In many ways McDonald’s is a barometer of economic activity in many areas of the world. It is intrinsically linked to local economies and economic activity so the latest quarterly figures were much anticipated. The third quarter saw earnings per share slightly less than expectations at $1.76 against a forecast $1.77. However, revenues beat estimates of $5.7 billion coming in at $5.8 billion and same store sales growth in the US hit 4.1% against expectations of 3.6%.
Long-term rebranding
There is no doubt that McDonald’s is in the midst of a long-term rebranding programme away from fast foods, although they will always play a major role, towards more healthy options and promotions. We know from accompanying comments with the third quarter results that promotions were behind the increase in same-store sales and this is likely to continue for some time to come.
The company is serving more customers, more often with a significant focus on long-term off-site delivery; there are plenty of opportunities to grow the business. In all honesty there has been a growing momentum behind the company during 2017 after a restructuring of the group saw a number of properties involved in sale and lease back arrangements (although others have been brought back in-house).
Shares up 34% in 2017
We know that the US stock market has performed admirably since Donald Trump’s inauguration but a 34% increase in the McDonald’s share price in the calendar year is impressive. At a time when technology companies have grabbed the headlines it is interesting to see a basic bricks and mortar company beating market expectations.
As we touched on above, the company has high expectations of its off-site delivery operation with transport partner Uber. Even though the challenges facing Uber’s traditional taxi service have been splashed across the mass media the company has been building up a very interesting relationship with McDonald’s. This type of delivery service has not been rolled out across the company’s entire portfolio but if, as has proven so far, it is successful then it will certainly become more available.
The future
When you are a company the size of McDonald’s it is difficult to find expansion opportunities which tie in with the underlying operations. Who would have thought the company would have been shifting towards more health-conscious menus and a range of drinks with less calories/sugar?
While the McDonald’s we see before us today has changed little on the surface there has been an awful lot going on behind-the-scenes. A reposition of the company’s real estate portfolio, the repurchase of successful branches and the roll-out of new menus and new services have changed the prospects for the future. Even though Uber is currently under something of a cloud, with internal issues in the spotlight, the partnership with McDonald’s is going from strength to strength.
Balancing your portfolio
Seen as a dinosaur of the stock market, who would have thought McDonald’s management could push through such a major change in the company’s menu, services and reputation. The long-term emphasis will always be on fast food but the introduction of healthier options is going down well with customers and politicians alike.