The pandemic has split the economy into three tiers with some sectors such as airlines and travel in depression, while others including big tech and home-related telecom services booming. A third group is so-so.
Two companies in different tiers – McDonald’s and Microsoft – reported earnings recently. The results highlight broader pandemic trends, with McDonalds muddling through while Microsoft has gone from strength to strength.
Microsoft (NDQ: MSFT) Closed Friday at $243.65. (All figures in U.S. dollars.)
Background: Microsoft is the world’s largest software company, best known for its Windows operating system, which runs about 90% of the world’s personal computers, and its Office suite of applications. Microsoft also owns LinkedIn, Skype, and markets the Xbox gaming system.
It made a strategic shift to cloud computing in 2014 and the move is paying off handsomely. The Cloud offers companies a way to store and access information remotely. Growth is in its early stages with new applications evolving.
Performance: At the time of writing, Microsoft’s shares are up 9.3% year-to-date and 28.8% in the last 12 months.
The latest earnings, reported Jan. 28, sent the stock to a new high with revenues of $43 billion and profit of $15.4 billion, both quarterly records. Per share earnings of $2.03 were almost a third better than a year ago.
Discussion: The shift to the Cloud and related services is driving strong growth in many areas. In one example, Microsoft announced a partnership with General Motors and Honda with a $2 billion investment in a company called Cruise. Cruise is a leader in driverless technology for electric cars. Microsoft’s Cloud and Edge computing platform will help manage the technology behind the vehicles these automakers plan to build.
The pandemic is acting as an accelerant for the company’s bread-and-butter products such as tablets and laptops as well as Office. Microsoft Teams, which combines workplace chat, video meetings, file storage and application integration is showing strong growth. It competes with Slack Technologies (NYSE: WORK) and Zoom Video (NDQ: ZM). The latest quarter saw a big jump in demand for this software.
Dividend: With the December payment, Microsoft increased its dividend by 9.8%. The $0.56 quarterly payment yields 0.9% at current prices.
McDonald’s (NYSE: MCD) Closed Friday at $214.86. (All figures in U.S. dollars.)
Background: McDonald’s is the largest and best-known fast-food franchise in the world with 37,000 restaurants in 120 countries. More than 44% of its outlets are in Asia, or other emerging markets although the U.S. remains its largest single market.
Performance: McDonald’s stock is almost unchanged year-to-date and in past 12 months.
Recent developments: While Microsoft was a pandemic winner, McDonald’s had a difficult year. In its latest quarter, reported Jan. 28, revenue and profit both fell, with profit down slightly less than expected.
Revenue fell 2.1% to $5.31 billion, with net income down 12.4% to $1.38 billion. Earnings per share were $1.70.
European operations, where it has fewer drive-throughs, were hurt by a new round of pre-Christmas lockdowns. Comparable U.S. sales were far better, rising 5.5%. Global sales overall fell 1.3%.
Discussion: The year just ended has been three steps forward and two back, but McDonald’s has confidence things will improve in 2021. It sees sales growth in the low-double digits and is moving ahead with 500 new restaurants. It has slimmed down its menu and beefed up online ordering technology. The moves reinforce McDonald’s image as a fast, reliable, and satisfying choice for an inexpensive meal.
Dividend: The dividend rose 3.2% to $1.29 per share with the December payment, the 44th straight year of increases. The stock yields 2.4% at current prices.