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Category: Stock Market and Mcdonalds
Date: 3 September 2019 Stock Price: $217.97 We take a look at the 2nd quarter earnings report of their 2019 fiscal year of Mcdonald's the world's largest burger franchise company
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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.
Financial overview of Mcdonalds' latest earnings report
The numbers we are interested in (for the quarter):
- Revenue: $5.341 billion (down slightly from $5.353 billion for the same quarter of the previous year)
- Operating income: $2.2739 billion (up from $2.2623 billion for the same quarter of the previous year)
- Net income: $1.5169 billion ($1.4963 billion for the same quarter of the previous year)
- Diluted earnings per share: $1.97 (up from $1.90 for the same quarter of the previous year)
- Weighted average shares outstanding-diluted: 768.7 million (down from 787.1 million for the same quarter of the previous year)
- Cash and equivalents: $1.1345 billion
- Cash and cash equivalents per share: $1.48
- Cash and cash equivalents makes up 2.45% of the group's total assets
- Cash and cash equivalents makes up 0.67% of the group's current market capital
- Accounts and notes receivable: $2.055 billion
- Accounts and notes receivable makes up 4.45% of the group's total assets
- Cash generated from operations: $1.5169 billion (up from $1.4963 billion for the same quarter of the previous year)
- Cash generated from operations per share: $1.97
- Dividend declared for payment in September: $1.16
- Dividend yield: 2.13% (assuming the same dividend paid this quarter is paid every quarter of the fiscal year)
Mcdonalds' management commentary on the results and earnings guidance
CHICAGO, IL - McDonald's Corporation today announced results for the second quarter ended June 30, 2019.
“With the strong results we achieved in the second quarter, we have now experienced 16 consecutive quarters of positive global comparable sales," said McDonald's President and Chief Executive Officer Steve Easterbrook. "By putting our customers at the centre of all our efforts to run great restaurants, enhance the customer experience and provide delicious menu offerings, we will continue to successfully execute our Velocity Growth Plan."
Second quarter highlights:
Excluding this charge, operating income decreased 3%, reflecting lower gains on sales of restaurant businesses, partly offset by higher franchised margin dollars.
In the International Operated segment, second quarter comparable sales increased 6.6%, reflecting positive results across all markets, primarily driven by the U.K., France and Germany. The segment's operating income increased 3% (8% in constant currencies), primarily due to sales-driven improvements in franchised margin dollars. In the International Developmental Licensed segment, second quarter comparable sales increased 7.9%, reflecting strong sales performance across all geographic regions.
Steve Easterbrook concluded, "By engaging our guests on their terms, whether it's through delivery, an enhanced dining experience at one of our Experience of the Future restaurants, or through our evolving digital offerings, we're becoming a better McDonald's. We will continue to focus on our customers with innovative solutions to further elevate the guest experience and drive growth.”
“With the strong results we achieved in the second quarter, we have now experienced 16 consecutive quarters of positive global comparable sales," said McDonald's President and Chief Executive Officer Steve Easterbrook. "By putting our customers at the centre of all our efforts to run great restaurants, enhance the customer experience and provide delicious menu offerings, we will continue to successfully execute our Velocity Growth Plan."
Second quarter highlights:
- Global comparable sales increased 6.5%, reflecting strong comparable sales across all segments.
- Consolidated revenues were flat with the prior year (increased 3% in constant currencies), reflecting strong comparable sales, partly offset by the impact of refranchising.
- Systemwide sales increased 8% in constant currencies.
- Consolidated operating income increased 1% (4% in constant currencies).
- Diluted earnings per share of $1.97 increased 4% (7% in constant currencies), including $0.08 per share of strategic charges. Excluding these current year charges as well as the prior year strategic restructuring charges of $0.09 per share, diluted earnings per share was $2.05 for the quarter, an increase of 3% (7% in constant currencies).
- The Company returned $2.0 billion to shareholders through share repurchases and dividends.
Excluding this charge, operating income decreased 3%, reflecting lower gains on sales of restaurant businesses, partly offset by higher franchised margin dollars.
In the International Operated segment, second quarter comparable sales increased 6.6%, reflecting positive results across all markets, primarily driven by the U.K., France and Germany. The segment's operating income increased 3% (8% in constant currencies), primarily due to sales-driven improvements in franchised margin dollars. In the International Developmental Licensed segment, second quarter comparable sales increased 7.9%, reflecting strong sales performance across all geographic regions.
Steve Easterbrook concluded, "By engaging our guests on their terms, whether it's through delivery, an enhanced dining experience at one of our Experience of the Future restaurants, or through our evolving digital offerings, we're becoming a better McDonald's. We will continue to focus on our customers with innovative solutions to further elevate the guest experience and drive growth.”
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 $93 a share 5 years ago to the current $217.97 it is trading at right now. That's a 134% return for Mcdonalds stockholders over the last 5 years. And the stock is trading at very close to its 52 week high and is far away from the 52 week low, which is another indicator of the positive momentum in Mcdonalds stock price.
Mcdonalds (NYSE: MCD) latest stock valuation
So based on Mcdonald's latest earnings report, what is our target price for Mcdonalds? And the question is given its strong stock price run in recent months and years is there still value in the company's stock price? We value the group's stock at $198 a share. 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. So we would suggest looking to buy Mcdonalds at close to $180 a share