Most investors are aware of the power of McDonald's (MCD -0.05%) operating model. As a leading fast-food business, the chain benefits from global demand for convenient, high-quality food at value prices.
That approach has generated phenomenal long-term stock returns for shareholders of this blue chip giant.
Image source: Getty Images.
You might know, for example, that most of Mickey D's earnings come from rent, royalty income, and franchise fees rather than from any markup on food sales. Below, we'll look at a few charts that illustrate some other potentially surprising aspects of this stellar business.
1. Sales growth
Data source: McDonald's. Chart by author.
McDonald's 2019 fiscal year was unusually good, with comparable-store sales rising 5.9% to mark the chain's best showing in over a decade. That boost included a 13-year high in the core U.S. market.
On the downside, McDonald's customer traffic declined for a second straight year in the U.S., meaning all of its growth came from higher average spending. Still, management was thrilled to celebrate the fact that the chain booked over $100 billion in food sales last year and served a record 70 million people each day.
2. Operating margin
MCD Operating Margin (TTM) data by YCharts.
It's easy to see the major inflection point in McDonald's profitability around 2016, which is right when the company began its aggressive refranchising plan. The proportion of company-owned locations dove from around 15% to less than 5% today, which tilted the business even further toward those high-margin royalty and franchise fees.
As a result, operating income is 42% of sales right now compared to less than 30% just five years ago. In absolute numbers, Mickey D's now books over $9 billion in annual operating profit compared to $7.7 billion in 2016. That boost has occurred despite the fact that reported revenue has declined thanks to its refranchising initiative.
3. Capital expenditures
MCD Capital Expenditures (TTM) data by YCharts.
Management isn't afraid to direct huge amounts of cash toward the business, and in fact is in the middle of its biggest real estate investment to date. McDonald's remodeled thousands of its locations last year to refresh the decor, improve workflows, and add conveniences like mobile ordering and home delivery. Capital expenditures are set to tick up to $2.4 billion in 2020 to support more of these upgrades, from $2.3 billion last year. Since 2016, the chain has directed over $7 billion into the business
4. Cash returns
MCD Stock Buybacks (TTM) data by YCharts.
McDonald's has made a habit out of increasing its return to shareholders through dividends and stock repurchase spending. The dividend payment is up over 30% since 2016 and the chain has spent roughly $5 billion per year on reducing its outstanding share count. That metric stands at 746 million today compared to 794 million in 2017.
5. Valuation metrics
MCD Dividend Yield data by YCharts.
Recent stock market volatility has combined with fears of at least a short-term sales slump as countries around the world seek to contain the novel coronavirus outbreak. McDonald's is a consumer-focused business and would likely see an impact from these moves, plus any subsequent economic slowdown.
Yet the stock price slump has pushed its price-to-earnings ratio back to 24 after having peaked at 29 in mid-2019. Income investors buying the stock today can collect a meaty return, too, now that the annual dividend yield is back above 2.5%.
