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McDonald's (MCD) Q2 Earnings: Will Solid Comps Trend Continue?
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McDonald's Corp. (MCD - Free Report) is set to report its second-quarter 2018 financial numbers on Jul 26, before the opening bell.
In the last reported quarter, the company pulled off a positive earnings surprise of 7.2%. Also, McDonald's earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 5.5%.
What to Expect?
The question lingering in investors’ minds now is whether McDonald's will be able to deliver a positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the second quarter is pegged at $1.93, higher than $1.73 in the year-ago quarter. Of late, the company’s earnings estimates have been stable. In the first quarter of 2018, the company’s witnessed earnings growth of 22% on a year-over-year basis.
Meanwhile, analysts polled by Zacks expect revenues of nearly $5,344 million, down nearly 12% from the prior-year quarter.
Let’s delve deeper to find out how the company’s top and bottom lines will shape up this earnings season.
Impressive Comps Performance: A Bright Spot
McDonald’s, which reported comparable sales growth for 11 straight quarters, is likely to continue the uptrend in second-quarter 2018. We believe the company’s sales building initiatives are driving global comparable sales (comps). Increase in global guest count is boosting the company’s performance as well. Notably, the first quarter marked McDonald’s fifth straight quarter, wherein the company’s global guest counts rose on a year-over-year basis. Also, U.S comps were up 2.9% during the same time frame.
In order to boost comps in the United States, which represents about 40% of the company’s business, McDonald’s is focusing on improvement in guest traffic.. In this regard, it is accentuating on operational excellence, product innovation, offering a value menu and rolling out more limited-time offerings.
Furthermore, the company is undertaking digital initiatives to better serve customers, with nearly all its U.S. restaurants now using digital menu boards. In addition, McDonald’s is consistently trying to improve its performance in the International Lead Markets, which include Australia, Canada, France, Germany and the UK. The company intends to drive comps growth in these markets via introduction of value meals, customizing the menu to local customer tastes, reimaging of restaurants, efficient marketing and promotions, improved service and increased convenience via delivery.
Top-Line Growth in Focus
McDonald’s revenues have been under pressure for quite some time. In the first quarter, the company’s revenues declined 9% year over year following a decline of 11.4%, 13%, 7% and 4.7% in the fourth, third, second and first quarter of 2017, respectively. The downturn reflects the impact of the company’s strategic refranchising initiative. Further, a challenging restaurant environment might lead to a decline in revenues at the U.S. segment. The Zacks Consensus Estimate for revenues at this segment is pegged at $2.0 billion, reflecting a year-over-year decline of 2.4%.
Also, revenues from High-Growth Markets are likely to witness a sharp decline of more than 42% to $961 million. Coming to international lead market, the Zacks Consensus Estimate for revenues is pegged at $1.76 billion, reflecting a year-over-year decline of 2.8%.
At the company-operated restaurants, revenues are likely to continue decreasing in the second quarter. In first-quarter 2018, revenues from the same have witnessed a sharp decline of 26%. In fact, the Zacks Consensus Estimate is pegged at $2.63 billion for the quarter under review, mirroring a year-over-year decline of 26.3%.
Bottom-Line Growth to Continue
McDonald’s earnings in the second quarter are likely to improve on a year-over-year basis. Though, the refranchising initiatives are hurting the company’s top line, it is facilitating earnings growth.
Management’s re-franchising strategy involves a shift toward a higher percentage of franchised restaurants. The reduction in ownership, i.e. re-franchising, weighs on near-term revenues as it replaces company-operated sales by franchised sales. However, over the long term, McDonald’s is expected to reduce the company’s capital requirements and facilitate earnings per share growth as well as ROE expansion.
McDonald's Corporation Price, Consensus and EPS Surprise
Our proven model shows that McDonald’s is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Here are a few other stocks from the Restaurant space that investors may consider as our model shows that they have the right combination of elements to post an earnings beat in the second quarter:
The Wendy's Company (WEN - Free Report) has an Earnings ESP of +1.59% and a Zacks Rank #2.
Brinker International, Inc. (EAT - Free Report) has an Earnings ESP of +1.29% and a Zacks Rank of 3.
The Cheesecake Factory Incorporated (CAKE - Free Report) has an Earnings ESP of +1.27% and a Zacks Rank #3.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
McDonald's (MCD) Q2 Earnings: Will Solid Comps Trend Continue?
McDonald's Corp. (MCD - Free Report) is set to report its second-quarter 2018 financial numbers on Jul 26, before the opening bell.
In the last reported quarter, the company pulled off a positive earnings surprise of 7.2%. Also, McDonald's earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 5.5%.
What to Expect?
The question lingering in investors’ minds now is whether McDonald's will be able to deliver a positive earnings surprise in the quarter to be reported. The Zacks Consensus Estimate for the second quarter is pegged at $1.93, higher than $1.73 in the year-ago quarter. Of late, the company’s earnings estimates have been stable. In the first quarter of 2018, the company’s witnessed earnings growth of 22% on a year-over-year basis.
Meanwhile, analysts polled by Zacks expect revenues of nearly $5,344 million, down nearly 12% from the prior-year quarter.
Let’s delve deeper to find out how the company’s top and bottom lines will shape up this earnings season.
Impressive Comps Performance: A Bright Spot
McDonald’s, which reported comparable sales growth for 11 straight quarters, is likely to continue the uptrend in second-quarter 2018. We believe the company’s sales building initiatives are driving global comparable sales (comps). Increase in global guest count is boosting the company’s performance as well. Notably, the first quarter marked McDonald’s fifth straight quarter, wherein the company’s global guest counts rose on a year-over-year basis. Also, U.S comps were up 2.9% during the same time frame.
In order to boost comps in the United States, which represents about 40% of the company’s business, McDonald’s is focusing on improvement in guest traffic.. In this regard, it is accentuating on operational excellence, product innovation, offering a value menu and rolling out more limited-time offerings.
Furthermore, the company is undertaking digital initiatives to better serve customers, with nearly all its U.S. restaurants now using digital menu boards. In addition, McDonald’s is consistently trying to improve its performance in the International Lead Markets, which include Australia, Canada, France, Germany and the UK. The company intends to drive comps growth in these markets via introduction of value meals, customizing the menu to local customer tastes, reimaging of restaurants, efficient marketing and promotions, improved service and increased convenience via delivery.
Top-Line Growth in Focus
McDonald’s revenues have been under pressure for quite some time. In the first quarter, the company’s revenues declined 9% year over year following a decline of 11.4%, 13%, 7% and 4.7% in the fourth, third, second and first quarter of 2017, respectively. The downturn reflects the impact of the company’s strategic refranchising initiative. Further, a challenging restaurant environment might lead to a decline in revenues at the U.S. segment. The Zacks Consensus Estimate for revenues at this segment is pegged at $2.0 billion, reflecting a year-over-year decline of 2.4%.
Also, revenues from High-Growth Markets are likely to witness a sharp decline of more than 42% to $961 million. Coming to international lead market, the Zacks Consensus Estimate for revenues is pegged at $1.76 billion, reflecting a year-over-year decline of 2.8%.
At the company-operated restaurants, revenues are likely to continue decreasing in the second quarter. In first-quarter 2018, revenues from the same have witnessed a sharp decline of 26%. In fact, the Zacks Consensus Estimate is pegged at $2.63 billion for the quarter under review, mirroring a year-over-year decline of 26.3%.
Bottom-Line Growth to Continue
McDonald’s earnings in the second quarter are likely to improve on a year-over-year basis. Though, the refranchising initiatives are hurting the company’s top line, it is facilitating earnings growth.
Management’s re-franchising strategy involves a shift toward a higher percentage of franchised restaurants. The reduction in ownership, i.e. re-franchising, weighs on near-term revenues as it replaces company-operated sales by franchised sales. However, over the long term, McDonald’s is expected to reduce the company’s capital requirements and facilitate earnings per share growth as well as ROE expansion.
McDonald's Corporation Price, Consensus and EPS Surprise
McDonald's Corporation Price, Consensus and EPS Surprise | McDonald's Corporation Quote
What Does the Zacks Model Unveil?
Our proven model shows that McDonald’s is likely to beat earnings estimates in the second quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
McDonald’s ESP of +0.52% and a Zacks Rank #3 make us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks With Favorable Combination
Here are a few other stocks from the Restaurant space that investors may consider as our model shows that they have the right combination of elements to post an earnings beat in the second quarter:
The Wendy's Company (WEN - Free Report) has an Earnings ESP of +1.59% and a Zacks Rank #2.
Brinker International, Inc. (EAT - Free Report) has an Earnings ESP of +1.29% and a Zacks Rank of 3.
The Cheesecake Factory Incorporated (CAKE - Free Report) has an Earnings ESP of +1.27% and a Zacks Rank #3.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>