McDonald’s (MCD, Financial) jumped after it reported third-quarter results.
It is the world's leading global foodservice retailer with more than 36,000 locations in over 100 countries. More than 80% of McDonald's restaurants worldwide are owned and operated by independent local business people. It is committed to driving long-term, profitable results while pursuing its goal of being recognized by customers as a modern, progressive burger company.
Restaurant stocks are booming, and this company is no exception. Perceptions have changed regarding the way people eat out. This company posted a good third quarter and is expected to create shareholder returns in the near future. The third quarter was also the fifth consecutive quarter of positive comparable sales across all segments as well as improved restaurant profitability.
Strong third quarter
The third quarter comparable sales increased by 1.3% in the U.S.
U.S. operating income for the quarter rose 8%.
Comparable sales for the International Lead segment increased by 3.3% for the quarter.
Third quarter operating income for the segment increased by 2% (5% in constant currencies).
Third quarter comparable sales increased 1.5% in the High Growth segment. The segment's operating income rose 8% (10% in constant currencies).
Third quarter comparable sales rose 10.1% in the Foundational markets.
Diluted earnings per share of $1.50 increased 7% (9% in constant currencies), which included strategic charges totalling 12 cents per share.
Operating income during the quarter was $2,137.3 ($2,030.3 in the prior-year quarter).
Revenues during the quarter were $6,424.1 million.
Earnings per share diluted was $1.50 during the quarter ($1.40 in the prior-year quarter).
Share repurchases and dividends
It returned $3.4 billion to shareholders through share repurchases and dividends. This brings the cumulative return to shareholders to $27.8 billion against targeted return of about $30 billion for the three-year period ending 2016. The company also announced a 6% increase in its dividend beginning in the fourth quarter.
(Source: Company’s website)
Focus
- International brand building.
- Developing more restaurants domestically and internationally.
- Cost curtailment.
- Increasing productivity.
- Improved operational efficiencies by eliminating waste in the system.
- Acting on opportunities to leverage scale and purchasing power.
Steps taken
Since customers now are more aligned toward healthy foods, McDonald's took steps to remove antibiotics from chicken. It has also started using cage-free eggs. It is leveraging its competitive strengths by rolling out iconic menu items that customers love. It is making efficient operational investments to get a globally well-diversified geographic footprint. It has cut down on the use of salt in its chips and burgers.
Sugary drinks are losing their importance among the consumers and so coffee holds a lot of room to be used as a substitute. The use of coffee has already escalated across the world. We all know McDonald's has had its McCafe in the industry for a long time now. This condition could create a favorable impact for McCafe.
Turnaround plan
It has already undertaken a turnaround plan that includes an accelerated pace of refranchising, cost savings and global restructuring. The company also has increased its leverage. It is making efforts to reduce costs and capital expenditures. The cost savings initiatives also depend upon its ability to achieve efficiencies through the consolidation of global, back-office functions.
Conclusion
There is a shift in consumer preferences these days, and customers are more informed and demand greater choice and variety when they dine out. McDonald's has come a long way and is constantly evolving to provide more high quality, inexpensive food and drink options and convenient solutions for customers on the go.
McDonald's operates in a highly competitive environment. It is facing the brunt of slowing restaurant industry trends in several key markets as well as ongoing competition from traditional, fast casual and other competitors, which may include many untraditional market participants such as convenience stores, grocery stores and coffee shops. In order to combat these, it is constantly developing new products and managing the complexity of its restaurant operations.
It is putting the customer at the center of everything and directing resources towards those innovations and investments that will strengthen its ability to produce a better McDonald's experience.
The third quarter success bears a testimony to the fact that it is making constant changes to cater to this dynamic environment. I think adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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