Getting back to even
Despite resurgences and continued operating restrictions in many parts of the world, I’m pleased to share that in the first quarter, global comp sales and revenues have already surpassed Q1 2019 levels. — CEO Chris Kempczinski
McDonald’s clearly benefited from the economic rebound that has lifted most consumer-focused businesses in the past few months. But the chain generated its own good luck, too, with major investments in the digital, delivery, and drive-thru channels sending customer-satisfaction levels higher. McDonald’s also got a boost from cutting down its menu options while introducing several popular products like a new chicken sandwich.
The payoff was wide-ranging. “As a result of this focus, our drive-thrus got faster, margins grew and customer satisfaction improved,” McDonald’s USA president Joe Erlinger said. “Our restaurants became easier to run and more profitable.”
Follow the cash
We exited Q1 with historically high average daily sales volumes and the record high operating cash flow our franchises experienced in 2020 continued in Q1. — McDonald’s U.S.A. President Joe Erlinger
McDonald’s announced a head-turning 35% boost in net income this quarter as earnings jumped to $1.5 billion from $1.1 billion a year ago. Some of that increase came from the comparison to a weak year-ago period, but the bigger factor was reduced costs and surging average spending in the digital-sales channel.
MCD Operating Margin (TTM) data by YCharts.
Fulfilling these bigger orders is helping improve franchisee’s finances, which currently involve record cash flow levels and rising margins. Companywide, McDonald’s operating margin jumped back up to over 44% of sales after diving to 36% of sales a year ago. The rebound in the U.S. market was the biggest driver behind that spike, which came despite higher spending in areas like wages and COVID-19 safety.
Growth plans
We all remain hopeful that this will be a year when life begins to return to some version of normal, we know the operating environment remains volatile. We expect that there will be stops and starts that impact results. — CEO Kempczinski
Management warned investors to brace for bumpy results over the next few quarters, especially as COVID-19 remains a potent threat in many parts of the world. Operating margin won’t fully recover in 2021, executives said, but in time should climb back toward record highs.
That outlook paints an attractive picture for investors looking to own a quality business in the fast-food sector. Volatility appears likely in 2021, but the long-term growth and earnings outlook is positive.
McDonald’s today is producing satisfied customers, richer franchisees, and highly confident employees. That’s a recipe that’s likely to result in happy shareholders over time, too.