ii view: McDonald’s beats forecasts, and enviable dividend record remains

Against a backdrop of feared recession shares for this consumer icon are little changed year-to-date. Buy, sell, or hold? 

Third-quarter results to 30 September

• Global comparable sales up 9.5% 
• Earnings per share down 6% to $2.68 

Chief executive Chris Kempczinski said:

“Our third quarter 2022 performance demonstrated broad-based business momentum as global comparable sales increased nearly 10%. I remain confident in our Accelerating the Arches strategy as our teams around the world continue to execute at a high level. As the macroeconomic landscape continues to evolve and uncertainties persist, we are operating from a position of competitive strength.”

ii round-up:

Restaurant icon McDonald's Corp (NYSE:MCD) today reported both global sales and earnings which beat Wall Street forecasts as its value meals remained attractive to cost squeezed consumers. 

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Like-for-like or comparable global sales rose by 9.5% compared to analyst forecasts for a gain nearer to 6% with earnings of $2.68 per share. Although down compared to last year, this is ahead of estimates at around $2.60 per share.

McDonald’s shares rose by around 2% in pre-market US trading having come into this latest news down less than 5% year-to-date. Shares for KFC owner Yum Brands (NYSE:YUM) are down by nearer to a fifth during 2022, similar to the S&P 500 index. Shares for global coffee chain Starbucks Corp (NASDAQ:SBUX) have fallen by just over a quarter.  

McDonald’s US sales, accounting for almost two-fifths of overall sales, rose 6.1% during the period, marking a ninth consecutive quarter of comparable sales growth. 

The Dow Jones constituent company operates in nearly 40,000 locations in over 100 countries. Sales for its biggest division and generating just over half of all revenues, International Operated Markets, climbed 8.5%, led by Germany, Australia, and France. 

Revenues for its remaining International Developmental Markets, including the likes of Japan, China and Brazil and accounting for just under a tenth of sales, rose by 16.7%. 

Total group revenues declined 5% year-over-year to $5.87 billion, although rose by 2% on a constant currency basis and allowing for the stronger dollar. In mid-October, McDonald’s declared a quarterly dividend of $1.52 per share, an increase of 10% over the prior quarter. 

ii view:

McDonald’s generates revenue through company-owned restaurants, franchise royalties, and licensing pacts. Around 95% of its restaurants are owned and operated by independent local business owners. Its Arches strategy aims to grow drive-thru and delivery sales as it expands its digital presence. 

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For investors, a highly uncertain economic outlook including rising interest rates and a cost-of-living crisis for consumers cannot be ignored. Rising costs such as food and energy have caused it to raise product prices while an estimated future price earnings (PE) ratio above the 10-year average suggests the shares are not obviously cheap. 

On the upside, its strongly established brand and focus on customer value are tough to overlook. Initiatives to expand its drive-thru numbers and delivery sales are ongoing while a record of increasing the dividend payment for 46 consecutive years since 1976 remain enviable. 

In all, McDonald’s arguably remains worthy of a place in most already diversified long-term focused portfolios.

Positives: 

• Defensive value product offering
• Progressive dividend policy

Negatives:

• Rising costs
• Subject to currency fluctuations 

The average rating of stock market analysts:

Buy