MCD is in big trouble. May not exist in 5 years

[xandman]

Effective thread starts require a little sensationalism. I don't have a problem with experienced ET members using it because you can expect a valid dialogue.

 

[bone]

I agree that MCD has subpar food even for fast food, and yes the franchise owners are pissed about the constant menu changes and expenses. It is spot on that there are much better fast food alternatives in the same price point in terms of quality and taste. I would imagine that if we are trading in the low 80's handle it's a short - but timing it here is very risky as we have been trading in a range for years. The market is aware of MCD's manifest problems, but they aren't hammering it at the moment.

 

[ironchef]

Their margins are a lot better now than before the last recession. I don't even see a noticeable dip during the last recession.

xandman, your chart only tells half the story. By normalizing every year to 100, you missed the most important aspect of the health of MCD - revenue growth:

http://finance.yahoo.com/q/is?s=mcd&ql=1

http://finance.yahoo.com/q/is?s=MCD&annual

You see, revenue has been declining and the decline accelerated in the last year. Your chart actually showed the desperation of prior management, instead of trying to arrest the decline in sales, they tighten cost control so much that very likely they hurt the business and revenue growth instead (but masked the problems). We call this a downward spiral. That was probably why the board fired him.

On the positive side, operating margin, return on equity, return on capital are all exemplary but as I said, coupled with declining sales, those are actually a sad story.

I am actually most impressed with their US federal corporate tax rate (of ~36% in 2014), which is the maximum the US government charges companies. They are one of the very few that paid the max rate. Even companies we think of as progressive, like AAPL, MSFT....paid much much less taxes. Folks that criticize MCD, especially the liberals should take note. They may not pay their workers well but they sure paid more than their fair share of tax.

I just want to have a good discussion of business fundamentals and different view points.

Cheers.

 

[xandman]

That's a very interesting chart. Wasn't there concern's about the "magic formula" in early 2000? It would be good to revisit that. That may have been what led to the drop in 2002.

Noteable is how resilient MCD was back in the recession in mid-2000.

 

[xandman]

xandman, your chart only tells half the story. By normalizing every year to 100, you missed the most important aspect of the health of MCD - revenue growth:

http://finance.yahoo.com/q/is?s=mcd&ql=1

http://finance.yahoo.com/q/is?s=MCD&annual

You see, revenue has been declining and the decline accelerated in the last year. Your chart actually showed the desperation of prior management, instead of trying to arrest the decline in sales, they tighten cost control so much that very likely they hurt the business and revenue growth instead (but masked the problems). We call this a downward spiral. That was probably why the board fired him.

On the positive side, operating margin, return on equity, return on capital are all exemplary but as I said, coupled with declining sales, those are actually a sad story.

I am actually most impressed with their US federal corporate tax rate (of ~36% in 2014), which is the maximum the US government charges companies. They are one of the very few that paid the max rate. Even companies we think of as progressive, like AAPL, MSFT....paid much much less taxes. Folks that criticize MCD, especially the liberals should take note. They may not pay their workers well but they sure paid more than their fair share of tax.

I just want to have a good discussion of business fundamentals and different view points.

Cheers.

Normalizing is standard analytical procedure. We all know about the decline in Revenues which has been highlighted in every press report. These guys are probably just right sizing. better when the next recession hits.

I don't know when the tide turns for revenues. Remember MCD can easily buy the next Chipotle and leverage their economies of scale. Not that these guys are slugs. They also have Product Managers of P&G quality.

 

[hajimow]

Lower highs in B and C compared to A and then it fails to break A in D and if it breaks level F, it will attract more shorts. The critical level is $88.

 

[xandman]

I think Bone's chart is more telling. $88 is just an expansion of the range. It has a greater downside at the low 80's but that would require the nudge of a recession for a mass exodus.

Would be nice to see research on the 2002 move.

 

[hajimow]

I think Bone's chart is more telling. $88 is just an expansion of the range. It has a greater downside at the low 80's but that would require the nudge of a recession for a mass exodus.

Would be nice to see research on the 2002 move.

I am not expecting $88 to happen anytime soon. recently MCD has become directionless. When market is up, MCD does not follow the market and in down days does not fall that hard.

 

[xandman]

Check out KO. Another LV stock meandering and at the bottom of it's range.

The whole category, which is classic B&H, is lagging. If there is no pick up in the Fall or after a Sep rate hike, I am thinking that big money is largely out of the market and longs are mostly bagholders.

 

[hajimow]

So, where does the opinion that MCD may not even exist in 5 years come from... personal opinion ?

That is my personal opinion. My point was that you cannot extrapolate the future from past. Many great companies like Blackberry, Circuit city ,.... got bankrupt because things change and evolve and they cannot adapt. I see MCD cannot and will not be able to compete with other new restaurants like Chipotle, Panera, Starbucks (a big competitor although you might just call it a coffee shop which is not true). Big companies burst out quick if things don't go well. JC Penny, K Mart,....
16 months of consecutive drop in sales is an eye opener.