McDonald’s Earns $1.21 per Share

Disappointing earnings this morning from McDonald’s ($MCD). The fast food joint earned $1.21 per share for Q1 which was three cents below estimates. Interestingly, the stock is unchanged this morning. I suppose that means it was expected for them to miss expectations.

McDonald’s is a cheap stock, and frankly, that valuation isn’t unearned. The restaurant has made several missteps lately and we can see that in today’s numbers. Profits dropped 5.2%. Sales rose 1.4% but not as fast as costs, which rose 2.3% (higher beef costs).

As I see it, the situation at McDonald’s is similar to IBM. They’re both iconic brands who have slipped in recent years. The fundamental business is good but they desperately need to revive themselves. This is what Ford did several years ago, and Microsoft did more recently.

Despite today’s numbers, I think the outlook for McDonald’s is brighter than at IBM because management realizes the task at hand. The issues at MCD can be resolved, and I think it can be done rather cheaply. Their business in Europe isn’t that bad, it’s in the U.S. where the problems are. Their menu is far too complicated.

Posted by on April 22nd, 2014 at 8:34 am


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