McDonald's (MCD)

Fast-food chain McDonald’s (NYSE:MCD) met Wall Streets revenue expectations in Q3 CY2025, with sales up 3% year on year to $7.08 billion. Its non-GAAP profit of $3.22 per share was 3.4% below analysts’ consensus estimates.

Company Overview

With nicknames spanning Mickey D's in the U.S. to Makku in Japan, McDonald’s (NYSE:MCD) is a fast-food behemoth known for its convenience and broken ice cream machines.

Traditional fast-food restaurants are renowned for their speed and convenience, boasting menus filled with familiar and budget-friendly items. Their reputations for on-the-go consumption make them favored destinations for individuals and families needing a quick meal. This class of restaurants, however, is fighting the perception that their meals are unhealthy and made with inferior ingredients, a battle that's especially relevant today given the consumers increasing focus on health and wellness.

Fast-food competitors include Burger King and Popeyes (owned by Restaurant Brands International, NYSE:QSR), Jack in the Box (NASDAQ:JACK), Taco Bell and KFC (owned by Yum! Brands, NYSE:YUM), and Wendy’s (NASDAQ:WEN).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $26.27 billion in revenue over the past 12 months, McDonald's is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost. However, its scale is a double-edged sword because there are only a finite of number places to build restaurants, making it harder to find incremental growth. To accelerate system-wide sales, McDonald's likely needs to optimize its pricing or lean into new chains and international expansion.

As you can see below, McDonald's grew its sales at a sluggish 3.9% compounded annual growth rate over the last six years (we compare to 2019 to normalize for COVID-19 impacts) as it barely increased sales at existing, established dining locations.

This quarter, McDonald's grew its revenue by 3% year on year, and its $7.08 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.3% over the next 12 months. While this projection suggests its newer menu offerings will catalyze better top-line performance, it is still below the sector average. At least the company is tracking well in other measures of financial health.

Number of Restaurants

A restaurant chain’s total number of dining locations often determines how much revenue it can generate.

Over the last two years, McDonald's opened new restaurants at a rapid clip by averaging 3.9% annual growth, among the fastest in the restaurant sector. Furthermore, one dynamic making expansion more seamless is the company’s franchise model, where franchisees are primarily responsible for opening new restaurants while McDonald's provides support.

When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.

Note that McDonald's reports its restaurant count intermittently, so some data points are missing in the chart below.

Same-Store Sales

A company's restaurant base only paints one part of the picture. When demand is high, it makes sense to open more. But when demand is low, it’s prudent to close some locations and use the money in other ways. Same-store sales gives us insight into this topic because it measures organic growth at restaurants open for at least a year.

McDonald’s demand within its existing dining locations has been relatively stable over the last two years but was below most restaurant chains. On average, the company’s same-store sales have grown by 1.2% per year. This performance suggests it should consider improving its foot traffic and efficiency before expanding its restaurant base.

In the latest quarter, McDonald’s same-store sales rose 3.6% year on year. This growth was an acceleration from its historical levels, which is always an encouraging sign.

Gross profit margins tell us how much money a restaurant gets to keep after paying for the direct costs of the meals it sells, like ingredients, and indicate its level of pricing power.

McDonald's has best-in-class unit economics for a restaurant company, enabling it to invest in areas such as marketing and talent to grow its brand. As you can see below, it averaged an elite 57% gross margin over the last two years. That means McDonald's only paid its suppliers $42.97 for every $100 in revenue.

McDonald’s gross profit margin came in at 58% this quarter, up 1.6 percentage points year on year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as ingredients and transportation expenses) have been stable and it isn’t under pressure to lower prices.

McDonald's has been a well-oiled machine over the last two years. It demonstrated elite profitability for a restaurant business, boasting an average operating margin of 45.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, McDonald’s operating margin rose by 1.2 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, McDonald's generated an operating margin profit margin of 47.4%, up 1.1 percentage points year on year. Since its gross margin expanded more than its operating margin, we can infer that leverage on its cost of sales was the primary driver behind the recently higher efficiency.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

McDonald’s full-year EPS grew at a decent 13.5% compounded annual growth rate over the last five years, in line with the broader restaurant sector.

In Q3, McDonald's reported adjusted EPS of $3.22, down from $3.23 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects McDonald’s full-year EPS of $11.91 to grow 9.2%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

McDonald's has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the restaurant sector, averaging 25.6% over the last two years.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

McDonald’s five-year average ROIC was 27.8%, placing it among the best restaurant companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

McDonald's reported $2.47 billion of cash and $55.87 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $14.41 billion of EBITDA over the last 12 months, we view McDonald’s 3.7× net-debt-to-EBITDA ratio as safe. We also see its $685 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EBITDA missed and its EPS fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock remained flat at $301 immediately after reporting.

Updated: December 4, 2025 at 9:43 PM EST

Before investing in or passing on McDonald's, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

McDonald's possesses a number of positive attributes. Although its revenue growth was uninspiring over the last six years, its growth over the next 12 months is expected to be higher. And while McDonald’s projected EPS for the next year is lacking, its new restaurant openings have increased its brand equity. On top of that, its admirable gross margins are a wonderful starting point for the overall profitability of the business.

McDonald’s P/E ratio based on the next 12 months is 23.8x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $331.20 on the company (compared to the current share price of $308.60).