Unhappy Meal

29072020---mcdonalds

Image source: Keith Homan, Ratana21 - Shutterstock

What's going on?

McDonald’s certainly wasn’t lovin’ it on Tuesday: the fast-food giant reported second-quarter earnings that left investors feeling disappointed, shortchanged, and a little bit peckish (tweet this).

What does this mean?

McDonald’s “same-store sales” – which only include restaurants open for at least thirteen months – were 24% lower than the same time last year. Things did improve as the quarter went on and more stores reopened – in turn helping the company report higher revenue than forecast – but the extra money it had to spend on supporting its restaurant network meant the company’s profit fell short of predictions. So leave it to Delivery Hero – the German online food ordering and delivery platform with businesses in 40 markets – to show the old coot how it’s done: it reported a stronger-than-expected quarterly update on Tuesday.

Why should I care?

Zooming in: Fixed costs with a side of fries.



Unsurprisingly, widespread lockdowns drove demand for fast food and fast online delivery services in the second quarter. Delivery Hero, for example, reported over 100 million orders in June alone. But the two companies’ very different results partly come down to their business models: McDonald’s is on the hook for a higher proportion of “fixed costs” than Delivery Hero. In other words, Delivery Hero’s costs largely rise and fall depending on how much business it’s doing, but McDonald’s still has to pay things like rent no matter what – despite only owning 7% of its restaurants directly. That leaves McDonald’s with a much higher hurdle to clear before it hits the same kind of profits.





For markets: Told you so.



Delivery Hero also raised its forecast for the rest of the year on Tuesday, but its shares probably “only” rose 3% because investors had been expecting good news following a preliminary results announcement in early July. McDonald’s never gave investors a sneak peek, which might be why its shares fell 2%.

Originally posted as part of the Finimize daily email.

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