Still at the peak of popularity

McDonald's is the most famous fast food chain and despite several challenges, it still enjoys immense popularity around the world. Over the last six months, McDonald's has undergone significant changes and achieved successes that confirm its market leadership. In the first quarter of 2024, the company reported global comparable sales growth of 1.9%, with total sales exceeding 6 billion USD.[1] McDonald's has also improved its products, including juicier beef patties, softer buns, and brought back the popular Double Big Mac. One of the most notable innovations was the launch of the CosMc's chain, which focused on beverages. This shows that the company is constantly looking for ways to innovate and improve its service and products, helping it maintain its position as a leader in the fast food industry.[2]

Share growth, despite weak results

McDonald's recent earnings results fell short of analysts' expectations, but its share price rose nonetheless. This is due to the June launch of a 5 USD meal deal in the US, which has already seen better than expected sales since the launch and improved brand awareness, especially among lower-income consumers, according to company officials. However, the result of this offer has not yet had time to translate into quarterly sales. Those for the second quarter were 6.49 billion USD, against expectations of 6.62 billion USD, and the year-on-year change was only marginal. However, the company's profit fell by as much as 12% year-on-year to 2.02 billion USD. The drop in sales is mainly due to the unfavorable economic situation and more cautious spending by consumers in the past three months. Brand boycotts in some countries related to the conflict in Israel also played a significant part in these results. McDonald's expects similar conditions in the coming quarters. [1][3][4]

Will convenient food offerings be sufficient for future growth?

As evidence of the success of the meal deal, McDonald's has decided to extend it through the end of August, based on positive feedback in the vast majority of its U.S. locations. It also represents an opportunity for the chain to reach customers on a tight budget in the future. Competing fast-food chains such as Burger King and Wendy's have offered similar discounts. Some analysts warned before the quarterly results were released that such moves may not yield longer-term positive results for companies like McDonald's, given changes in consumer preferences that may be permanent. However, alongside the earnings announcement, there was also talk of plans to focus on improving the value of its food in its branches around the world, which is encouraging news for the company in this context. At the same time, McDonald's is aware that extensive market research will be required to implement these plans, which may have an even greater impact on its profitability in the short term, economic factors aside. [2][5]

Share price development

Shares of McDonald's rose 3.8% in Monday's trading, surpassing its 50-day moving average and reaching a near 2-month high. Although they are already down 12% since the beginning of the year, this development suggests a possible break in the negative trend.*[6] Wells Fargo analysts say that despite the sales decline, these earnings results are relatively stable for the current economic environment. However, this environment should improve in the second half of the year, and combined with McDonald's planned business strategy, this presents an opportunity to re-establish growth. The share prices of other fast food chains are following a similar trend trajectory, underscoring similar macroeconomic challenges across the sector.[3] The economic performance of other restaurant companies will provide a more detailed picture of the situation across the industry.[7]

McDonald's stock price performance over the past 5 years. (Source: Google Finance)*

Conclusion

Although McDonald's has seen its first decline in global sales in three years, its ability to innovate and respond to market challenges is evident. The fast food giant shows that it is constantly looking for new ways to adapt its offerings to changing customer preferences. Plans to improve the value of its meals and further innovate its offerings indicate that the company is ready to face future challenges and maintain its market leadership. [4]

Adam Austera, Senior Analyst at Ozios

* Past performance is no guarantee of future results.

[1,2,3,4] Forward-looking statements are based on assumptions and current expectations, which may be inaccurate, or on the current economic environment, which may change. Such statements are not guarantees of future performance. They involve risks and other uncertainties that are difficult to predict. Results may differ materially from those expressed or implied by any forward-looking statements.

[1] https://corporate.mcdonalds.com/content/dam/sites/corp/nfl/pdf/Exhibit%2099.1%20-%20Q1-24.pdf

[2] https://www.foodrepublic.com/1508519/big-changes-mcdonalds-2024/

[3] https://www.cnbc.com/2024/07/29/mcdonalds-mcd-q2-2024-earnings.html

[4] https://www.investing.com/news/stock-market-news/mcdonalds-posts-earnings-revenue-miss-432SI-3541044

[5] https://www.investing.com/news/stock-market-news/us-fastfood-chains-bets-on-value-meal-set-to-face-investor-scrutiny-3536665

[6] https://www.investors.com/news/mcdonalds-stock-mcdonalds-earnings-q2-2024-5-meal-deal/

[7] https://www.investing.com/news/company-news/wells-fargo-cuts-mcdonalds-stock-price-target-following-soft-q2-93CH-3543438