Earnings Roundup: McDonald's, Coca-Cola, & GM report strong results- here's why

Yahoo Finance's Brian Sozzi, Julie Hyman, and Brian Cheung discuss the latest rounds of earnings from McDonald's, Coca-Cola, and General Motors.

Video transcript

JULIE HYMAN: Very modest gains for the major averages, but because-- or I should say the futures linked to the major averages. But because the Dow and the S&P closed yesterday at records, if there is any gain, we will see record closes once again today. We just talked to Mike Antonelli of Baird. He certainly is still optimistic. Lori Calvasina yesterday from RBC was still optimistic.

So there is still this sentiment in the market. You know, yes, you have these outliers like a Robinhood, but, overall, people are still buying stocks. We are still seeing this upward movement. And you have there the opening bell this morning. Our opening bell coverage is brought to you by PMCO. And there's an IPO, Informatica, ringing the bell. We've got a couple of other IPOs coming up, including Rent The Runway, later today.

Diving back into earnings, however, McDonald's also reporting this morning. And that company saying, people ordered more stuff when they made their visits to McDonald's. Comparable sales of 12.7% year over year, which is better than estimates, although you have a bit of a wonky comparison, of course, because of what we saw last year. Brian Sozzi, you covered this company closely. So what are the metrics you are paying most attention to?

BRIAN SOZZI: Yeah, waistlines are certainly increasing just judging by this McDonald's quarter. Really, same store sales up in every single segment. US up 9.6%. Can't say that I'm surprised. Chipotle, very strong quarter from them last week. We're going to be talking to David Gibbs, the CEO of Yum Brands tomorrow. I suspect they also had a good comeback quarter, but really driven a lot by international markets coming back from the COVID-19 pandemic.

So sales good for McDonald's. But, also, got to give them a shout on operating profits or operating margins up in both their company operated stores, despite them paying higher wages. Also up in franchisee stores, despite franchisees having to pay higher wages. The company, overall, they also stayed buried inside of their 8k that they are going to remodel, I believe, close to 1,300 restaurants globally this year. That's a very big number. All in all, investors have right-- a good reason here to, I think, be eating up McDonald's shares. Good quarter from them. Next.

BRIAN CHEUNG: Yeah, and I love the labor market anecdotes that you gleaned from an employer that's as large and substantial McDonald's. They were saying that wage inflation is definitely the case. I want to read you this quote from the earnings call that's happening right now. They said, quote, our franchisees are increasing wages. Their over wage inflation year to date that we're seeing in our McDonald's operation restaurants were up over 15%, and that is having some helpful benefits. Certainly, the higher wages that you pay, it allows you to stay competitive.

And this is despite the fact that we're, you know, 10 months into 2021 when people were expecting, hopefully, the labor market to be back to full speed, but we still have about 5 million people out of the labor force compared to pre-pandemic levels. What's the way that you entice them back in? It's not just by suspending that extra unemployment insurance, it's by offering them better pay at what is historically a low wage job. So that's going to be a big story.

And there have been price increases at McDonald's, which management has said people haven't necessarily been resistant to. But, again, we're not seeing Big Macs at a hyper-inflated price here of, you know, $15, $16 in New York City, right? Again, they're raising their prices, but it's not a substantial number that's necessarily signaling hyper-inflation here.

JULIE HYMAN: Now you're trying. You're trying to get them. I have a feeling he's going to stay focused on earnings, though. Let's talk--

BRIAN SOZZI: I already know that those Big Macs are going to hit $17. I already know. But we can keep it moving. It's OK.

BRIAN CHEUNG: OK, well, that's a bet. I'll write that down right now. 17 bucks.

BRIAN SOZZI: OK. OK.

JULIE HYMAN: All right, everyone take notes. In the meantime, let's move on to Coca-Cola. There, we saw the company beating estimates on both the top and the bottom line, and also coming out with a forecast that it was raising for the full year organic revenue, which excludes effects.

Currency and acquisitions was up by 14%. And the company is predicting by that metric to see organic revenue growth of 13% to 14% for the full year. Soz, I don't know how much Coca-Cola you got in your fridge. I suspect it's a lot. What do you make of the numbers here?

BRIAN SOZZI: I do like the New Coke zero. I like the new branding on the bottle. It's very rad, as '80s kids would say. But nonetheless, I'm going to ding Coke on two things here. I know you're seeing the market embrace this quarter one. Adjusted operating margins down 40 BPs, or basis points, in the quarter. Don't want to see that.

Secondarily, North America operating profits core, which excludes currency, only up 13% in line with their organic sales growth of 13%. In a perfect case, you want to see companies growing operating profits faster than sales. Coke didn't do it. But overall, a good comeback quarter.

Like we heard from McDonald's, international sales really coming back strong for Coca-Cola, raising their organic sales outlook to 13% to 14% from 12% to 14% previously. EPS, they're now looking for 15% to 17% growth this year. They were looking at 13% to 15% growth. So overall, another comeback quarter for Coke in large part because we're seeing more events. We're seeing people go back out to sporting events. And in many cases, that's where Coca-Cola shines.

BRIAN CHEUNG: I mean, as someone born in the '90s, I have no idea what rad means, but I'll just let that one go. Another point that was worth raising in the earnings release from Coca-Cola was really the marketing spend, right? They had effectively turned off the spigot during 2020 because who are you going to try to market to when everyone was stuck inside? But they're really ramping that up again.

And it's not in the United States. It's not like we're seeing Coca-Cola ads all over the place on the East Coast, at least where I live. I haven't seen any, certainly. But it's really in Asia where they've been emphasizing getting that marketing up.

And we saw in China, for example, James Quincey on the earnings call saying that that was an area where they saw a direct effect of increasing marketing on the consumption of their brands. For what it's worth, for most other companies, increased spend on marketing means increased expenses. Not always a good thing for the bottom line. But for Coca-Cola, that's a leading indicator for more sales in the future. Only a brand as storied as Coca-Cola can do that. That's a really interesting point for this quarter that we might expect to see a trend going forward as we get closer to 2022.

JULIE HYMAN: All right, finally, let's talk about General Motors.

[LAUGHING]

That company also coming out ahead of estimates here on both the top and the bottom line. It raised its forecasts for the full year, and it sees its full year adjusted auto free cash flow of $1 billion, which is actually a little bit lower than it had seen before. Now the company is talking about the semiconductor shortage and the effect on its business. It's seeing increased commodity and logistics costs. It says it's seeing strong pricing on full size pickups and full size SUVs, which has partially offset the increase it has been seeing in cost. But it looks like, perhaps, if I had to guess, Soz, it's that free cash flow number, perhaps, that is weighing on the shares this morning.

BRIAN SOZZI: Well, I also tweeted out a chart, too, looking at their-- buried in their presentation, you know, their market share by product category, they lost market share all over. And I know they like to pin the blame on the semiconductor shortages, but it's still not good optically that GM, at least according to its investor presentation this morning, they lost market share in large parts of their business.

Also, I don't think the market likes to see the adjusted operating profit margin for GM. 10.3%. Last year, 15%. This was a company that was supposed to be seeing significant margin increases or inflation in margins, guys, because they cut a lot of costs. So I will leave it there on GM.

But fun fact here. They do note that the third quarter, US average transaction price for one of their vehicles, $47,000. And that's before you have to replace the batteries because of the EV problems. But still, that is a big-- that's a big-- that's a lot of cost. I mean, it is expensive to buy a car, guys. $47,000, that's not cheap.

JULIE HYMAN: Yeah, that one definitely stuck out to me, the $47,000 number as well. Well, I don't know. If you're not going to buy a new car, maybe you can buy a used Hertz car through Carvana. That's a new deal that's being announced this morning, which we'll give details on a little bit later on. Right now, we're going to take a break, though.

But before we do, I just want to check on one more stock quickly. And that is Novavax. It is up 14% this morning. And that's because it submitted its first filing to get authorization for its COVID-19 vaccine. That filing coming in the United Kingdom, and it says it's going to follow with some other markets, not including at this time the FDA.