A month has gone by since the last earnings report for McDonald's Corporation (MCD - Free Report) . Shares have added about 2.7% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is MCD due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
McDonald's Q1 Earnings Top, Comps Continue to Impress
McDonald's reported first-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings per share of $1.79 surpassed the consensus mark of $1.67 by 7.2% and improved 22% from the year-ago quarter (16% in constant currencies). The upside reflects stronger operating performance.
Meanwhile, foreign currency translation had a positive impact of 8 cents per share on earnings in the quarter. Notably, adjusted earnings exclude the impact of a net tax cost associated with the Tax Cuts and Jobs Act of 2017.
Revenues Decline But Global Comps Improve
Revenues of $ 5,138.9 million outpaced the consensus mark of $4,915 million by 4.5% but declined 9% year over year. The downturn reflects the impact of the company’s strategic refranchising initiative.
Revenues at company-operated restaurants were down 26% year over year to $2,535.6 million. However, the same at franchise-operated restaurants increased 15% to $2,603.3 million.
Global comps grew 5.5% supported by encouraging guest count across segments. This marked the eleventh consecutive quarter of positive comparable sales. Meanwhile, comps rise was similar to growth in the fourth-quarter 2017.
Solid Comps Across Segments
U.S.: Comps grew 2.9% in the first quarter owing to increase in average check resulting from rise in menu price as well as product mix shift. Comps growth, however, was lower than the prior-quarter rise of 4.5%.
Segment operating income increased 5% backed by higher sales-driven franchised margin dollars and increase in sales from restaurant businesses, partially offset by lower company-operated margin dollars.
International Lead Markets: Comps at this segment grew 7.8% year over year, higher than a 6% rise witnessed in the last reported quarter. Robust sales in the United Kingdom and Germany along with upbeat results across all other markets drove comps.
Operating income was up 21%, including the impact of foreign currency translation. At constant currency, the figure was up 9% primarily on the back of sales-driven improvements in franchised margin dollars.
High-Growth Markets: Comps grew 4.7%, which was higher than the prior-quarter’s increase of 4%. The uptick can be attributed to strong performance in China and Italy as well as positive results across majority of the segments, partially offset by continual challenges in South Korea.
Foundational Markets: Comps in Foundational Markets grew 8.7% on the back of positive sales performance across all geographic regions. Moreover, the figure came in higher than 8% growth in the last reported quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions higher for the current quarter compared to five lower.
At this time, MCD has an average Growth Score of C and a grade with the same score on the momentum front. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Estimates have been trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, MCD has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.