ignore all that. Our Will Ashworth thinks the stock will hit $200 this year. He’s right. That’s a gain of 10%, but it’s also something that can be replicated for several years.

Steve Easterbrook has done more than turn McDonald’s around. He has taken what looked like a tired corporate platform and reinvigorated it, giving investors growth that should extend several years into the future.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.