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Why Is McDonald's (MCD) Down 2.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for McDonald's (MCD - Free Report) . Shares have lost about 2.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is McDonald's due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

McDonald's Q3 Earnings & Revenues Miss Estimates

McDonald's Corporation reported third-quarter 2019 results, wherein both earnings and revenues missed the Zacks Consensus Estimate.

Adjusted earnings came in at $2.11 per share, which missed the consensus mark of $2.20. The bottom line also witnessed a decline of 2% from the prior-year quarter figure. Meanwhile, foreign currency translation had a negative impact of 3 cents per share on earnings in the quarter under review.

Revenues & Comps Discussion

In the third quarter, revenues of $5,340.6 million lagged the Zacks Consensus Estimate of $5,478 million. However, the figure improved 1% year over year. This uptrend can primarily attributed to increase in revenues from franchised restaurants. Moreover, on a constant-currency basis, the top line increased 3% on a year-over-year basis.

At company-operated restaurants, revenues declined 4% year over year to $2,416.6 million. However, the same at franchise-operated restaurants improved 5% to $3,014 million.

Global comps improved 5.9% driven by positive comparable sales across all segments. Notably, this marked the 17th consecutive quarter of positive comparable sales. In the second quarter of 2019, comps were up 5.7%.
Solid Comps Across Segments

U.S.: Comps at this segment grew 4.8% in the third quarter, lower than a 5.7% rise in the prior quarter. Deployment of Experience of the Future and strength in core menu items and successful national and local deal offerings drove the segment’s comps.

International Operated Markets: Comps at this segment rose 5.6% year over year, lower than prior quarter’s rise of 6.6%.

International Developmental Licensed Segment: The segment’s comparable sales increased 8.1% during the third quarter. In the preceding quarter, the segment’s comps rose 7.9%.

Other Information

McDonald's returned $2.4 billion to shareholders via stock repurchase and dividends.     The company has returned $22.5 billion from its target of $25 million for the three-year period ending 2019.

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 lot on the Momentum Score front with an F. Charting a somewhat similar path, 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 these revisions indicates a downward shift. 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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