Raphael Stevens

McDonald’s investor day focused on the company’s long-term future, but the near term could bring more turbulence.
Low-income consumers are spending less, hurting companies such as McDonald’s and Walmart.
McDonald’s revealed aggressive expansion plans, which historically haven’t worked out well for the company.

The Ronald McDonald balloon floats down Central Park West during the Macy’s Thanksgiving Day Parade on November 23, 2023, in New York City.
Gary Hershorn | Corbis News | Getty Images

McDonald’s executives painted a rosy portrait of the fast-food giant’s strength and ability to achieve long-term goals at its investor day, but the company faces some potential road bumps heading into 2024.
The event, held Wednesday, featured few surprises and some new long-term targets, and Wall Street’s reaction has been muted. Shares of McDonald’s have been roughly flat since the investor day presentations. Hit by concerns about the broader economy and fears over weight-loss drugs, McDonald’s stock has risen just 8.7% this year, trailing the S&P 500’s gains of 19%.

Those fears about the business have not stopped the fast-food powerhouse from setting ambitious goals.
McDonald’s plans to open nearly 9,000 new restaurants by 2027, including 900 locations in the U.S. Its larger global footprint will boost the company’s sales and help meet higher demand for its Big Macs and McNuggets, according to executives.
But those ambitious plans intersect with an uncertain global economy. China, McDonald’s second-largest market by number of locations, is still struggling to bounce back from the pandemic. Turmoil in the Middle East has hurt McDonald’s sales in that region — and some markets outside of it. And in its home market, recession predictions haven’t panned out yet, but some economists think a downturn may still come.
Here are the three top risks facing McDonald’s heading into 2024:

1) Weakened low-income consumer

In late January, CEO Chris Kempczinski said the company was predicting a “mild to moderate” recession in the U.S. and a “deeper and longer” downturn in Europe in 2023. But his predictions haven’t come true.

“Here we are a year later, and, boy, was I wrong,” Kempczinski said at the investor day. “So I’m a little leery to make any predictions about next year because I think we’re continuing to see that the consumer has been very resilient.”
Though a recession hasn’t hit, Kempczinski also reminded investors that McDonald’s saw low-income consumers pulling back on their spending last quarter. Other companies, such as Walmart, have also called out that trend.
While McDonald’s benefits from high- and middle-income consumers trading down to its Big Macs and french fries, low-income diners are still an important part of its business.
“We walked away from the investor day more concerned than before on the state of low income consumer,” Bernstein analyst Danilo Gargiulo wrote in a note to clients.

2) Rivals’ promotional spending

Ever since the pandemic, McDonald’s has shifted away from using limited-time menu items to draw in customers. Instead, its marketing has centered on the brand itself, like selling core menu items through promotions based on celebrities’ favorite orders. That approach has fueled strong same-store sales growth in recent years, even as inflation stretched diners’ wallets.
In general, the fast-food giant spends a lot of money on marketing and advertising to maintain its brand recognizability and affinity. McDonald’s spends over $4 billion every year on marketing investments, three to four times more than its nearest competitor, Kempczinski told investors on Wednesday.
But McDonald’s might find some of its competitors stepping up their promotional spending next year. Low-income consumers visiting restaurants less frequently means some fast-food chains will lean into deals and limited-time menu items to drive traffic.
McDonald’s may have to decide if boosting its short-term traffic is worth the potential long-term consequences.
“It will be interesting to see how [McDonald’s] adapts to a potentially more promotional environment, and if it is willing to sacrifice the short term to continue to drive the [long-term] brand positioning,” Citi Research analyst Jon Tower wrote in a note to clients.

3) Accelerated expansion plans

Much of Wednesday’s investor presentations focused on McDonald’s plans to accelerate new restaurant openings. The company aims to have a global footprint of at least 50,000 locations by 2027 in its fastest expansion ever.
But history shows that aggressive expansion typically doesn’t end well for McDonald’s. Sales often slide after new restaurants cannibalize existing locations’ customers, hurt franchisees’ profitability and distract from other parts of the business, such as menu innovation.
Investors are largely skeptical of restaurants with plans to expand in 2024 and beyond, given ongoing economic uncertainty and the shaky consumer, Barclays analyst Jeffrey Bernstein said in a note to clients. But he also noted that McDonald’s is coming from a position of strength and has spent recent years remodeling locations rather than building new ones.
Bernstein isn’t the only analyst with an optimistic view on McDonald’s expansion strategy.
“Growing units off of an already remodeled existing unit base, where core menu is driving high profitability, and towards only the best franchisees is a change vs prior regimes,” J.P. Morgan Securities analyst John Ivankoe wrote in a research note.
And executives reassured investors Wednesday.
“We’ve learned the lessons of quantity over quality … We’ve spent the last year, country by country, literally city by city, making sure we were confident about where we saw the growth opportunities and how we could actually have the teams out in the field to be able to go execute it,” Kempczinski said. More

As sales of all-electric vehicles grow more slowly than expected, major automakers are increasingly meeting their customers in the middle with hybrid vehicles.
Automakers are reconsidering the viability of hybrid cars and trucks to appease consumer demand and avoid costly penalties related to federal fuel economy and emissions standards.
Hybrids accounted for 8.3% of U.S. car sales, about 1.2 million vehicles sold, through November of this year. That share is up 2.8 percentage points compared with total sales last year.

2023 Prius Prime on display, April 6, 2023.
Scott Mlyn | CNBC

DETROIT — As sales of all-electric vehicles grow more slowly than expected, major automakers are increasingly meeting their customers in the middle.
More and more companies are reconsidering the viability of hybrid cars and trucks to appease consumer demand and avoid costly penalties related to federal fuel economy and emissions standards.

The shifting strategies run counterintuitively to industrywide EV messaging of recent years. Many auto companies have begun to invest billions of dollars in all-electric vehicles, and the Biden administration has made a push to get more EVs on U.S. roadways as quickly as possible.
But hybrid vehicles — those with traditional internal combustion engines combined with EV battery technologies — could help the automotive industry lower fuel consumption and emissions in the short-term, while easing consumers into vehicle electrification.
Sales of traditional hybrid electric vehicles, or HEVs, such as the Toyota Prius, are outpacing those of all-electric vehicles in 2023, according to Edmunds. HEVs accounted for 8.3% of U.S. car sales, about 1.2 million vehicles sold, through November of this year. That share is up 2.8 percentage points compared with total sales last year.
EVs made up 6.9% of sales heading into December, or roughly 976,560 units, up 1.7 percentage points compared with total sales last year. Sales of plug-in hybrid electric vehicles, or PHEVs, accounted for only 1% of U.S. sales through November.

“There’s been so much talk over the past few years about the move toward electrification and sort of forgoing hybrids, but … hybrids are not dead,” said Jessica Caldwell, Edmunds executive director of insights. “There’s a lot of consumers out there that are interested in electrification, maybe not ready to go fully electric.”

Hybrids can also cost less and relieve many concerns typically associated with EVs such as range anxiety and lack of charging infrastructure. The average hybrid this year cost $42,381, according to Edmunds. That’s below the roughly $59,400 average for an EV; $60,700 for a PHEV; and $44,800 for a traditional vehicle.

Morgan Stanley earlier this month said Toyota Motor, Honda Motor and Hyundai Motor, including Kia, account for 9 out of 10 hybrid sales in the U.S. Representatives for those automakers said they are actively attempting to increase production and sales of hybrid vehicles in the U.S.
“While the transition to full battery electric transportation will take time, hybrids and plug-in hybrids will play an equally important role in Kia America’s near and mid-term goals,” Eric Watson, vice president of Kia America sales, said in a statement to CNBC.
And other companies, such as the Detroit automakers, are following suit.

Read more CNBC auto news

Detroit Three automakers

The Detroit automakers have varying strategies for hybrid vehicles.
Ford Motor offers PHEVs but is leaning into HEVs, announcing plans in September to double sales of the V-6 hybrid model during the 2024 model year to roughly 20% in the U.S. It’s part of Ford CEO Jim Farley’s plans to quadruple the company’s production of gas-electric hybrids.
Ford’s hybrid sales through November of this year are up 23% over the same period in 2022 to more than 121,000 units, or 6.8% of its total sales through that point. In comparison, Ford’s EV sales are up 16.2% to roughly 62,500 units, accounting for 3.5% of its total sales.

Battery breakdown

Both hybrids and plug-in hybrids have a traditional engine combined with EV technologies. A traditional hybrid such as the Toyota Prius has electrified parts, including a small battery, to provide better fuel economy to assist the engine. PHEVs typically have a larger battery to provide for all-electric driving for a certain number of miles until an engine is needed to power the vehicle or electric motors.

Chrysler parent Stellantis, for its part, is leaning on PHEVs for its electrification strategy, before introducing a host of EVs starting next year. The company is the top seller of plug-in hybrid electric vehicles in the U.S., and the vehicles accounted for about 10% of the company’s third-quarter sales, led by Jeep Wrangler and Grand Cherokee SUVs.
But General Motors isn’t ready just yet to alter its EV plans, which include a goal to exclusively offer all-electric vehicles by 2035.
GM led the way for plug-in electric vehicles with the Chevrolet Volt during the 2010s. The company discontinued the vehicle in early 2019, citing demand and cost concerns.
Since then, the automaker has not offered another hybrid vehicle in the U.S. other than the recently launched Chevrolet Corvette E-Ray, a hybrid version of the famed sports car. GM does offer hybrids, including PHEVs, in China.

2024 Chevrolet Corvette E-Ray hybrid sports car

“We still have a plan in place that allows us to be all light-duty vehicles EV by 2035,” GM CEO Mary Barra said Monday during an Automotive Press Association meeting in Detroit. “We’ll adjust based on where the customer is and where demand is. It’s not going to be ‘if we build it they will come.’ We’re going to be led by the customer.”
Her comments come after GM President Mark Reuss told CNBC in August that he was “flexible” regarding hybrids as a way of meeting federal regulations.
“If it means we have to do that by law, then we have to do that by law,” he said. “If there’s regulations that get dealt on us, then we’re going to look at everything in our toolbox to meet them.”

Federal regulations

Major auto companies, including the Detroit automakers, were counting on EVs to assist in offsetting the emissions and low fuel economies of larger SUVs and trucks that can cost them hundreds of millions of dollars in fines by the federal government.
GM and Stellantis were forced to pay a combined $363.8 million in penalties for failing to meet federal fuel-economy standards for cars and trucks they produced in previous years, according to information published by the National Highway Traffic Safety Administration in June.
Such fines would significantly increase under current proposals by the Biden administration to improve fuel efficiency of vehicles and move toward EVs, according to automaker lobbying groups.
The American Automotive Policy Council, a group representing the Detroit Three, earlier this year said the automakers would face more than $14 billion in noncompliance penalties between 2027 and 2032 barring significant changes to their fleets’ overall fuel efficiency. U.S. automakers have separately warned the fines would cost $6.5 billion for GM, $3 billion at Stellantis and $1 billion at Ford, according to Reuters.
NHTSA in July proposed boosting fuel efficiency requirements by 2% per year for passenger cars and 4% per year for pickup trucks and SUVs from 2027 through 2032, resulting in a fleetwide average fuel efficiency of 58 mpg.
With EVs playing a lesser role than anticipated to boost those fleetwide averages, hybrids could save automakers millions.
“Even without electric vehicles, there’s an expectation that electrification of an internal combustion engine is going to be necessary to meet regulations anyway,” said Stephanie Brinley, principal automotive analyst at S&P Global Mobility.

Industry leader

The resurgence of hybrids is especially important for Toyota. The world’s largest automaker is considered the pioneer of traditional hybrids, with the Prius.
The company ironically became a target of environmental groups last year for its strategy to move forward with a mix of hybrids, PHEVs and EVs, which critics viewed as a lack of commitment to an all-electric future.
Toyota’s argument at the time, and still, is that it’s meeting consumer needs and planning for a more gradual global adoption that will naturally include some markets shifting to EVs sooner than others.
The company further says it takes into account the entire environmental impact of producing EVs compared with hybrid electrified vehicles, arguing it can produce eight 40-mile plug-in hybrids for every one 320-mile battery electric vehicle and save up to eight times the carbon emitted into the atmosphere.
“People are finally seeing reality,” Toyota Chairman and former CEO Akio Toyoda, who has been heavily criticized for the slower approach on EVs, said in October regarding EVs, according to The Wall Street Journal.

Toyota CEO Akio Toyoda speaks during a small media roundtable on Sept. 29, 2022 in Las Vegas. More

Paramount shares surged following reports that RedBird and Skydance were exploring a potential takeover.
Paramount’s controlling shareholder, Shari Redstone, has been in the market for a deal.

The Paramount logo is seen on a building in Los Angeles on Nov. 13, 2023.
Nurphoto| Getty Images

Paramount Global shares surged Friday following reports from Deadline and Puck News that Skydance and RedBird Capital were exploring potentially taking over the media giant.
Paramount shares closed up more than 12% Friday. The company has a market cap of about $10.4 billion and its year to date share price is virtually flat, lagging the S&P 500’s 20% gain.

Paramount’s controlling shareholder, Shari Redstone, has been open to making big deals, especially as the company weathers the storms of declining revenue and streaming losses.
RedBird, controlled by longtime former Goldman Sachs partner Gerry Cardinale, is invested in a variety of media and sports assets, including David Ellison’s Skydance, which helped produce Paramount’s 2022 blockbuster “Top Gun: Maverick,” among other hits.
Paramount has a long-term debt load of $15.6 billion, and investors have speculated about how the company will be able to forge a path in 2024. TV ad revenue was also a weak spot for the company in its most recent quarterly report.
Meanwhile, the company is reportedly considering bundling its Paramount+ streaming service with Apple TV+.
Paramount, RedBird Capital and Skydance did not immediately respond to CNBC’s requests for comment.

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Paramount Global’s year-to-date stock performance

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The U.S. Food and Drug Administration has approved Casgevy, the first gene-editing treatment to be marketed in the country.
Casgevy uses Nobel Prize-winning technology CRISPR to treat sickle cell disease, a blood disorder that affects about 100,000 Americans.
Vertex Pharmaceuticals and CRISPR Therapeutics co-developed the one-time treatment that will cost $2.2 million per patient.

The U.S. Food and Drug Administration on Friday approved the country’s first gene-editing treatment, Casgevy, for use in patients with sickle cell disease.The approval comes about a decade after the discovery of CRISPR technology for editing human DNA, representing a significant scientific advancement. Yet reaching the tens of thousands of people who could benefit from the treatment could be challenging given the potential hurdles — including cost, at $2.2 million per patient — of administering the complex therapy.
Casgevy, co-developed by Vertex Pharmaceuticals and CRISPR Therapeutics, uses Nobel Prize-winning technology CRISPR to edit a person’s genes to treat disease. The treatment was approved by U.K. regulators last month.

Shares of Vertex fell 1% Friday, while shares of CRISPR fell 8%.
Sickle cell, an inherited blood disorder, causes red blood cells to become misshapen half moons that get stuck inside blood vessels, restricting blood flow and causing what are known as pain crises. About 100,000 Americans are estimated to have the disease.

This microscope photo provided on Oct. 25, 2023, by the Centers for Disease Control and Prevention shows crescent-shaped red blood cells from a sickle cell disease patient in 1972. Britain’s medicines regulator has authorized the world’s first gene therapy treatment for sickle cell disease, in a move that could offer relief to thousands of people with the crippling disease in the U.K.
Dr. F. Gilbert/CDC via AP, File

Casgevy uses CRISPR to make an edit to a person’s DNA that turns on fetal hemoglobin, a protein that normally shuts off shortly after birth, to help red blood cells keep their healthy full-moon shape. In clinical trials, Casgevy eliminated pain crises in most patients.
The FDA approved the treatment for people 12 years and older.
“Sickle cell disease is a rare, debilitating and life-threatening blood disorder with significant unmet need, and we are excited to advance the field especially for individuals whose lives have been severely disrupted by the disease,” said Dr. Nicole Verdun, director of the Office of Therapeutic Products within the FDA’s Center for Biologics Evaluation and Research, in a statement.

“Gene therapy holds the promise of delivering more targeted and effective treatments, especially for individuals with rare diseases where the current treatment options are limited,” Verdun added.
While the treatment itself is administered only once, the whole process takes months. Blood stem cells are extracted and isolated before being sent to Vertex’s lab, where they’re genetically modified. Once ready, patients receive chemotherapy for a few days to clear out the old cells and make room for the new ones. After the new cells are infused, recipients spend weeks in the hospital recovering. 
Vertex will take the lead on launching the drug and estimates about 16,000 people with severe cases of sickle cell will be eligible.
Even among the people who could benefit the most, analysts worry few will clamor for a treatment that takes months to complete, carries the risk of infertility and could be cost prohibitive. Vertex said in a regulatory filing Friday it will charge $2.2 million per patient for the treatment.
“We believe the price of medicine to reflect the value that it brings, and the value that this brings is a one-time therapy for potentially a lifetime of cure,” Vertex CEO Dr. Reshma Kewalramani said Friday in an interview with CNBC.
Vertex is seeing “unanimous enthusiasm” from payers, patients and physicians, because people with sickle cell have been marginalized, Kewalramani said, and the field hasn’t seen much innovation.
Because the procedure is so complex, it will be limited to certain health facilities like academic medical centers. Nine health-care facilities are ready to start administering Casgevy, Vertex said in a release, with more facilities added in the coming weeks.

Bluebird’s Lyfgenia 

The FDA also on Friday approved a separate gene therapy by Bluebird Bio, called Lyfgenia that works differently than Casgevy but is administered similarly and is also intended to eliminate pain crises. That therapy was similarly approved for the treatment of sickle cell disease in people 12 years and older.
Bluebird will charge $3.1 million per patient for Lyfgenia. Shares of that company, which has a market value of just about $300 million, fell 40% Friday.
Dr. Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research, estimated during a call with reporters Friday that across the two therapies approved Friday, close to 20,000 patients will be eligible for treatment.
But the FDA included a black-box warning – the strongest safety warning label –  to Bluebird Bio’s Lyfgenia, noting that in rare cases the therapy can cause certain blood cancers. 
The FDA added that warning after two patients who received Lyfgenia in a clinical trial died from a form of leukemia, Verdun told reporters Friday. 
The agency said it’s still unclear whether Lyfgenia itself or another part of the treatment process, such as the chemotherapy, caused the cancer.
But Marks said that the FDA wants patients to be aware of all potential side effects of the entire treatment process: “It’s about the totality of the therapy that’s given,” he told reporters.
Vertex did not see similar blood cancer cases in its clinical trial, which is why it did not receive a black-box warning on its label, Verdun noted.
Both Bluebird Bio and Vertex will follow patients who receive the treatments for 15 years as part of a post-approval study. The FDA has encouraged the companies to specifically monitor for malignancies, or the presence of cancerous cells that can spread to other sites of the body. More