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McDonald's Stock (MCD) Rise on Strong Earnings Report

McDonald’s shares (NYSE:MCD) rose sharply yesterday soon after it announced strong sales thanks to its all-day breakfast and new menu items. The financial results for the quarter ending march 31st was positive enough for MCD to increase 5.57%, ending the day at $141.70 per share. Operating income is up 14% over the same quarter from a year ago. Operating income, sometimes also known as operating profit, is an accounting figure that measures the amount of profit realized from a business’s operations before factoring interest and tax costs. McDonald’s net income is up 8%. And the EPS is 18% higher than a year ago. The largest surprise was that domestic same-store sales growth went up 1.7%, versus an expected decline of 0.8%. All of these figures amount to an overall sense of investor confidence for the chain restaurant.

All-day breakfast and new sizes for its iconic Big Mac helped increase McDonald’s sales in the United States alone by 1.7%, the company said. The new burgers introduced are a variation of the original. The new Mac Jr. is made with one 1/6 pound beef patty. And the new Grand Mac offers two 1/6 pound beef patties, making up a total of 1/3 lb of meat in one burger. Although the number of visits declined 2% in 2016, the company has managed to turn its total sales around and is starting to grow its top line again. The Big Mac roster expansion is the latest step in a menu revamp intended to win over new customers as well as lure back past patrons. There are now more ways to enjoy the classic taste of a Big Mac.

McDonald’s reported adjusted earnings per share of $1.47, which beats the expected result by about 10%. Its revenue also beat expectations coming in at $5.68 billion. According to Thompson Reuters, the company was expected to earn only $1.33 EPS on $5.53 billion in total sales. McDonald’s said it benefited from changes to its menu. During the quarter, McDonald’s not only rolled out some new sizes of its classic Big Mac, but it also offered $1 soft drinks and $2 McCafe beverages. Furthermore, it expanded its All-Day Breakfast offerings as a way for customers to enjoy breakfast items any time. Another bold move the company is trying is selling its special sauces in grocery stores.  

The President and CEO of McDonald’s, Steve Easterbrook says, “Our efforts to build a better McDonald’s are yielding meaningful results with continued positive momentum and a strong start to 2017 that includes positive comparable sales across all segments, higher global guest counts and enhanced profitability. There’s a sense of urgency across the business as we take actions to retain existing customers, regain lapsed customers and convert casual customers to committed customers. We’re continuing to build a more personalized and enjoyable visit, which delights customers with the taste and quality of our food and offers the highest level of convenience, in order to gain traffic in an increasingly competitive industry and deliver profitable growth for our System and shareholders.”

Several years ago McDonald’s lost 500 million visits. But it would appear that things are turning around for the company now. MCD has also been working on restaurant renovations, and installing digital order kiosks. The company is working hard on both defense and offense. It’s finding ways to increase revenue with new products and diversified distribution models. While at the same time its decreasing its expenses by using computers and machines to take customer’s orders instead of hiring workers.

McDonald’s is the world’s leading global food service retailer with over 36,000 locations in over 100 countries. Approximately 85% of McDonald’s restaurants worldwide are owned and operated by independent local business men and women.

This author holds 40 shares of MCD as of writing this post.

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