Just Supersize it

I worked at McDonald’s for some of high school and college. It was hard and greasy work, but it kept gas in my car. Now looking at McDonald’s from a stock investment perspective, it seems my former employer is a perfect example of what the companies we are investing in are dealing with in this high inflationary environment.

Due to rising inflation, McDonald’s announced that it expects their food and paper costs to almost double this year compared to what they were paying for the same things in 2021. To counter those costs, they are raising prices for their food to remain profitable, while trying to do so in a way that their customers still see it as a value. It is a difficult balancing act for every company these days.

McDonald’s and other restaurants are dealing with not only rising costs but also worker shortages and major supply-chain problems. At the same time, restaurants have had to raise wages to keep and draw in workers while watching prices for meat, vegetable oil, and other supplies surge.

However, they are finding ways to adapt and remain profitable. McDonald’s announced in their earnings report on 1/27/22 that their U.S. same-store sales went up 7.5% for the last quarter of 2021 according to the Wall Street Journal on 1/27/22. (It was probably because I started to really like those new chicken sandwiches and have given the Missouri stores a fair amount of cash.)

Restaurants and other companies are getting creative to maintain profits and keep shareholders happy. McDonald’s has raised prices; they increased their menu prices by 6% last year and to combat the worker shortage they raised wages by 10% according to the same article.

Follow the math here, supplies increased by roughly 100% and wages went up by 10% but they ‘only’ raised menu prices by 6%. That’s not the math shareholders are wanting.

In the same Wall Street Journal article on 1/27/22, McDonald’s reported a quarterly earnings-per-share of $2.23 which was below analysts’ expectations of $2.34 a share because of higher expenses for workers and supplies. They didn’t miss the earnings by much and I would contend that they are adjusting to this high inflation environment pretty well. I hope the rest of the stocks on the stock exchange are just as creative.

I suggest they quit teasing with that elusive McRib and keep it on the menu permanently. But they didn’t ask me.

Have a blessed week!

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC

Securities offered through LPL Financial, member FINRA/SIPC. Investment advice offered through Independent Advisor Alliance (IAA), a registered investment advisor.

IAA and Fervent Wealth Management are separate entities from LPL Financial.