McDonald’s Corporation (MCD): Why I Like It

This is one of those companies everybody has an opinion on. You may love it. You may hate it.  But you definitely can’t ignore it. I am talking about McDonald’s Corporation (NYSE:MCD), the huge fast food chain, made famous by its quintessential burger.

It recently posted its latest quarterly earnings, missing expectations by a penny, and its shares declined by 2%. But wait- that isn’t all you need to know! Here’s the big picture:

Ups and downs

In its last quarter, McDonald’s Corporation (NYSE:MCD) consolidated revenues increased by 1% to $6.6 billion. Net operating income remained unchanged at $1.27 billion. McDonald’s earnings per share are up $0.03 to $1.26 as compared to the year ago quarter.

Globally, McDonald’s Corporation (NYSE:MCD) comparable sales fell by 1%. The company’s US comparable sales also declined by 1.2% year on year while operating income went down by 3%. However, McDonald’s recent initiatives such as new items in its menu, store restructuring, and success of its Dollar Menu paid out. Despite the decline in sales and income, McDonald’s market share in the US actually went up in the last quarter.

In Europe, sales suffered due to the prevailing economic turmoil. Comparable sales declined by 1.1% from the previous year. Operating income was up 1%, driven by sales in Russia and UK. McDonald’s plans to increase its market share in the region by expanding its store network, increasing working hours, and offering new and improved products.

Once upon a time in China

Recent slowdowns in China and Japan have affected McDonald’s sales in Asia Pacific, the Middle East, and Africa.

Comparable sales fell 3% and operating income 1% from last year. It seems like the Golden Arches didn’t have much to gain from Yum! Brands, Inc. (NYSE:YUM)‘ recent fallout in China. Yum! Brands, Inc. (NYSE:YUM)-owned KFC was involved in a health scare in China, followed by a bird flu scare. As a result, Yum! Brands, Inc. (NYSE:YUM) posted a 6% decline in its comparable sales in China in the last quarter. Yum!’s quarterly operating profit in both China, as well as the US, fell by 5%.

The young ‘uns

In the face of sluggish global demand, weak consumer confidence, and a payroll tax hike, McDonald’s Corporation (NYSE:MCD) first quarter numbers look pretty good, considering. They show that the world’s biggest burger chain has its game sorted out.

However, all is not as hunky dory as it seems. McDonald’s does, for instance, need to redefine its image and adopt the more popular “fast-casual “style followed by, say, Chipotle Mexican Grill, Inc. (NYSE:CMG). This is if it wants to woo the new generation of fast food eating crowd. Cheap, as McDonald’s offerings are, will always remain in demand. The question worth asking, is “will it suffice?” Sadly, the answer is no. McDonald’s must, in order to maintain its position in the market, tweak its original business model (cheap and greasy value food) to increase its profit margins.