McDonald's | Fundamental Analysis

As many people know, McDonald's recovery is now at its peak. Last week, this fast-food titan announced its Q4 earnings results, which include record sales growth as the company recovered from the 2020 pandemic recession. The chain is becoming much more profitable, thanks to a combination of cost-cutting and price increases.

Let's take a look at some key findings from the fourth-quarter report to gauge the company's state of affairs.

Investors feared that the latest variant of the coronavirus might hinder McDonald's growth recovery, but those fears proved to be exaggerated. Comparable-store sales were up 10.8 percent on a two-year basis, smoothing out fluctuations associated with temporary store closures. This result represents an acceleration from the previous quarter when revenues rose 10.2% on this basis.

Of course, the U.S. market has slowed a bit, with two-year numbers down to 13% from 15% in the third quarter. However, McDonald's is still showing attendance growth and growth in average spending per visit in all of its key geographic regions. CEO Chris Kempczinski, in a press release, called the 2021 results, which include McDonald's fastest growth in U.S. history, "a truly exceptional result." The chain's global sales for the full year rose 21 percent to $112 billion.

Of course, McDonald's has not escaped a sharp rise in inflation, which has hit food ingredients especially hard in recent months. For example, wages rose more than 10 percent for most of 2021, and food costs rose about 6 percent.

The chain has more than offset these pressures by raising prices, aggressively cutting costs, and increasing efficiency through more takeout and delivery sales. In fact, operating profit increased 17%, outpacing overall revenue growth.

This success has allowed operating margins to soar to 42.4% of sales from 36.7% a year ago. McDonald's is now showing record profitability, even as costs across the business are rising rapidly. Operating profits for the full year topped $10 billion, a new record.

Kempczinski and his team are watching for some major potential challenges for fiscal 2022, including continued pressure to pass on higher food costs to consumers. Some key markets, such as China, face further COVID-19 restrictions. And competition in home food delivery remains as fierce as ever.

But last year's results confirm that this restaurant chain has several world-class assets that allow it to thrive in almost any market environment. It's also a testament to the flexibility of its massive fast-food platform to cater to a wide range of tastes, whether premium drinks and sandwiches or inexpensive meals.

As a result, investors have every reason to expect positive returns from owning McDonald's stock. Of course, it's unlikely that the company will ever repeat its 2021 performance when its revenues rose 14% after a downturn in 2020.

But the restaurant chain has regularly gained share in a huge global market and boasts some of the highest margins and cash flow in the industry. These factors, as well as a growing dividend, should help shareholders continue to outperform the market by owning these shares.