It has been about a month since the last earnings report for McDonald's (MCD - Free Report) . Shares have added about 3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is McDonald's 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 catalysts.
McDonald's Earnings and Revenue Beat Estimates
McDonald's reported impressive third-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings per share of $2.10 surpassed the consensus mark of $1.98 by 6.1% and increased 19% from the year-ago quarter (22% in constant currencies). The upside reflects stronger operating performance.
Meanwhile, foreign currency translation had a negative impact of 5 cents per share on earnings in the quarter.
Revenues Decline but Global Comps Improve
In the quarter under review, revenues of $5,369.4 million outpaced the consensus mark of $5,247 million but decreased 7% year over year. This downturn reflects the impact of the company’s strategic refranchising initiatives. On a constant-currency basis, the metric declined 5% on a year-over-year basis.
At company-operated restaurants, revenues decreased 18% year over year to $2,511 million. However, the same at franchise-operated restaurants improved 6% to $2,858.4 million.
Global comps grew 4.2% driven by positive comparable sales across all segments. Notably, this marked the thirteenth consecutive quarter of positive comparable sales. In the second quarter of 2018, comps were up 4%.
Solid Comps Across Segments
U.S.: Comps grew 2.4% in the third 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 2.6%.
Segment operating income rose 3% owing to increase in franchised margin dollars and G&A savings.
International Lead Markets: Comps at this segment grew 5.4% year over year, higher than a 4.9% rise witnessed in the last reported quarter. Robust sales in the United Kingdom, Australia and France drove comps.
Operating income was flat year over year, including the impact of foreign currency translation. At constant currency, the figure increased 3% primarily on the back of sales-driven improvements in franchised margin dollars.
High-Growth Markets: Comps at this segment were up 4.6%, higher than the prior-quarter’s increase of 2.4%. The uptick can be attributed to strong performance in Italy and the Netherlands as well as positive results across majority of the segments. Operating income, excluding the gain from sale of the Company's businesses in China and Hong Kong, declined 5% including the impact of foreign currency translation. At constant currency, the metric declined 1%.
Foundational Markets: Comps at this segment grew 6% on the back of positive sales performance across all geographic regions. However, the figure was lower than 6.8% growth reported in the last reported quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, McDonald's has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, McDonald's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.