Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

McDonald’s Corporation (MCD): Poised to Take the Crown?

There are certain companies that seem so entrenched in their industry that there is no way for their competition to overtake them. McDonald’s Corporation (NYSE:MCD) is arguably the leader in the fast food business, but one of their old competitors is making changes that could challenge for the crown. Seemingly from out of nowhere, Burger King Worldwide Inc (NYSE:BKW) is making steady changes to their business model that could make the company a true contender against McDonald’s.

Changing Tastes

To be fair, the market for fast food is one of the most highly competitive spaces in the restaurant business. For years, companies have come and gone trying to take market share in this business. However, after many years, the top names stay the same. Burger King Worldwide Inc (NYSE:BKW)has been competing with McDonald’s Corporation (NYSE:MCD) and The Wendy’s Company (NASDAQ:WEN) forever. While they didn’t always exist as separate entities, Yum! Brands, Inc. (NYSE:YUM) businesses like KFC, Taco Bell, and Pizza Hut have been steady competitors as well.

McDonald's Corporation (NYSE:MCD)What these companies have in common is they all are large, well known brands where customers can get a quick meal at a reasonable price. For years, McDonald’s Corporation (NYSE:MCD) had led the way in updating and changing their menu to appeal to the changing tastes of consumers. In the past, Burger King Worldwide Inc (NYSE:BKW), The Wendy’s Company (NASDAQ:WEN), and Yum! Brands, Inc. (NYSE:YUM) all seemed to stay focused on fast food without making too many changes to their menus. On a positive note, Burger King has recently changed their menu and introduced new options to health conscious customers.

3 Big Challenges

One issue facing Burger King Worldwide Inc (NYSE:BKW) is they are struggling when it comes to same-store sales. In their peer group, Yum! Brands, Inc. (NYSE:YUM) has some serious challenges primarily due to problems in their Chinese operations. On a normal basis, Yum! Brands has turned in positive same-store sales growth, and once these short-term issues in China fade into the background, I expect this positive trend to continue.

When it comes to McDonald’s Corporation (NYSE:MCD), the company’s same-store sales have been growing in the low single-digits, but in the current quarter, their same-store sales were down 1%. The Wendy’s Company (NASDAQ:WEN) has been introducing some new menu items as well and reported same-store sales up 1%. Burger King Worldwide Inc (NYSE:BKW)’s same-store sales in the important U.S. market were down 3%, and in Europe and Latin America same-store sales were down around 1%. The company’s only point of strength was the Asia-Pacific region where same-store sales were up 2.7%. With nearly 12,000 stores showing negative same-store sales, Burger King has some work to do.

A second challenge facing Burger King Worldwide Inc (NYSE:BKW) is the company’s diluted shares have increased whereas both McDonald’s Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM) have retired shares. Over the last year, Burger King’s diluted shares increased 1.48%, and The Wendy’s Company (NASDAQ:WEN) followed with a share count increase of 0.87%. By contrast, McDonald’s retired 2% of their outstanding shares, and Yum! Brands retired 2.72%. While a 1.48% increase at Burger King might not sound like that big of a deal, it will make earnings comparisons more difficult going forward.

Third, Burger King Worldwide Inc (NYSE:BKW) is saddled with a balance sheet that is significantly weaker than its peers. The company’s debt-to-equity ratio is 2.43, whereas the next highest ratio comes from Yum! Brands, Inc. (NYSE:YUM) at 1.28. With McDonald’s Corporation (NYSE:MCD) and The Wendy’s Company (NASDAQ:WEN) carrying debt-to-equity ratios of 0.84 and 0.73, you can see that Burger King needs to pay down a significant amount of debt to bring their balance sheet in line with their competition.

2 Kingly Positives

Even with the aforementioned challenges, there are two positives that investors should pay attention to when considering the future of Burger King Worldwide Inc (NYSE:BKW). First, the company carries the best operating margin of its peer group. In the current quarter, the company’s operating margin was 31.25%, which was a significant improvement over 14.76% last year. By comparison, McDonald’s Corporation (NYSE:MCD) reported an operating margin of 29.51%, Yum! Brands, Inc. (NYSE:YUM) came in with a margin of 19.21%, and The Wendy’s Company (NASDAQ:WEN) fell significantly behind at just 3.72%.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.