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McDonald’s Earnings Growth Shows Value to Consumers and Investors

2023-07-28 - McDonald’s Corporation NYSE: MCD continues to deliver value to consumers even as the company faces margin pressure at the franchisee level. That’s the key takeaway from a solid earnings report that highlights the fast-food giant’s continued leadership in the sector. Key Points MCD stock may be giving investors an opportunity after the company delivered a double beat in second quarter earnings on July 27. The company continues to prioritize value to consumers even as its franchisees deal with higher producer prices. McDonald’s continues to benefit from its embrace of digital solutions. At over 30x earnings, MCD stock is not cheap, but analysts still believe there may be more upside. 5 stocks we like better than McDonald's On the earnings call, chief executive officer Chris Kempczinski stated that the company’s goal was to market a brand. The company’s earnings report shows that the McDonald’s brand remains strong. On the top line, the company delivered revenue of $6.5 billion which was 3.2% better than the $6.3 billion that analysts’ expected. The story on the bottom line was even stronger. The company posted earnings per share of $3.17 which beat the consensus estimate of $2.75 by over 13%. And in a year when many people felt the company was going to face tough comparisons to 2022, the revenue and earnings numbers were 13% and 25% higher on a year-over-year basis. Now investors will watch to see if the positive results will translate to share price growth. In the week prior to earnings, MCD stock is down 2% and initial reaction to the earnings report is muted. Prioritizing Value for Its Customers One reason for lackluster stock price movement could be the continued effect of inflation on the company’s margins. The company reported adjusted operating margin of 47% in the first half and is forecasting full year adjusted operating margin of 46%. However, McDonald’s is primarily driven by its franchisees. And on the call, it was clear that many of those franchisees continue to deal with the effect of higher producer prices. This illustrates one of the truths of this market. Companies with the size and financial resources to weather the storm can afford to eat more of the producer prices. That appears to be the case with McDonald’s which continues to be an option for consumers who are looking to trade down. But that may be an oversimplification. The company continues to tweak its menu to appeal to changing tastes, especially with the coveted Gen-Z demographic. To that end, the company introduced six new menu items this summer including many new chicken products. The Company Continues to Invest in Digital and Technological Platforms Anyone that’s visited a McDonald’s restaurant either in-store or through the drive-through can see that this isn’t the company of just five years ago. The company’s investment in digital platforms is streamlining the way customers place orders and is creating an opportunity for McDonald’s to “remove the friction” for consumers. In fact, the McDonald’s app is not only maintaining its lead on smartphone adoption, it continues to extend that lead. This is another way that McDonald’s is staying relevant to a generation that expects the ability to order and pick up their food with minimal human interaction. And it’s clear that McDonald’s will continue to lean into digital platforms in the coming years. Is MCD Stock a Buy? That's the question that investors have to consider. At 30x earnings and 26x forward earnings, you can’t say that McDonald’s is a cheap stock. Nevertheless, MCD stock is up 12% in the last 12 months and is trading near its 52-week high. That could lead many investors to conclude that there’s too much downside risk for the stock. And a dividend with a yield of around 2% may not be enough to excite investors who don’t currently have a position. However, analyst sentiment remains strong the McDonald’s analyst ratings on MarketBeat give MCD stock a Moderate Buy rating with a $315 price target. And several analysts have price targets that take the stock far higher. Before you consider McDonald's, you'll want to hear this. MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and McDonald's wasn't on the list. While McDonald's currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys. View The Five Stocks Here

Two more McDonald's franchisees fined for child labor violations in Louisiana and Texas

2023-07-26 - Separate owners of McDonald's locations in Louisiana and Texas have been fined a combined $77,500 for letting minors work more hours than federal guidelines allow. CLB Investments has been fined $56,106 after federal investigations found that it allowed 14- and 15-year-old employees at its 12 McDonald's locations in the New Orleans area to work longer and later hours than permitted by law, the U.S. Department of Labor said. Three of those teenagers were also allowed to operate deep fryers, a hazardous task legally prohibited for workers under 16, the agency added. Chris Bardell of La Place, Louisiana, owns CLB Investments, business records show. "Since learning of these violations, I've introduced mandatory child labor law trainings for my restaurant managers and conducted regular audits to ensure we're in compliance with labor regulations," Bardell told the Associated Press. Laws restricting the number of hours and times of day minors can work were enacted to ensure teenagers' safety in the workplace and that they have enough time to focus on school, said Betty Campbell, a Labor Department regional administrator in Dallas. "While learning new skills in the workforce is an important part of growing up, an employer's first obligation is to make sure minor-aged children are protected from potential workplace hazards," Campbell said in a statement Tuesday. The Labor Department said 14- and 15-year-olds in Texas also worked longer hours at four McDonald's locations owned by Marwen & Son. Ten minors on staff were allowed to operate a deep fryer, oven and use a trash compactor — all federal violations. Marwen & Son, owned by Martin Washington of Cedar Park, was fined $21,466. Washington didn't immediately respond to a request for comment Wednesday. Labor regulators didn't specify how many extra hours teens had been working in those restaurants. Still, the Louisiana and Texas violations add to the agency's announcement of similar infractions roughly two months ago at McDonald's locations near Kentucky. Three separate franchisees, which were fined $212,544 in all, employed 305 minors to work longer hours at 62 restaurants across Kentucky, Indiana, Maryland and Ohio, the department said. Investigators also determined that Bauer Food, a Louisville-based operator, illegally employed two 10-year-old children without pay to prepare food, clean the store and work at the cash register, sometimes working as late as 2 a.m. One of the underaged children was also allowed to operate the deep fryer, investigators found. McDonald's franchisees operate with some degree of autonomy from corporate-owned restaurants. A McDonald's executive said Tuesday that the company is aware of the violations at some locations. "We take this issue seriously and are committed to ensuring our franchisees have the resources they need to maintain compliance with all U.S. labor laws," McDonald's USA Chief People Officer Tiffanie Boyd told the Associated Press. Spike in child labor violations The McDonald's violations come amid signs that more companies are employing underage employees. Labor Department officials said they found 3,876 violations across all U.S. employers last year, up more than 60% from 2018. At the same time, local lawmakers are moving to loosen child labor protections. Some states, including Arkansas, Iowa, Minnesota and Missouri, have proposed legislation that would increase the number of hours teenagers could work. Representatives in those states argue that teens already stay out late for school athletics, so longer work hours is no different and could even help young people explore potential careers. The Biden administration in April urged U.S. meat companies to make sure they aren't using child labor after an investigation found more than 100 kids working overnight for a third-party company that cleans slaughterhouses, including handling dangerous equipment such as skull-splitters and bone saws. More recent incidents include the accidental death of a 16-year-old boy while on the job as a sanitation worker at a poultry plant in Mississippi. In Wisconsin, a 16-year-old boy was recently killed in an accident at a sawmill after getting pinned down while attempting to unjam a wood-stacking machine.