October 23, 2024 10:41 GMT
CONSUMER STAPLES: McDonald's (Baa1/BBB+) outbreak of E.coli from burgers (#2)
CONSUMER STAPLES
-8% in pre-market
€ up to +7, £ up to +4 - steepening in both
- Re. BS it is levered gross/net 4.0x/3.9x - may seem high but it does $26b in revenue on a impressive 45% EBIT margin. Latter is something it has worked on (+15ppt since 2014) including by increasing higher margin franchising mix (95% of stores vs. ~80% a decade ago).
- Note the effective margin, if we look at franchised stores + owned store turnover ($120b), was 9.3%. Company owned stores run a higher 15% margin.
- Re. this year - stagnating sales (Q2 -1%) which it was blaming on macro. It was taking steps to move price points lower ($5 meal deal etc).
Re. RV:
- In £ we point investors to Haleon (Baa1/BBB+) - a firm consumer healthcare name that gives up no spread for the rotation - screens value this year even agnostic of above news.
- In € levels are bit more interesting but there are still rotations with no give up in General Mills and top-end of brewers (Carlsberg - pending M&A supply). We would exercise caution on Carrefour ahead of earnings.
- Those not prepared to wait/see levels attractive; you will be taking a view on case numbers being somewhat contained - may have less impact on fines (historical cases have been larger with still small fines) but will determine brand damage. 40% of revenues in the US.
- Equity analyst are skewed bullish, most only see a near-term earnings hit
- Q3 earnings come 29th Oct - it will be unaffected BUT we will get 1-week of trading conditions colour that are unlikely to be anything but negative.
From earlier; https://marketnews.com/consumer-staples-mcdonald-s-baa1-bbb-outbreak-of-e-coli-from-burgers
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