The Big Three fast food giants have had a tough year.
Inflation led to rising costs for labour, food ingredients, and logistics. That triggered price rises. Now, as consumers tighten their belts, prices are falling again and value meals – and slimmer margins – are back.
So far, Yum! Brands (NYSE: YUM), which owns Taco Bell, Kentucky Fried Chicken (KFC), and Pizza Hut, is the performance leader. Its shares have returned a razor-thin 1.2% year-to-date, as of the time of writing.
McDonald’s (NYSE: MCD), the No. 1 global brand, can’t even match that. Its shares are down 1%. Restaurant Brands International (TSX, NYSE: QSR), led by Tom Hortons and Burger King, has fared worst. The TSX listed shares are off 9% and those listed in New York are down 11%.
But even with the current headwinds, the chains offer a strong value proposition. They sell comfort and familiarity at a low price and never go out of style as the economy rises and falls. They have global brand reach, a reliable dividend stream that grows, and all are aggressively expanding into emerging markets where they see a bright future.
Here’s an update on McDonald’s:
McDonald’s (NYSE: MCD) Recent close $293.75. (All figures in US dollars.)
Background: McDonald’s is the largest and best-known fast-food franchise in the world. Almost half of the 44,000 outlets are in Asia or other emerging markets, although the US remains its largest single market.
Performance: While the shares are off 1% this year, they are 82% higher than their recommended price.
Recent developments: For the three months ended June 30, McDonald’s sales and profit were below estimates. Adjusted earnings of $2.97 per share, were down 11%. Revenue of $6.49 billion was flat.
Discussion: The shares rose 3% on the earnings news because a bright spot is that the $5 value meals have gained traction. Sales have exceeded expectations.
McDonald’s is also undertaking an aggressive expansion program. It wants to increase the overall number of restaurants by 25% or 10,000 stores by 2027, reaching a total of 50,000. About half of the new outlets will be in China, a clear signal of McDonald’s intentions. Another 200 openings are planned for the UK and Ireland, the company said this month.
Other initiatives include the ongoing trial of specialty coffee stores under the CosMc’s banner. The outlets sell mostly cold drinks including flavoured iced teas and slushies, taking on Starbucks in this lucrative market.
Dividend: With the December payment, McDonald’s raised its dividend for the 47th consecutive year. The 9.9% increase to $1.67 quarterly ($6.68 a year) yields 2.6% at current prices.
This article appeared in a recent issue of the Internet Wealth Builder. For information on how to reprint this article please view this page.
Adam Mayers 
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