WEBVTT - LakeView's Rothbort: McDonald's Is Substitute For Bonds (Audio)

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<v Speaker 1>Well, now I want to turn to McDonald's earnings disappointing. Uh.

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<v Speaker 1>Is this not only important for things to come at McDonald's,

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<v Speaker 1>but also for fast food in general and maybe even

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<v Speaker 1>for the entire economy. Scott Rothbort joins us now. He's

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<v Speaker 1>president and founder of Lakeview Asset Management. Scott, welcome back

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<v Speaker 1>to the show. Thanks for having me on again. Well,

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<v Speaker 1>let first let's talk about the news. What happened to McDonald's.

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<v Speaker 1>Why did their earnings disappoint Well, you know, earning the

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<v Speaker 1>disappointments are based upon expectations, so one can make the

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<v Speaker 1>argument that perhaps analysts were expecting that the company would

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<v Speaker 1>do better, especially with same store sales um But I

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<v Speaker 1>think you have to look at McDonald's in a more

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<v Speaker 1>holistic one and and not really focusing on the individual

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<v Speaker 1>uh data points that they released. McDonald's is a company

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<v Speaker 1>really kind of onto a sector of its own when

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<v Speaker 1>you think about it's it's the largest global restaurant chain.

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<v Speaker 1>But as I tell my students in Seaton Hall, and

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<v Speaker 1>I asked them, what's McDonald's in the business of doing?

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<v Speaker 1>They all say selling him org As I said, No,

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<v Speaker 1>they're in the they're in the retail business. Sorry, they're

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<v Speaker 1>in the um uh. They in the real estate business

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<v Speaker 1>rather than the retail food business because they are one

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<v Speaker 1>of the largest real estate operators in the countries. A

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<v Speaker 1>matter of fact, you can go online McDonald's has a

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<v Speaker 1>whole list of properties that are for sale by McDonald's.

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<v Speaker 1>And what McDonald's been doing is that they have been

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<v Speaker 1>in the process over the last few years of refranchising

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<v Speaker 1>their units Nella's. McDonald's itself no longer wants to be

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<v Speaker 1>in the operating business. They would rather be a franchise

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<v Speaker 1>r and least their real estate to the franchise ease,

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<v Speaker 1>and this is the way the business is going. You

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<v Speaker 1>can't really compare McDonald's to an up and coming restaurant

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<v Speaker 1>chain like Zoe's you know that's one of my favorite ones,

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<v Speaker 1>or Wings Stop or Elpoyo Loco. They're really in different

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<v Speaker 1>categories even though they both sell food, you know, those

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<v Speaker 1>those companies are a little bit more specialized in terms

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<v Speaker 1>of the meal that they offer UM and they're much

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<v Speaker 1>earlier in their in their growth phase. Having said that,

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<v Speaker 1>Scott Rothbort, does McDonald's trade as a real estate company

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<v Speaker 1>or as a restaurant business because the stock is up

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<v Speaker 1>less than three percent so far this year. Compare that

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<v Speaker 1>to the SMP five hundred a game about six percent,

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<v Speaker 1>and it's paying just under three percent of the dividend. Well,

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<v Speaker 1>it's a great question, UM. I have said for the

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<v Speaker 1>last several years, UM that you have to look at

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<v Speaker 1>McDonald's as being a dividends stock, as a company that's

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<v Speaker 1>basically going to be paying out cash brow through dividends

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<v Speaker 1>and stock repurchases. Now, Pimnew and I have talked about

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<v Speaker 1>McDonald's well over a decade now, and I brought it

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<v Speaker 1>back in two thousand three when the company was really

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<v Speaker 1>at its body in the midst of really a problematic

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<v Speaker 1>period for the company. And then over the next ten

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<v Speaker 1>years they transformed themselves and and fix the company up.

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<v Speaker 1>They expanded internationally, and by two thousand and thirteen, you

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<v Speaker 1>really couldn't do anything more with McDonald's that you had

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<v Speaker 1>already done over the course of that period of time.

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<v Speaker 1>And now it was now it's about squeezing as much

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<v Speaker 1>cash flow out of his operations, out of his franchise,

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<v Speaker 1>of his real estate. So I look at McDonald's as

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<v Speaker 1>a company that's yielding three That yield is going to

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<v Speaker 1>go up probably sometime in the fourth quarter of this year. UM,

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<v Speaker 1>and I look at McDonald's in the point of view

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<v Speaker 1>of being a substitute for UM bonds rather than being

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<v Speaker 1>a growth company. Okay, that's interesting point because we see

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<v Speaker 1>in our bloomberg A news story today that Stiffill financial

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<v Speaker 1>corpse Paul Restaurant has raised concerns about the restaurants actor

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<v Speaker 1>hitting a downturn, harbinger for a broader economic slump in

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<v Speaker 1>the US next year. UM westra and Jefferies Group analyst

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<v Speaker 1>Alexander Slagel downgraded other restaurant stocks today. Red Robin, So,

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<v Speaker 1>I guess you're saying you don't compare McDonald's to the

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<v Speaker 1>other sort of you know, fast casual dining chains. You

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<v Speaker 1>say that they exist in their own and they're they're

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<v Speaker 1>safe like a bond. But when you look broadly at

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<v Speaker 1>the industry, what's it telling you, well would tell me,

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<v Speaker 1>is that it's a very broad industry. You really answered

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<v Speaker 1>your own question there. UM, I look at companies like Zoey's,

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<v Speaker 1>which is in the early part of his growth process.

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<v Speaker 1>By the way, we own Zowey's UH in our restaurant portfolios. UM,

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<v Speaker 1>we talk about Zoe's and McDonald's another restaurant companies in

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<v Speaker 1>our newsletter, which is available for the general public. Um.

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<v Speaker 1>Uh and uh you know McDonald's it really is, is

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<v Speaker 1>a much older, more established company. Um. But when you

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<v Speaker 1>look at David Buster, I'm not going to say that

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<v Speaker 1>the people who go to David Busters are gonna be

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<v Speaker 1>the same people who are gonna go to McDonald's. What

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<v Speaker 1>McDonald's has that everyone else doesn't have is basically McDonald's

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<v Speaker 1>pretty much had every exit on every major um highway

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<v Speaker 1>along this country, all right, And that's that's really who

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<v Speaker 1>the tryn to service these days, people who are along

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<v Speaker 1>the highways, people who want quick meals. The same cannot

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<v Speaker 1>be said for I Dine sorry, um for um, for

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<v Speaker 1>Dine Equity, who owns Applebee's an Eyehop. The same can't

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<v Speaker 1>be said for you know, all the restaurant chains, um

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<v Speaker 1>like Ruby Tuesday. Hey look yesterday. Um, there was a

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<v Speaker 1>major investor who put a lot of money into Buffalo

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<v Speaker 1>Wild Wings. So you may have some antalts who come

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<v Speaker 1>out and down uh down grade the entire industry, but

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<v Speaker 1>I think selectively, there are some great bargains uh. And

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<v Speaker 1>there's some great road ahead for some of these chains.

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<v Speaker 1>Scott Rothfort, the founder, the president of lake View Asset Management,

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<v Speaker 1>Thank you very much. This is taking Stock. I'm PIM

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<v Speaker 1>Fox my co host Kathleen Hayes. This is Bloomberg. H