McDonald's Analyst On Chain's 'Double-Digit' Breakfast Decline During Pandemic

Global fast food giant Mcdonald's Corp MCD reported second-quarter results Tuesday that show that the fast food chain needs to "fight" back against a major decline in the breakfast category, Evercore ISI analyst David Palmer said on CNCB's "Squawk on the Street."

Pizza Envy: The COVID-19 pandemic has benefited pizza chains, while chicken sandwiches remain a hot commodity in the restaurant industry, Palmer said.

The pizza chains and chicken chains are all showing "monster comps," while McDonald's breakfast is seeing a "major double digit-decline," the analyst said. 

Breakfast is likely an eight-plus point drag to total comps in the U.S., he said. 

Long-Term Story: The international business is showing an "even slower buildup," so McDonald's stock ranks behind a "more domestic earnings revision story," Palmer said.

In the long-term, he said McDonald's remains poised to take market share. 

Ex-Exec Weighs In: McDonald's reported a "pretty good" report and is led by an excellent management team and "outstanding" franchisees, former McDonald's USA CEO Ed Rensi said in a Fox Business interview.

Franchisees are likely seeing incremental benefits to their profits, as dining rooms remain mostly closed while June sales were down just 2%, Rensi said.

McDonald's said it will close around 200 locations, and this shouldn't be "bothersome" as the figure is merely inline with a track record of closing 150 to 200 stores a year, the former CEO said. 

McDonald's is likely to open enough stores to offset the closures and end the year breakeven in global store counts, he said. 

What McDonald's Q2 Means For Starbucks: McDonald's notable weakness in the breakfast category doesn't bode well for Starbucks Corporation SBUX, Palmer said. Coffee and breakfast is a "tough zone" to operate in, and Starbucks' comps are likely down around mid-20% in June, he said. 

MCD Price Action: McDonald's shares were down 2.15% at $196.93 at last check Tuesday. 

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