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Fast food stocks: A look at McDonald’s performance

McDonald’s Corporation (NYSE: MCD) is a major player in the fast food industry, with about 38,000 locations in more than 100 countries. Let’s take a look at the company’s performance in general. 

Over the past five quarters, McDonald’s revenues have seen a decline and this is mainly due to the impact of the ongoing strategic refranchising initiative. Despite this temporary slowdown, refranchising will allow the company to generate more stable and predictable revenue and cash flow in the future.

McDonald's quarterly financials trend

The company’s profits over the last five quarters have fluctuated with most of 2018 seeing increases. The positive results in 2018 were helped by a lower effective tax rate and strong operating performance. McDonald’s global comparable sales have increased consistently during the same period, driven by a growth in average check due to shifts in product mix and menu price increases.

McDonald's comparable sales trend

The fast food restaurant chain has managed to reduce expenses on a year-over-year basis over the past five quarters, barring a 10% increase in the third quarter of 2018, despite its significant investments in restaurant technology. The company’s investments in its Experience of the Future restaurants and in the improvement of its delivery services and digital channels will bode well going forward.

According to this report by Straits Research, the global fast food market is estimated to reach a value of $843.4 billion by 2026, registering a CAGR of 5.6% during the period from 2019 to 2026. Based on food type, burgers and sandwiches are expected to take the largest market share which is a positive for McDonald’s. As per research firm Statista, McDonald’s was the most valuable fast food brand worldwide with an estimated brand value of about $126 billion in 2018.

Over the long-term, McDonald’s expects to achieve annual systemwide sales growth in the 3-5% range and earnings per share growth in the high single digits. The company is scheduled to report its second quarter 2019 earnings results toward the end of July and analysts estimate earnings of $2.05 per share on revenue of $5.3 billion.

Overall, despite the challenges in the fast food industry owing to customer preferences towards healthy options, McDonald’s appears to be holding down the fort well for now. The company’s business growth initiatives are likely to drive growth going forward. McDonald’s shares have gained 19% so far this year and 33% over the trailing 52 weeks.

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