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McDonald's Upcoming Earnings Report in 2 Charts

This past year was a forgettable one for shareholders of McDonald's (NYSE: MCD). The stock lagged a booming market as COVID-19 pressured the restaurant industry. And, while the fast-food giant notched a big rebound between the fiscal second and third quarters, Wall Street was more impressed with recovery performances from peers like Chipotle Mexican Grill (NYSE: CMG).

McDonald's will have a chance to change that downbeat narrative when it announces its full 2020 results in just a few days. Those operating metrics, paired with management's outlook for the new year, will determine whether the stock kicks off 2021 with better momentum than investors saw last year.

Let's take a closer look at the trends to watch on Thursday, Jan. 28.

Image source: Getty Images.

Chart 1: Getting back to positive

Last quarter's results were positive, but they still left investors with more questions than answers. Yes, the business improved during the summer, with comparable-store sales landing at a 2% decline compared to the 24% slump in the second quarter. But McDonald's international business kept slipping while the U.S. segment suffered from another sharp drop in customer traffic.

MCD operating revenue (quarterly YoY growth) data by YCharts. YoY = year over year.

Shareholders are hoping to see sales return to modestly positive territory this quarter, even if that rebound trails the surge that Chipotle has enjoyed, in part by taking a page out of McDonald's playbook and making drive-thru a core feature of its stores.

Chart 2: Operating margin

A big factor in McDonald's stock price surge in the last five years has been a profitability boost that pushed operating margin up to 43% of sales in 2019, compared to the 30% mark in 2016. The expansion hit a wall in early 2020 because of the pandemic, and it's an open question as to where margins go from here.

MCD operating margin (TTM) data by YCharts. TTM = trailing 12 months.

Weighing against a quick rebound are factors like rising labor costs and COVID-19 expenses. The chain can't count on refranchising a big portion of its restaurants, either. On the other hand, if McDonald's can slowly raise prices in its digital delivery segment, then there's a strong possibility of increased earnings power, assuming the industry recovery continues.

Looking ahead

McDonald's doesn't issue short-term growth projections, and the volatile selling environment will give executives even more reason to stay conservative this week. But they might comment on the latest growth rates, as they did back in November when they said the fourth quarter was off to a sluggish start compared to the end of the third. We're already a few weeks into fiscal 2021, after all, and McDonald's will have some fresh data describing how fast-food fans are responding to growing COVID-19 outbreaks and renewed travel restrictions in key markets around Europe.

That picture suggests CEO Chris Kempczinski and his team will describe a tough operating environment heading into 2021 that still looks much better than the prior year's. As a result, while its growth trends won't seem as exciting as some industry peers, McDonald's is still aiming for stable sales gains and rebounding profitability over the next year.

That progress, plus the promise of a growing dividend payment, should keep investors happy to hold its stock through a difficult period ahead for the restaurant industry.

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Demitri Kalogeropoulos owns shares of Chipotle Mexican Grill and McDonalds. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.


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