It's not easy to flip burgers today if you're McDonald's (MCD 0.88%). The world's largest restaurant chain in terms of sales took another hit after posting crummy quarterly results recently.
Revenue slipped 5% to fall below $7 billion, with the chain's operating profit and earnings also moving noticeably lower. This isn't McDonald's at its best, of course. The only real surprise is that the stock didn't revisit the 52-week low that it hit a week earlier.
The world hasn't been very welcoming to the Golden Arches, particularly in China where a supplier scare has shooed away customers and Russia where some locations were closed down for health concerns that may have been birthed by political motivations.
Unfortunately there isn't a lot going well at Mickey D's closer to home either. Comps plunged 3.3% in the U.S. during the quarter, and that's worse than it seems.
Home cooking
McDonald's reports monthly comps so we already knew that comparable-restaurant sales in this country slipped 3.2% in July and 2.8% in August. By posting a 3.3% hit for the quarter it means that the year-over-year hit for September was even worse than it was earlier in the summer.
We're now eyeing negative stateside comps in 10 of the past 11 months. The only exception was a flat April, and that was with the beneficial timing of the Easter holiday. The fast food giant that seemed to be an all-weather darling has now posted four consecutive quarters of declines in U.S. comparable-restaurant sales.
Bulls will argue that McDonald's will bounce back. This was the chain that delivered nearly a decade-long streak of monthly comps growth before proving mortal two years ago. The lull is the anomaly.
Income investors also aren't likely to buy into the possibility that McDonald's has peaked. McDonald's has pushed its payouts higher every year since initiating a dividend policy in 1976, including its latest hike last month. With the stock near its lows we're looking at a tempting 3.7% yield for new shareholders.
However, bulls and yield chasers may want to be paying better attention here. If the regional return of the seasonal McRib and the national four-week Monopoly promotion don't end the streak of negative comps, where are the catalysts to push the stock higher? If profitability keeps going the wrong way -- as analysts see for all of 2014 -- there will come a point when that 37-year streak of dividend hikes go the way of the McDLT, Arch Deluxe, or McSalad Shaker.
Hope springs eternal
Don't be fooled by the analysts forecasting a return to bottom-line growth next year. They've been backpedalling for months. In fact, over just the past three months we've seen Wall Street's profit-per-share target for 2015 shrink from $6.12 to $5.67.
Yes, it's that bad. McDonald's has spent the past few years trying to beef up its menu with higher priced offerings but customers are staying away and they still think that the chain's food quality is weak. Throw in longer drive-thru waits and growing complaints about about employee unfriendliness and you have a fast food icon that's going to have to a lot of soul searching before it even begins to attempt a turnaround.
This isn't going to be the last bad quarter at McDonald's. Millennials have moved on to the higher quality of fast casual eateries, families concerned about the junk they're feeding their kids are eating more at home, and the penny pinchers that used to feast on the original Dollar Menu have been alienated with the restaurant's half-hearted attempt at going gourmet.
The market's gone. The opportunity's gone. There's no way back for McDonald's, and the road to the future doesn't look pretty.
