This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive
compensation for actions taken through them.
Wal-Mart Stores Inc. (NYSE: WMT) raised minimum worker pay to $9 an hour, which should rise to $10 next year. By some estimates, Wal-Mart’s plan will cost it $1 billion a year, and it only hits the company’s U.S. operations. The decision put pressure on McDonald’s Corp. (NYSE: MCD), the largest fast-food company, to do the same. Wal-Mart can afford the decision. It may be harder for McDonald’s to follow suit.
McDonald’s had net income of $4.8 billion last year, down 15%. Based on same-store sales, that figure could fall again this year. Revenue for 2014 was $28.1 billion, and it is not growing. A pay increase would be done into the jaws of rapidly falling earnings.
ALSO READ: America’s Most Hated Companies
Any wage increase will not affect all of McDonald’s revenue. The company did not break out U.S. revenue in the most recently reported quarter, but many estimates set overseas revenue at 30% of the total. In the United States, a calculation of costs gets complicated further. Revenue from stores operated by the company is about two-thirds of the total. Franchises make up the rest. These franchises may be forced to follow the company’s lead in any wage increase. It may be that not a dollar of this cost gets passed back to the parent — good news for McDonald’s earning power.
For several years, much of McDonald’s cash from operations has been spread to shareholders. It plans to do so in the future as well. In its press release about 2014 results, management said:
Returned $6.4 billion to shareholders through dividends and share repurchases, in connection with our $18-$20 billion, 3-year cash return target for the years 2014-2016/
It is a commitment that will drag on the effects of any decision about wages.
A calculation of the earnings effect of a wage increase has to be done on the back an envelope. McDonald’s has not given a number, and if it holds the line on wages, it never will. Because a wage increase might only reach half of McDonald’s U.S. locations, the estimate becomes muddier. It is safe to say that, given McDonald’s employee base and the Wal-Mart $1 billion cost to raise wages, McDonald’s faces at least $100 million if it follows the world’s largest retailer. Under many circumstances, that would not be a great deal of money. Offset by falling earnings and a massive commitment to return money to shareholders, the decision may be harder.
ALSO READ: Wal-Mart Wage Hike Gets Mixed Reaction
The Average American Is Losing Their Savings Every Day (Sponsor)
If you’re like many Americans and keep your money ‘safe’ in a checking or savings account, think again. The average yield on a savings account is a paltry .4% today, and inflation is much higher. Checking accounts are even worse.
Every day you don’t move to a high-yield savings account that beats inflation, you lose more and more value.
But there is good news. To win qualified customers, some accounts are paying 9-10x this national average. That’s an incredible way to keep your money safe, and get paid at the same time. Our top pick for high yield savings accounts includes other one time cash bonuses, and is FDIC insured.
Click here to see how much more you could be earning on your savings today. It takes just a few minutes and your money could be working for you.
Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.
Latest from 24/7
Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.
You can follow him investing $500,000 of his own money on our top AI stocks for free.