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McDonald's (MCD) Up 1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for McDonald's (MCD - Free Report) . Shares have added about 1% 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 Q1 Earnings Decline YoY

McDonald's reported mixed first-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate but revenues surpassed the same.

Earnings came in at $1.72 per share, which missed the consensus mark of $1.73. Meanwhile, foreign currency translation had a negative impact of 9 cents per share on earnings in the quarter under review.

Revenues Decline But Global Comps Improve

In the first quarter, revenues of $4,955.6 million outpaced the Zacks Consensus Estimate of $4,911 million but decreased 4% year over year. This downturn reflects the impact of the company’s strategic refranchising initiatives. However, on a constant-currency basis, the metric increased 2% on a year-over-year basis.

At company-operated restaurants, revenues decreased 12% year over year to $2,240.5 million. However, the same at franchise-operated restaurants improved 4% to $2,715.1 million.

Global comps grew 5.4% driven by positive comparable sales across all segments. Notably, this marked the fifteenth consecutive quarter of positive comparable sales. In the fourth quarter of 2018, comps were up 4.4%.

Solid Comps Across Segments

U.S.: Comps at this segment grew 4.5% in the first quarter, higher than a 2.3% rise in the prior quarter. This uptick was driven by successful promotions of the Bacon Event, the 2 for $5 Mix and Match deal, and Donut Sticks.

Segment operating income declined 5% due to decline in sale of restaurant businesses and decrease in company-operated margin dollars.

International Lead Markets: Comps at this segment rose 6% year over year, higher than a 5.2% rise registered in the last reported quarter. Robust sales in the United Kingdom, France and positive results across all markets drove comps.

Operating income was flat year over year, including the impact of foreign currency translation. At constant currency, the figure increased 8%. This upside can be attributed to sales-driven improvements in franchised margin dollars.

International Developmental Licensed Segment: The segment’s comparable sales increased 6% during the first quarter owing to robust sales performance across all geographic regions.

Other Information

McDonald's returned $1.9 billion to its shareholders via stock repurchase and dividends. In 2019, the company expects to return nearly $9 billion to its shareholders.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, McDonald's has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision 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.


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