How McDonald’s Corporation (MCD) Turned Things Around?


Things are finally looking up for McDonald’s Corporation (NYSE:MCD) after years of disappointments that saw sentiments on the Street turn sour. A slowdown in sales growth compounded by fears over the impact of competition all but evoked concerns over its long-term prospects. As it turns out, a bullish tone around the stock is slowly building up after an impressive third quarter.

McDonalds Stock Run Up

Heading into September, McDonald’s Corporation (NYSE:MCD) had not had the best of runs in the market having shed more than 7% in market value since 2013. Concerns that the company was losing customers to emerging competition all but continued to pound pressure on the stock. The long wait is finally over with the fast food joint giving glimpses hope of a solid upside run.

Since September, the stock has added more than 17% in market value. It’s a momentum that investors are not used to since the downward spiral begun in 2011. The momentum follows a string of changes to the company’s menu all in the effort of attracting more customers. A move to offer breakfast all day long was widely cheered by investors as it positions the company to compete better against its peers in the sector.

Revamped Menu

Breakfast sales continue to outperform expectations as it was one of the missing pieces on the company’s push to trigger sales growth. Traffic to stores is slowly increasing which only point to an increase in customers can spend. McDonald’s Corporation (NYSE:MCD) posted a rare 0.9% sales growth in the third quarter coming before the introduction of all-day breakfast. With the new offering, CEO, Steve Easterbrook remains confident over their ability to sustain the sales growth momentum.

McDonalds has for some time succumbed to changing consumer tastes. Its inability to respond to changing consumer eating habits has seen it lose customers to the likes of Chipotle Mexican Grill, Inc. (NYSE:CMG). As it appears, the fast food juggernaut has learned its lesson. Over the past few months, it has increased its food offerings all in the effort of addressing healthy eating habits. Its offerings now include a number of salads as well as mcWraps.

Striving to address both upscale buyers and customers who pay a great deal to price has been Easterbrook big play.

Push For Re-franchising

McDonald’s Corporation (NYSE:MCD) is in the process of changing the way it runs its business. Through re-franchising the company intends to relieve itself of the pressure of running its own locations. By the end of 2018, franchised locations should account for 93% of the company’s operations up from 81%. The model allows the company to transfer costs to franchisees that in return pay royalties based on sales.

Payout to Investors

Investors should be a happy after McDonald’s Corporation (NYSE:MCD) announced dividend increase while bolstering its buyback program. The positive sentiment signals confidence in company’s long-term prospects. For the three years through 2016, the company plans to channel $30 billion through buybacks. The return is nearly double the $16.4 billion returned for the three years ending 2013.

No to REIT’s Calls

McDonald’s Corporation (NYSE:MCD) made its stand clear when it came to spinning off its real estate assets by saying no to calls of REIT spin off from Activist Investors. The board decided against a REIT on concerns that it would be too risky for the current business model, which relies heavily on rental income from franchisees. It should be good news though, to long term to shareholders as the same assets could be worth more in the long run.

Cheaper gas and more people with jobs in the US has created conducive environment that allows people to spend more on expensive options. A slowdown in the economy could plummet McDonald’s Corporation (NYSE:MCD) to the dark days especially on the sale of premium food.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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