Bill Cara

McDonald’s (MCD) is a solid core holding for Maverick Investors.

August 14, 2013

As I set up a lifelong portfolio for novice investors, selecting only from blue-chip Dow 30 companies, I hadn’t initially chosen McDonald’s. Then, in my research, I discovered that from August 13, 2013, through August 11, 2023, the Company posted the eighth-best Average Annual Total Return in the past ten years. I decided there was no reason not to have MCD as a core holding.

Notes from the 2Q2023 Earnings Report for McDonald’s (MCD):

  • McDonald’s continues to focus on multiple strategies to increase revenues despite global economic challenges.
  • Strong year-over-year revenue gains in the first half of 2023 across domestic, foreign, and developmental licensing markets.
  • Marketing efforts, including the return of the Grimace character, contributed to positive drivers like customer traffic, pricing, store upgrades, and menu enhancements.
  • Comparable-store growth eased slightly due to inflation’s impact on consumer budgets; management warned of slower growth in the second half of 2023.
  • Menu improvements, especially in chicken offerings, store openings, delivery expansion, and digital mobile ordering adoption expected to support top-line growth.
  • Estimated revenue improvement of 10% to $25.5 billion in 2023, with a gain of 6% to $27.0 billion in 2024.
  • Inflation is impacting margins, particularly in Europe, but management is focused on offering value and supporting franchisee productivity via technology.
  • Positive share earnings momentum, with adjusted per-share earnings expected to advance 16% in 2023 and 6%-7% in 2024.
  • McDonald’s provides steady total returns, with cash flow generation and debt financing aiding international expansion and market share growth.
  • Share buybacks, dividend hikes, and steady stock price appreciation reward investors.

The 1Q2023 MCD Report:

  • Revenues are increasing as COVID-19 cases decline, especially in China, which has reopened as an important market.
  • Global comparable-store sales are projected to rise in the low-double-digits in 2023, driven by volume, selective price hikes, and an enhanced menu.
  • Careful expansion of store count and support for franchisees, along with digital ordering and delivery, contributing to top-line growth.
  • The strong US dollar previously restrained franchise revenue growth, but the impact is expected to lessen.
  • Estimated consolidated revenue increase of 5%-6% to $24.5 billion in 2023, with a further gain of 6% to $26.0 billion in 2024.
  • Management-led initiatives, including international expansion, improved service and ambiance, and process standardization, helped offset elevated expenses.
  • Expected share earnings growth from $10.10 in 2022 to $11.25 in 2023 and $12.00 in 2024.
  • Positive share price trend, historically reliable rising total returns, solid financial strength, and limited risk profile.
  • McDonald’s ranked 1 for Safety, indicating high financial strength and price stability.

Comparing the last two quarters:

  • Both quarter reports highlight McDonald’s strong revenue growth driven by various factors, including menu enhancements, pricing, and digital initiatives.
  • Both reports note the reopening of important markets, such as China, as a significant contributor to growth.
  • The 2Q2023 report mentions easing comparable-store growth due to inflation, while the 1Q2023 report focuses on declining COVID-19 cases.
  • Both reports discuss management-led initiatives to support growth and improve operations.
  • The 2Q2023 report emphasizes the impact of inflation on margins and the need to offer value to customers.
  • The 1Q2023 report details the management-led initiatives, including their specific names and objectives.
  • The latest report projects higher estimated share earnings growth than the 1Q2023 report.

Analysts convey a positive outlook for McDonald’s, highlighting the Company’s ability to adapt to changing market conditions and maintain steady growth. Over the past three months, has listed 20 analysts at Buy, 6 at Hold, and zero at Sell, while lists 22 Buy, 7 at Hold, and zero Sell.

Remember, the Maverick Investor portfolio is built for long-term investment.