McDonald’s (MCD) Q4 Earnings Likely to Reflect Comps Growth
McDonald’s Corp. MCD is set to report its fourth-quarter 2017 numbers on Jan 30, before the bell.
Last quarter, the company pulled off a positive earnings surprise of 0.57%. In fact, McDonald’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, with an average beat of 5.21%.
Notably, shares of the company have returned 41.4% in the past year.
McDonald’s Corporation Price
We expect the company’s solid comps growth to drive quarterly results. Meanwhile, though increased focus on refranchising is likely to boost earnings, it may have an adverse impact on revenue growth in the quarter.
The Zacks Consensus Estimate for the quarter’s earnings is pegged at $1.59, representing a year-over-year increase of 10.4%. The same for revenues is projected to be $5.3 billion, down 12.8% from the prior-year quarter.
Comps Growth Does Not Guarantee Revenue Growth
Global comps at McDonald’s have been positive for the last nine quarters, a trend that is likely to continue in the fourth quarter as well. This appears to be the result of the company’s strategic efforts to boost sales.
In order to boost comps in the United States, McDonald’s has been increasingly focusing on growing guest traffic. In this regard, the company is striving to achieve operational excellence, innovate, offer a value menu and roll out more limited-time offerings.
Despite these efforts, a challenging restaurant environment may cause a decline in revenues in the U.S. segment. The Zacks Consensus Estimate for the U.S. segment revenues is pegged at $1.96 billion, reflecting a year-over-year decline of 3.7%.
Coming to High-Growth Markets, comprehensive focus on new products, alongside growth across the delivery, value and breakfast platforms are yielding results. However, political and economic unrest are likely to somewhat hurt sales.
The Zacks Consensus Estimate for revenues in High-Growth Markets is pegged at $975 million, reflecting a year-over-year decline of 35.8%.
The international lead segment may appear as an exception. The Zacks Consensus Estimate for revenues is pegged at $1.82 billion, reflecting year-over-year growth of 2.5%.
In International Lead Markets, McDonald’s is consistently trying to improve its performance and drive comps via introduction of value meals, reimaging of restaurants, efficient marketing and promotions, improved service and increased convenience via delivery.
Also, McDonald’s is likely to witness a decline in sales by company-operated restaurants due to the impact of its strategic refranchising initiative, which, in turn, will lower the company’s revenues in the fourth quarter. Evidently, revenues at company-operated restaurants decreased 23% to $3.06 billion in the last quarter. In fact, the Zacks Consensus Estimate for the same is pegged at $2.54 billion for the quarter under review, representing a year-over-year estimated decline of 30.4%.
Our Model Suggests a Beat
Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
McDonald’s has a Zacks Rank #2 and an Earnings ESP of +0.01%, a combination that suggests that the company is likely to beat estimates.
Stocks to Consider
Better-ranked stocks in the same space are Darden Restaurants DRI, Dunkin’ Brands Group DNKN and Domino’s Pizza, Inc. DPZ. While Darden and Dunkin’ Brands sport a Zacks Rank #1 (Strong Buy), Domino’s carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Darden, Dunkin’ Brands and Domino’s earnings are expected to improve 17.4%, 15.2% and 36.8%, respectively in 2018.
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