Please ensure Javascript is enabled for purposes of website accessibility

McDonald's Bounces Back to Growth

By Demitri Kalogeropoulos - Jan 31, 2021 at 10:48AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The chain just barely managed its seventh consecutive year of growth in the U.S. market.

McDonald's (MCD 1.77%) just closed the books on a forgettable year for the business. COVID-19 continued to sink customer traffic across its global portfolio of stores through the end of 2020, the fast-food giant said in its recent earnings report. 

Yet McDonald's notched a few wins that point to a better 2021 ahead, assuming the pandemic threat fades over the next few months.

Let's take a closer look.

A man with a to-go food order.

Image source: Getty Images.

Growing in the U.S.

McDonald's steady rebound continued in the three months that ended in late December. Comparable-store sales were down just 1% globally, compared to a 2% drop last quarter and a 25% slump in fiscal Q2. Declining revenue isn't normally a cause for celebration, but management highlighted several bright spots in a tough year.

These include the fact that sales landed in modestly positive territory in the core U.S. market thanks to a quick shift to a drive-thru and home delivery focus. That result kept the chain ahead of peer Starbucks for the year, but trailing Chipotle Mexican Grill. "2020 will be remembered as one of McDonald's most challenging ... moments in our long history," CEO Chris Kempczinski said in a press release.

Earnings are down

The earnings picture is less encouraging and reflects the depth of the chain's operating slump in 2020. Profits in Q4 fell 9% after excluding currency exchange rate shifts, and were down 20% for the full year. That metric trailed McDonald's revenue trend thanks to extra costs related to COVID-19 safety and elevated marketing spending aimed at supporting franchisees.

The fast-food industry has become more competitive in recent months as national chains fight over pieces of a flat market.

MCD Cash from Operations (TTM) Chart

MCD Cash from Operations (TTM) data by YCharts

McDonald's finances endured a COVID-19 hit but they're still strong. Operating cash flow declined by roughly $2 billion in 2020 yet was solidly positive at $6.3 billion.

The chain continued spending cash on its growth initiatives like store remodels, product launches, and delivery. "By investing for the future and leveraging competitive strengths, we're confident we can continue to capture market share and drive long-term sustainable growth," Kempczinski said.

Looking ahead

Management didn't issue a forecast for the new fiscal year, but McDonald's is likely to report significant growth this year. The fiscal first quarter, which started a few weeks ago, is up against a prior-year period that included significant early impacts from the pandemic. Comps dove 13% in the U.S. in March last year and fell 35% in the company's core international segments. Both areas should see significant improvements when compared to those slumps.

The big question is when the chain can get back to setting sales and earnings records again on an absolute basis. Continued modest improvements like the one the chain just announced would mean McDonald's could reach that revenue mark in 2021. The profit rebound will take longer.

That means shareholders should brace for a volatile period ahead for the business, and for the stock, until the rebound path looks clearer by late 2021.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

McDonald's Corporation Stock Quote
McDonald's Corporation
MCD
$247.90 (1.77%) $4.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.