How Is This Possible? McDonald’s Stock Is Up 20% in a Month, Yet Customers Are Leaving
4.6% fewer people visited U.S. locations, and U.S. sales fell for the first time in five quarters. Yet the stock jumped 6.5%. The market is clearly paying for something other than fries—and that is exactly what makes it a defensive portfolio holding.
Key points
McDonald’s sales missed estimates and U.S. traffic fell 4.6%, yet the stock gained 6.5% in a day
An adjusted operating margin of 48.3% is the kind of level software-company shareholders know, not fast-food operators
CFO Ian Borden admitted on the conference call where much of the earnings beat came from
Franchisees are getting two bills at once, and operating cash flow of around 500 000 USD per restaurant is coming under pressure
Analysts’ consensus price target is practically at the current price
The day bad news sent the stock up 6%
McDonald’s $MCD announced something on November 4 that should hurt a restaurant company. U.S. comparable sales, in its largest market, fell 0.2% in the third quarter. It was the first decline after five quarters of growth, and analysts had expected a slightly smaller drop. Total sales of 7.16 billion USD came in below the 7.29 billion USD estimate. According to Placer.ai data, 4.6% fewer people visited U.S. locations year over year, even as the company is giving away fries and selling a breakfast sandwich for 2 dollars.
Yet the stock jumped from 263.04 to 280.22 USD in a single day, a gain of 6.5%. It is up 20% from its October 7 low. The reason seems straightforward at first glance: adjusted earnings per share came in at 3.57 USD versus expectations of 3.38 USD, up 11% year over year in constant currencies.
The broader picture is not as encouraging. The price is still 18% below its February high of 341.75 USD and has lost 8.3% over the past twelve months, while the S&P 500 index gained 13.1%. The October jump has so far only patched part of this year’s hole. More important is where the earnings that so impressed the market came from.