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McDonald’s, Tim Hortons parent hit new highs

A weak economy is good news for quick serve restaurants

The rapid rise in interest rates has squeezed household budgets, forcing families to make tough choices with their discretionary spending.

One place they are still finding value is a Tim Horton’s coffee and bagel on the way to work or a Big Mac meal for lunch. As a result, McDonald’s Corp. and Restaurant Brands International Inc., are both having strong years.

Here are updates:

McDonald’s (NYSE: MCD) Recent price US $297.17

Background: McDonald’s is the largest and best-known fast-food franchise in the world with 37,000 restaurants in 120 countries. Almost half of its outlets are in Asia, or other emerging markets, although the US remains its largest single market.

Performance: McDonald’s stock hit a new high of $298 on May 2, is up 13% year-to-date and 19% in the past 12 months.

Recent developments: McDonald’s reported better-than-expected first quarter results on April 25. Store traffic grew despite higher prices in most of its markets, with US traffic rising for the third consecutive quarter. 

 Global same-store sales rose 12.6% compared to the January-March period last year, helped in part by post-pandemic recovery in China and promotions using celebrities in North America. 

CEO Chris Kempczinski said the company is starting to see resistance to price increases and delivery orders have slowed as customers rethink the added cost. While customers are spending less per visit, many are visiting more often. He offered a cautious outlook, but says the company is well placed to weather whatever happens.

Revenue rose 4% to nearly $5.9 billion in the quarter. Net income was $1.8 billion, or $2.45 per share.

 Dividend: With the October payment, McDonald’s increased its quarterly dividend to $1.52, its 46th consecutive year of increases.  It yields 2.06% at current prices.

Restaurant Brands International (TSX, NYSE: QSR)  Recent price C$96.96 and US$72.30

Background: Restaurant Brands is the third-largest global fast-food operator with $35 billion in sales and operations in more than 100 countries. It has 31,000 stores, of which 65% are Burger Kings, 18% are Tim Hortons, and 13% are Popeye’s Louisiana Kitchen locations. The remainder are Firehouse Subs.

Performance: The shares also hit a new high last week of $99.2. They are up 9% year-to-date and up 30% in the last 52 weeks.

Recent developments: Restaurant Brands quarterly results were released May 2. Revenue beat estimates, boosted by higher prices and increased traffic at its Burger King and Tim Hortons chains. Burger King has been able to attract younger customers helped by a newly released online jingle:  “Whopper Whopper.” It is also working on a $400-million “Reclaim the Flame” plan to boost Burger King sales.

Burger King’s comparable sales increased 10.8% in the March quarter, while Tim Hortons saw comparable sales rise 13.8%. Revenue rose to $1.59-billion from $1.45-billion a year earlier. Net income was $277 million ($0.61 cents per share), up from $270 million ($0.59 per share) a year earlier.

The company continues to expand using a franchise model. It finds master franchisees in local markets who operate the stores through a joint venture. On March 30 it announced that TH International Ltd., known as Tims China, will now add the Popeyes brand. Tims China is master franchise for Tim Hortons in China, Hong Kong, and Macau.  It has opened 600 Tim Hortons in China and plans to add 400 more by the end of this year.

Dividend: RBI increased its dividend by $0.08 annually with the April payment. The $2.20 annual dividend yields 3.1% at current prices.

This article appeared in the Internet Wealth Builder on May 8, 2023.  For information on how to reprint this article please view this page.

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