Mcdonalds (NYSE:MCD) earnings release for the 1st quarter of their 2020 fiscal year
Category: Stock Market and Mcdonalds
Date: 30 April 2020 Stock Price: $183.98 We take a look at the 1st quarter earnings report of their 2020 fiscal year of Mcdonald's the world's largest burger franchise company. How has the group been impacted by Covid-19 and worldwide lockdowns and social distancing measures?
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About Mcdonalds
The McDonald Brothers
Dick and Mac McDonald moved to California to seek opportunities they felt unavailable in New England. Failing in the movie business, they subsequently proved successful in operating drive-in restaurants. In 1948 they took a risk by streamlining their operations and introducing their Speedee Service System featuring 15 cent hamburgers. The restaurant’s success led the brothers to begin franchising their concept—nine becoming operating restaurants.
Ray Kroc
A native Chicagoan, Ray Kroc left high school after his sophomore year to join the World War One Red Cross Ambulance Corps. The war ended before his unit was sent overseas with Ray returning home to earn a living as a musician and later selling paper cups. In 1939, he became the exclusive distributor of the Multimixer (a milkshake mixing machine). He visited the McDonald brothers in 1954 which led to him becoming their franchise agent. He opened up the first restaurant for McDonald’s System, Inc., a predecessor of McDonald’s Corp. in Des Plaines, Illinois in April, 1955. McDonald’s acquired the rights to the brother’s company in 1961 for $2.7 million.
Going Global
Ray Kroc’s vision was that there would be 1,000 McDonald’s restaurants solely in the United States. Yet, McDonald’s continued to grow and expand into international markets beginning in 1967 opening in Canada and Puerto Rico. Today, the company has over 36,000 restaurants in over 100 nations. The most recent opening in Kazakhstan in 2016.
Dick and Mac McDonald moved to California to seek opportunities they felt unavailable in New England. Failing in the movie business, they subsequently proved successful in operating drive-in restaurants. In 1948 they took a risk by streamlining their operations and introducing their Speedee Service System featuring 15 cent hamburgers. The restaurant’s success led the brothers to begin franchising their concept—nine becoming operating restaurants.
Ray Kroc
A native Chicagoan, Ray Kroc left high school after his sophomore year to join the World War One Red Cross Ambulance Corps. The war ended before his unit was sent overseas with Ray returning home to earn a living as a musician and later selling paper cups. In 1939, he became the exclusive distributor of the Multimixer (a milkshake mixing machine). He visited the McDonald brothers in 1954 which led to him becoming their franchise agent. He opened up the first restaurant for McDonald’s System, Inc., a predecessor of McDonald’s Corp. in Des Plaines, Illinois in April, 1955. McDonald’s acquired the rights to the brother’s company in 1961 for $2.7 million.
Going Global
Ray Kroc’s vision was that there would be 1,000 McDonald’s restaurants solely in the United States. Yet, McDonald’s continued to grow and expand into international markets beginning in 1967 opening in Canada and Puerto Rico. Today, the company has over 36,000 restaurants in over 100 nations. The most recent opening in Kazakhstan in 2016.
Overview of Mcdonalds' 1st quarter 2020 earnings report
The data the below refers to the latest quarter's data unless specified otherwise
Breakdown of Mcdonalds stores per country (looking at some of their bigger markets in terms of number of stores)
- Revenue: $4.714 billion (down from $5.042 billion for the same quarter of the previous year)
- Revenue decreased by -6% over the last 12 months
- Total operating expenses: $3.020 billion (up from $2.930 billion for the same quarter of the previous year)
- Total operating expenses increased by 3% over the last 12 months
- Significant margin squeeze on Mcdonalds as revenues declined while operating costs increased
- Net income: $1.106 billion (down from $1.328 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.47 (down from $1.72 for the same quarter of the previous year)
- Weighted average shares outstanding-diluted: 750.70 million (down from 771.60 million for the same quarter of the previous year)
Breakdown of Mcdonalds stores per country (looking at some of their bigger markets in terms of number of stores)
- United States 13,837
- Australia 999
- Canada 1,478
- France 1,485
- Germany 1,484
- Italy 597
- Poland 442
- Russia 732
- United Kingdom 1,323
- Saudi Arabia 310
- South Africa 299
- Turkey 253
- United Arab Emirates 179
- India 315
- Philippines 669
- China 3,383
Mcdonalds' management commentary on the results and earnings guidance
CHICAGO, IL - McDonald's Corporation today announced results for the first quarter ended March 31, 2020. "Following our strong performance in 2019, McDonald’s began 2020 with exceptional global momentum, and our January and February sales were reflective of that trend. Since then, the global crisis caused by the COVID-19 pandemic has significantly disrupted our business, and we continue to operate in a very challenging and unpredictable environment,” said McDonald’s President and Chief Executive Officer Chris Kempczinski. “McDonald's has seen a lot over our 65 years and I'm confident that the actions we're taking will enable us to emerge from this crisis in a position of competitive strength. The determination and team spirit across the McDonald's System is evident as we continue to offer affordable, convenient food while at the same time providing for the safety of our crew and customers and continuing our legacy of supporting local communities in which we operate."
The Company delivered strong global comparable sales and results for the two months ended February 2020. The outbreak of COVID-19 and the resulting operational impact brought on by several related factors, including restaurant closures, limited operations and dramatic changes in consumer behavior, led to a marked decline in sales during the second half of March and significantly affected the Company’s first quarter results. On April 8, 2020, McDonald’s withdrew its 2020 Outlook and its Long-Term Outlook due to the uncertainty related to the impact of COVID-19 on global economic conditions and the Company’s business operations.
First quarter financial performance and operational update:
First quarter financial performance and operational update:
- Global comparable sales declined 3.4%.
- Consolidated revenues decreased 6% (5% in constant currencies).
- Systemwide sales decreased 4% (2% in constant currencies).
- Diluted earnings per share of $1.47 decreased 15% (13% in constant currencies).
- Steps to preserve financial flexibility include suspending McDonald’s share repurchase program, increasing the Company’s cash position with $6.5 billion of new debt financing and reducing planned capital expenditures by approximately $1 billion for 2020.
- Approximately 75% of McDonald’s restaurants worldwide remain open to serve customers, the majority of which have adapted to focus on Drive-thru, Delivery, and/or Take-away
Mcdonalds (NYSE: MCD) stock price history
The image below, obtained from Google shows the stock price history of Mcdonalds over the last 5 years. And the stock has provided excellent returns for the group's stockholders over the last 5 years. With the stock trading at around $97.80 a share 5 years ago to the current $183.98 it is trading at right now. That's a 134% return provided to Mcdonalds stockholders over the last 5 years. A
The stock of Mcdonalds is trading at a little closer to its 52 week high of $221.93 than it is to its 52 week low of $124.23 which to us is a clear indication that the short term sentiment and momentum of Mcdonalds stock is positive at this point in time
The stock of Mcdonalds is trading at a little closer to its 52 week high of $221.93 than it is to its 52 week low of $124.23 which to us is a clear indication that the short term sentiment and momentum of Mcdonalds stock is positive at this point in time
Recent Google searches for Mcdonald's stock price and MCd stock price
The graphic below shows the trend in google searches for Mcdonalds stock price and MCD stock price for the United States over the last 12 months as obtained from Google Trends. A sharp increase in the searches for Mcdonalds stock price was experienced towards the middle of March 2020, which coincides with a significant decline in Mcdonalds stock price due to global markets selling off due to the Coronavirus pandemic and its impact on global economies
Recent coverage of Mcdonalds
The extract below discusses the latest earnings report of Mcdonalds as obtained from TheStreet.com
McDonald's Corp. (MCD) posted weaker-than-expected first quarter earnings Thursday amid what the world's biggest restaurant group called a "dramatic change" in consumer behavior amid the coronavirus pandemic. McDonald's said earnings for the three months ending in March were pegged at $1.47 per share, down 14.5% from the same period last year and 10 cents shy of the Street consensus forecast. Group revenues, however, rose modestly, to $5.02 billion and topped analysts' estimates even as comparable store sales fell 3.4% amid 'dramatic changes' in consumer behavior due to the COVID-19 pandemic.
McDonald's said system wide sales fell 4% over the quarter, but didn't start declining until the second half of March, as lockdown orders and business closures shuttered the global economy and limited services at its 39,000 worldwide restaurants. The company said it expects those trends to continue over the near term.
Read the full article here
McDonald's Corp. (MCD) posted weaker-than-expected first quarter earnings Thursday amid what the world's biggest restaurant group called a "dramatic change" in consumer behavior amid the coronavirus pandemic. McDonald's said earnings for the three months ending in March were pegged at $1.47 per share, down 14.5% from the same period last year and 10 cents shy of the Street consensus forecast. Group revenues, however, rose modestly, to $5.02 billion and topped analysts' estimates even as comparable store sales fell 3.4% amid 'dramatic changes' in consumer behavior due to the COVID-19 pandemic.
McDonald's said system wide sales fell 4% over the quarter, but didn't start declining until the second half of March, as lockdown orders and business closures shuttered the global economy and limited services at its 39,000 worldwide restaurants. The company said it expects those trends to continue over the near term.
Read the full article here
Mcdonalds (NYSE: MCD) latest stock valuation
So based on Mcdonald's latest earnings report, what is our target price for Mcdonalds? Based on Mcdonalds latest earnings release our valuation model provides a target (full value) price at $149.90 a share (down from our 3rd quarter 2019 Mcdonalds earnings report). We therefore believe the stock of Mcdonalds is overvalued
We therefore believe from a fundamental investing and value perspective the stock price of Mcdonald's is overvalued and we would not recommend buying into the stock at its current price, but rather at levels about 10% below our target price which is at $149.90 a stock. We therefore believe a good entry point into the stock of Mcdonalds is at $134.90 or below.
We expect the stock of Mcdonalds to pull back from its current levels to closer to our target price in coming weeks and months.
We therefore believe from a fundamental investing and value perspective the stock price of Mcdonald's is overvalued and we would not recommend buying into the stock at its current price, but rather at levels about 10% below our target price which is at $149.90 a stock. We therefore believe a good entry point into the stock of Mcdonalds is at $134.90 or below.
We expect the stock of Mcdonalds to pull back from its current levels to closer to our target price in coming weeks and months.
Next earnings release of Mcdonalds
It is expected that Mcdonalds 2nd quarter earnings release will be released in late July 2020