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McDonald's (MCD) Earnings & Revenues Surpass Estimates in Q4

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McDonald's Corporation (MCD - Free Report) reported impressive fourth-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings of $1.97 per share surpassed the consensus mark of $1.90 and increased 15% from the year-ago quarter number (18% 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 under review. Following the quarterly results, not much movement was noticed in the stock during the pre-market trading session. In the past six months, the stock has gained 17% compared with industry’s 14.9% growth.

Revenues Decline but Global Comps Improve

In the quarter under review, revenues of $5,163 million outpaced the Zacks Consensus Estimate of $5,159 million but decreased 3% year over year. This downturn reflects the impact of the company’s strategic refranchising initiatives. However, on a constant-currency basis, the metric remained flat on a year-over-year basis.

At company-operated restaurants, revenues decreased 11% year over year to $2,371.2 million. However, the same at franchise-operated restaurants improved 5% to $2,791.8 million.

Global comps grew 4.4% driven by positive comparable sales across all segments. Notably, this marked the fourteenth consecutive quarter of positive comparable sales. In the third quarter of 2018, comps were up 4.2%.

Solid Comps Across Segments

U.S.: Comps at this segment grew 2.3% in the fourth 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 2.4%.

Segment operating income declined 1% on increase in franchised margin dollars and G&A savings.

McDonald's Corporation Price, Consensus and EPS Surprise

International Lead Markets: Comps at this segment rose 5.2% year over year, narrower than a 5.4% rise registered in the last reported quarter. Robust sales in the United Kingdom, Australia and Germany drove comps.

Operating income improved 8%, including the impact of foreign currency translation. At constant currency, the figure increased 12%. This upside can be attributed to sales-driven improvements in franchised margin dollars and higher gains on sales of restaurant businesses in the U.K. as well as Australia.

High-Growth Markets: Comps at this segment were up 4.8%, higher than the prior-quarter’s increase of 4.6%. Solid performance in Italy and the Netherlands as well as positive results across majority of the segments led to the upside. In the meantime, operating income declined 44% including the impact of foreign currency translation. At constant currency, the metric decreased 41%.

Foundational Markets: Comps at this segment grew 7.1% on the back of positive sales performance across all geographic regions, mostly in Japan. Notably, the reported figure was higher than 6% growth in the third quarter.

Other Financial Information

Cash and cash equivalent at the end of Dec 31, 2018 amounted to $866 million compared with $2,463.8 million at the end of prior year quarter. Long-term debt increased to $31,075.3 million at the end of quarter from $29,536.4 million at the end of 2017. Free cash flow totaled $4,225 million.

Zacks Rank & Key Picks

McDonald's carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the same space include Starbucks Corporation (SBUX - Free Report) , Wingstop Inc. (WING - Free Report) Darden Restaurants, Inc. (DRI - Free Report) each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Starbucks has reported better-than-expected earnings in the trailing three quarters.

Wingstop long-term earnings are expected to grow by 19.5%.

Darden Restaurants’ current-year earnings are likely to witness an 18.3% growth.

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