McDonald’s Corporation’s (MCD - Analyst Report) first-quarter 2014 earnings of $1.21 per share missed the Zacks Consensus Estimate of $1.23 by 1.6% and decreased 4% year over year. The decline was driven by rise in expenses.
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Revenues inched up 1.0% year over year to $6.70 billion during the quarter. However, revenues missed the Zacks Consensus Estimate of $6.73 billion, primarily due to a decline in comparable sales (comps) in the U.S.
Behind the Headlines Numbers
Comps increased 0.5%, which beat management’s expectations of an increase of 0.1% aided by higher average check, partly offset by negative guest traffic in the U.S. and Asia/Pacific, Middle East and Africa (APMEA).
In the quarter, revenues from company-operated restaurants increased 1.0% to $4.49 billion, while the same from franchise-operated restaurants were up 2.0% to $2.21 billion.
In the United States, comps decreased 1.7% worse than the 1.4% drop in the fourth quarter of 2013. The decline could be attributed to stiff competition, relatively flat industry traffic trends and inclement weather during January and February. Operating income in the U.S. declined 3.0% year over year.
Despite the challenging macroeconomic conditions, comps in Europe nudged up 1.4%, better than a 1.0% increase in the prior quarter, driven by strong performance in the U.K., Russia and France, which was partially offset by weak performance in Germany.
Operating income increased 6.0% in Europe. Overall, results in Europe were supported by the company’s attempts to fulfill the demand via innovative value platforms and popular seasonal food events.
APMEA reported comps growth of 0.8% better than the decline of 2.4% during the fourth quarter of 2013. Solid comparable sales performance in China and many other markets was somewhat offset by weakness in Japan, and to some extent, in Australia. Comps in the quarter benefitted from menu innovation and affordable pricing.
Total operating costs and expenses inched up 2.3% year over year to $4.76 billion.
However, operating income in APMEA declined 10.0% (down 2.0% in constant currencies).
The company expects comps for the month of April to be modestly positive.
After beating earnings over the past two quarters, the company failed to beat the expectations due to sluggish sales in the domestic market. Going forward, we remain wary of the intense competition in the U.S. along with the sluggish economic recovery in some of the company’s primary markets, which would pressure its business in the near term.
However, the company’s focus on innovative offerings and premium products across all regions is expected to boost its performance in the long term.
McDonald’s currently has a Zacks Rank #3 (Hold).
Among other restaurant stocks, The Wendy's Co. (WEN - Analyst Report) is expected to announce the earnings results on May 8, while Brinker International, Inc. (EAT - Analyst Report) and The Cheesecake Factory Inc. (CAKE - Analyst Report) are expected to report on Apr 23.
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