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Nevermind the burgers! McDonald's financial engineering the real story


Hank Smith of Haverford told us all McDonalds (MCD) wasn’t an earnings story. In February Smith came on Breakout and said Micky-Ds was a “Yield of Dreams” story; a company able to issue you debt at such low yields that it had the ability to the generate yield and conduct buybacks almost regardless of performance.

Sure enough McDonalds reported a disappointing first quarter this morning as the company continues to wrestle with any number of social, cultural and dietary headwinds. For the quarter ending March 31st the real burger kings reported EPS of $1.21 per on $6.7 billion ins revenue. Wall Street analysts had been expecting earnings of $1.24 on slightly higher revenues.

Not that estimates and operational performance matter all that much at McDonalds anymore. After an initial drop shares were up pre-market. Here’s a screengrab of the company’s press release. See if you can guess what investors are focusing on:

McDonalds had net income of $1.2 billion and returned exactly that amount to shareholders in the form of dividends and buybacks. In the attached clip Smith reiterates what he said earlier this year. He thinks the company will figure out how to get the operations part right but in the meantime they’re paying only slightly higher yields than the Treasury Department.

The 3.2% yield may be the only tasty thing about the McDonald's story but that’s more than enough to provide a happy meal for portfolios. Shares of McDonald's are more than 7% higher since Smith suggested taking a look in February.

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