Thursday, July 25, 2013

Earnings Commentary: MCD (McDonalds)





Source: Google Images
I have to admit this post may be a little bias as I am a big fan of MCD stock. I see it as a stable, long term investment with healthy returns over time. I am particularly obsessed with their hefty dividends which have been on the rise since 1977. I repeat: MCD has been increasing their dividends at least once per year since 1977! The current dividend yield for MCD is 3.18%, or $3.08 per share annually (source: dividend.com)-- Which means that every three months they pay me depending on the amount of shares I currently own – this is regardless of whether or not the stock price appreciates or depreciates.

On that note, I have to report that MCD announced second quarter earnings this past Monday and they were not up to analyst’s expectations. They missed on top and bottom lines by a small margin but it was a miss nonetheless and Wall Street doesn’t like that. Hence, by the end of the day Monday share price for Mickey-D’s had gone down slightly. As you may know, MCD is an international company. It really hit home how “international” it is during an overnight stay in Cusco,  Peru back in December 2010 (I was on my way to Machu Pichu with some great friends). Well, let’s just say Cusco is a very random town at the top of a mountain and the phrase “middle of nowhere” doesn’t even come close to how I can describe this. Well, guess what--- right in the middle of that cute little town up in the mountains of Peru was a very nice Mc Donald’s and I could not help but smile at they way American Businesses thrive everywhere!

 (actual photo! thanks google images)

Sorry to get off topic but the point of the above is to say that for this 2nd quarter MCD announced that 70% of their earnings came from outside of the US!--Which is kind of a fun fact. Always, sales were a little sluggish in Europe, Asia pacific and other areas of the world which took a hit on their bottom line.
As any company out there, MCD executives have to find “creative” ways to remain competitive. One of the ways this is done is by cutting costs in their operations in order to save money and transfer those savings to earnings. However, there is only so much ‘cutting’ they can do and they have to find other ways such as creating new products for customers and/or boosting advertising of new and existing products. Lets just say these past three months were obviously not that great on their mission to beat earnings.
Also—remember that competition is always alive and well and they are not the only fast food place in this world. Besides other similar restaurants like Wendy’s or Burger King, MCD also faces the competition of ‘healthier alternatives’ for the consumer such as chipotle and Panera.  

Well, guess what—regardless of their less than favorable announcement I still feel strongly about this amazing company which was in existence wayyyy before I was born and will likely be here long after I leave this wonderful world. Hence, I remain long on Mickey D’s and look forward to their next quarter results. They have not disappointed me.
Price per share on Friday 07/19 (before the earnings report): $100.27
Price per share at the closing bell on Monday (after earning report): $97.58
Price per share as I type this: $96.94

Thanks for reading! Next time you are sitting at MCD eating a burger and fries remember that it is more than a burger--- is a corporation and whether you are getting something off the dollar menu or at regular price, you are contributing to that company’s bottom line. Now you have something productive to chat about with your friends while you chow down that burger.

I leave you with this cool photo of different MCD locations around the world:



Source: Google Images
Additional Sources: Market Foolery Podcast 07/22

Question: Would you invest on a company like MCD? Why or why not?
Disclaimer: I currently own shares of MCD.