Shares of McDonald’s Corp. (MCD) have continued their upward trend since the fast food giant reported strong fiscal year 2016 fourth quarter results on Jan. 23. Since the earnings report, MCD stock has gained roughly 5.17 percent, beating the 4.41 percent that the S&P 500 has gained over the same period. (See also: A Visit to New McDonald's McCafe in New York City.)
In February alone, MCD stock recorded a 4.14 percent gain, still surpassing S&P 500’s 3.72 percent gain in February. McDonald’s EPS of $1.44 came in ahead of the $1.41 that analysts polled by Zacks estimated, which is also an increase of 10 percent compared to the prior-year quarter. MCD reported that its revenue dipped by 5 percent versus the prior-year quarter to $6.03 billion. Zacks consensus estimate was $5.98 billion.
It’s important to note that it’s mainly the improved efficiency with which MCD operates that made it easy to beat earnings estimates, even though revenue dipped as MCD continues to centralize its business. In fact, a quick check using the Finviz stock screener showed that McDonald’s has the second largest operating margin in the restaurants industry — 31.50 percent. While Dunkin’ Brands Group Inc. (DNKN) is number one with an operating margin of 50 percent, MCD’s 31.50 percent yielded roughly $7.75 billion. That’s over nine times DNKN’s revenue.
In 2015, MCD announced that it would reduce its general and administrative (G&A) expenses by $500,000 by the end of 2018. During the most recent earnings call, McDonald’s Chief Financial Officer Kevin Ozan said the company’s actions in the last two years have yielded over $200 million savings. The company had previously set a target of $150 million savings by the end of 2016. Ozan mentioned that the company’s improved G&A discipline was a contributory factor to its 2016 operating margin.
Further G&A savings are likely to expand MCD’s operating margin even more. Ozan said MCD will provide more insight into its G&A savings moves during its analyst meeting on March 1. Investors would want to hear what McDonald’s has to say about this, because it could be a near-term catalyst for the stock, given the impact that its G&A moves have had on results already.