The final days of McDonald's?

The interesting things from the McD's earnings that stuck out to me. ... The did relatively well in some of the international markets, although they were working with poor comparables from last year.

The picture still doesn't look that great to me. They got killed by the dollar -- overall revenues were down 5 percent (would have been up 7 percent in constant currencies); overall income was down 2 percent (would have been up 10 percent in constant currencies). Also, some of the stories are obviously focused on the increased same store sales in the U.S. (missing the real picture, in my opinion). ... but their U.S. operating profits actually declined by 1 percent for the quarter. The culprit was the increase in wages and benefits they started paying in the company-owned stores. Same story as Wal-Mart a few weeks ago.

The big thing someone not invested for a quick hit should be focused on -- i.e. -- you want to invest in McD's for the long-term -- is that huge increase in earnings didn't relate to McDonald's actual business -- which was the point of this thread. This is all just financial engineering, not a turnaround in McD's business. 1) They had really beneficial comparisons from last year because they had an increase in tax reserves due to some foreign tax matters. That weighed down earnings and made things look better than they would have this year. 2) More importantly, They resorted to the same strategy being employed by all kinds of dogshit companies that aren't fixing their businesses. ... to keep shareholders happy -- $3.1 billion to shareholders during the quarter through stock buybacks that increase the earnings per share and dividends.

That playbook only lasts as long as the Federal Reserve can keep interest rates manipulated down at zero -- making it so companies can borrow cheaply and manipulate their stocks higher with buybacks. It is largely what has driven the stock market the last 2, 3 years. When that ends in a crash and thud (likely when they lose control, not when they step back), McD's is sitting on a lot of debt that will be hard to service (at market rates) PLUS a business that is slowly shrinking. It is what a lot of companies are going to be facing, though.

 

Canadian bacon