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McDonald's Earnings: What to Watch

The Motley Fool logo The Motley Fool 10/19/2021 Demitri Kalogeropoulos and Brian Withers
McDonald's Earnings: What to Watch © Provided by The Motley Fool McDonald's Earnings: What to Watch

McDonald's (NYSE: MCD) is set to answer some big questions for investors. The fast-food giant reports third-quarter earnings on Oct. 27, just before the market opens.

In this video from "The Five" from Motley Fool Live, recorded on Oct. 12, Fool contributors Brian Withers and Demitri Kalogeropoulos discuss the key trends to watch for in the upcoming earnings announcement.

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Brian Withers has no position in any of the stocks mentioned. Demitri Kalogeropoulos owns shares of Chipotle Mexican Grill, McDonald's, and Starbucks. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends Domino's Pizza and recommends the following options: short October 2021 $120 calls on Starbucks. The Motley Fool has a disclosure policy.

Brian Withers: Demitri, you've got a completely different company up that you're watching?

Demitri Kalogeropoulos: Yeah. I'm interested in McDonald's upcoming earnings report that's on Oct. 27 before the market opens.

As a big global company we get a good idea about how the restaurant industry is going, how the fast food industry is doing with this report. The stock so far this year is just matching the market, but it's down, trailing the market since early 2020, when the pandemic started.

Now last quarter what was interesting is McDonald's finally got back to growth on a record basis. They started setting new sales records again for the first time since the pandemic hit. Sales were up last quarter, 41%, but that's compared to 2021 most of the stores were closed, but they were up 7% compared to 2019. McDonald's is growing again that's the good news, but there were some worrying signs in there.

The customer traffic is still low, it hasn't recovered all the way to 2019 levels. Then there's that question of right after their was bad earnings report came out a lot of that COVID-19 case rates surged again in the United States and a lot of other places like Europe and they reinstituted some capacity restrictions in a lot of places so it'll be interesting to see if that really sends McDonald's back into retreating mode again.

Most investors are looking for sales of around $6.1 billion and that would be solid growth compared to $5.4 billion a year ago and $5.5 billion two years ago. The expectations are still that McDonald's is going to grow and continue setting new records.

You mentioned Domino's, but McDonald's and Domino's, all these companies like Starbucks, Chipotle, they're all targeting some of this digital ordering, mobile ordering and delivery.

Of course, McDonald's prides itself on having this massive drive-through business that's really helping it through the pandemic period. It will be interesting to see how McDonald's is doing with all these new competitive threats. I do expect them to do well. McDonald's just seems to find a way to succeed through any disruption.

That's why they're so big and they've been this dominant force for decades in the industry and they did well the last net shift a couple of years ago toward healthier, more freshly prepared foods.

They seem to make that shift really well and I think they're going to do the same thing with this move toward digital mobile ordering and drive-thru and delivery.

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