McDonald’s Corporation MCD reported impressive second-quarter 2018 results, wherein both earnings and revenues surpassed the Zacks Consensus Estimate. Adjusted earnings per share of $1.99 surpassed the consensus mark of $1.92 by 3.6% and increased 15% from the year-ago quarter (12% in constant currencies). The upside reflects stronger operating performance.

Meanwhile, foreign currency translation had a positive impact of 5 cents per share on earnings in the quarter. Following the quarterly results, not much movement was witnessed in the company’s share price during the pre-market trading session. However, the stock has declined 10.6% in the past six months compared with industry’s 6% decrease.

Revenues Decline but Global Comps Improve

Revenues of $5,353.9 million outpaced the consensus mark of $5,315 million by 0.7% but declined 12% year over year. The downturn reflects the impact of the company’s strategic refranchising initiatives. On a constant-currency basis, the metric declined 14% on a year-over-year basis.

At company-operated restaurants, revenues decreased 27% year over year to $2,594.9 million. However, the same at franchise-operated restaurants improved 11% to $2,759 million.

Global comps grew 4% driven by positive comparable sales across all segments. Notably, this marked the twelfth consecutive quarter of positive comparable sales. In the first quarter of 2018, comps increased 5.5%.

McDonald’s Corporation Price, Consensus and EPS Surprise

Solid Comps Across Segments

U.S.: Comps grew 2.6% in the second 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 2.9%.

Segment operating income declined 7% due to strategic restructuring charges.

International Lead Markets: Comps at this segment grew 4.9% year over year, lower than a 7.8% rise witnessed in the last reported quarter. Robust sales in the United Kingdom and France along with upbeat results across all other markets drove comps.

Operating income was up 15%, including the impact of foreign currency translation. At constant currency, the figure increased 9% primarily on the back of sales-driven improvements in franchised margin dollars.

High-Growth Markets: Comps at this segment grew 2.4%, lower than the prior-quarter’s increase of 4.7%. The uptick can be attributed to strong performance in Italy as well as positive results across majority of the segments, partially offset by continual challenges in South Korea.

Foundational Markets: Comps at this segment grew 6.8% on the back of positive sales performance across all geographic regions. However, the figure came in below 8.7% growth reported in the last reported quarter.

Zacks Rank & Key Picks

McDonald’s carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same space include Dave & Buster’s Entertainment, Inc. PLAY, BJ’s Restaurants, Inc. BJRI and Chipotle Mexican Grill, Inc. CMG. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Dave & Buster’s Entertainment has an impressive long-term earnings growth rate of 14.8%.

BJ’s Restaurants has reported better-than-expected earnings in the trailing two quarters.

Chipotle Mexican Grill has an impressive long-term earnings growth rate of 17%.

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