McDonald's Earnings: Firm Can't Defy Gravity During Tough Quarter but Strong Prospects Remain Intact

Consumer traffic remains tough to come by in the restaurant industry, with wide-moat McDonald's tepid results attesting to the degree of industrywide pressure that fast food stalwarts continue to navigate. While industry spending remains strong, traffic growth has been anemic, and despite 30% comparable sales growth over the past few years, McDonald's franchisees are earning the same restaurant margins that they did prior to the pandemic, given the concomitant surge in food and labor inflation over that period. As we digest soft quarterly results and a cautious outlook, we plan to lower our $312 intrinsic valuation by a mid-single-digit percentage, but shares still look attractive.