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In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 0.4%. However, the company’s top and the bottom line increased 5% and 2% year over year, respectively.
MCD surpassed earnings estimate in three out of the trailing four quarters. The average surprise over this period is 6.4%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for second-quarter earnings per share (EPS) has declined to $3.08 from $3.10 in the past 60 days. The estimated figure indicates a 2.8% drop from the year-ago EPS of $3.17. The consensus mark for revenues is pegged at $6.65 billion, indicating 2.4% year-over-year growth.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
Our proven model doesn't conclusively predict an earnings beat for McDonald's this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: McDonald's has an Earnings ESP of -0.67%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company carries a Zacks Rank #3 at present.
Factors Influencing Q2 Performance
McDonald's top line for the second quarter is likely to have registered year-over-year growth, driven by strong digital adoption, innovative menu additions and strategic unit expansion. These factors, along with average check growth driven by strategic menu price increases, successful restaurant-level execution, effective marketing campaigns featuring the core menu and continued digital and delivery growth are likely to have aided comps. Also, the effective implementation of the Accelerating the Arches strategy bodes well.
Our projections indicate a 1.8% year-over-year increase in second-quarter comparable sales. We expect U.S. and International Operated Market comps to increase 0.3% and 3.3% year over year, respectively.
We expect total company-operated sales in second-quarter 2024 to be up nearly 5.3% year over year to $2,619.1 million. Revenues from franchised restaurants are expected to be $3,997.4 million, suggesting a 1.6% rise year over year.
The company’s second-quarter 2024 bottom line is likely to have been hurt by persistent pressure from elevated commodities and wages. A challenging macro environment, including rising interest rates, is a headwind. Given the ongoing inflationary headwinds, the company expects the operating margin to be under pressure in the near term. The company expects commodity and food and paper inflation to be at the higher end in 2024. Also, it expects labor inflation to be in the high single digits.
Price Performance & Valuation
The Restaurant industry has disappointed investors and MCD is no exception. Year to date, the stock has declined 14.2% compared with the industry’s 10.6% drop. Other industry players like Darden Restaurants, Inc. (DRI - Free Report) , down 15.1%, Starbucks Corporation (SBUX - Free Report) , down 22.3%, and Restaurant Brands International Inc. (QSR - Free Report) , down 10.5%.
Image Source: Zacks Investment Research
Let's assess the value MCD offers to investors at its current levels.
From the valuation point of view, the stock is trading at a discount. MCD’s forward 12-month price-to-earnings ratio stands at 19.97, lower than the industry’s ratio of 21.18 and the S&P 500's ratio of 21.71.
Image Source: Zacks Investment Research
Investment Thoughts
MCD is well-positioned to benefit from its strategic initiatives, including digital growth, menu innovation and unit expansion. The company continues to expand its global footprint. The company plans to expand in Australia through new restaurant openings, leveraging its strong position. Existing restaurants will be enhanced with delivery rooms and integrated McCafe beverage cells, aiming for growth against the company.
The company continues to improve and enhance the delivery experience for its customers. This includes the addition of delivery order capabilities within the mobile app, which is available in five of its top markets. The company aims to boost the percentage of system-wide delivery sales originating from its mobile app to 30% by 2027.
Given its discounted valuation and solid growth prospects, current investors are advised to retain their holdings in McDonald's stock. New investors should be cautious of short-term challenges, including inflationary pressures and macroeconomic uncertainties. It's also crucial to closely monitor the company's performance in the upcoming earnings report.
Image: Bigstock
How to Play McDonald's (MCD) Ahead of Q2 Earnings Release?
McDonald's Corporation (MCD - Free Report) is slated to release second-quarter 2024 results on Jul 29, before the opening bell.
In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 0.4%. However, the company’s top and the bottom line increased 5% and 2% year over year, respectively.
MCD surpassed earnings estimate in three out of the trailing four quarters. The average surprise over this period is 6.4%, as shown in the chart below.
Image Source: Zacks Investment Research
Trend in Estimate Revision
The Zacks Consensus Estimate for second-quarter earnings per share (EPS) has declined to $3.08 from $3.10 in the past 60 days. The estimated figure indicates a 2.8% drop from the year-ago EPS of $3.17. The consensus mark for revenues is pegged at $6.65 billion, indicating 2.4% year-over-year growth.
Image Source: Zacks Investment Research
What the Zacks Model Unveils
Our proven model doesn't conclusively predict an earnings beat for McDonald's this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.
Earnings ESP: McDonald's has an Earnings ESP of -0.67%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company carries a Zacks Rank #3 at present.
Factors Influencing Q2 Performance
McDonald's top line for the second quarter is likely to have registered year-over-year growth, driven by strong digital adoption, innovative menu additions and strategic unit expansion. These factors, along with average check growth driven by strategic menu price increases, successful restaurant-level execution, effective marketing campaigns featuring the core menu and continued digital and delivery growth are likely to have aided comps. Also, the effective implementation of the Accelerating the Arches strategy bodes well.
Our projections indicate a 1.8% year-over-year increase in second-quarter comparable sales. We expect U.S. and International Operated Market comps to increase 0.3% and 3.3% year over year, respectively.
We expect total company-operated sales in second-quarter 2024 to be up nearly 5.3% year over year to $2,619.1 million. Revenues from franchised restaurants are expected to be $3,997.4 million, suggesting a 1.6% rise year over year.
The company’s second-quarter 2024 bottom line is likely to have been hurt by persistent pressure from elevated commodities and wages. A challenging macro environment, including rising interest rates, is a headwind. Given the ongoing inflationary headwinds, the company expects the operating margin to be under pressure in the near term. The company expects commodity and food and paper inflation to be at the higher end in 2024. Also, it expects labor inflation to be in the high single digits.
Price Performance & Valuation
The Restaurant industry has disappointed investors and MCD is no exception. Year to date, the stock has declined 14.2% compared with the industry’s 10.6% drop. Other industry players like Darden Restaurants, Inc. (DRI - Free Report) , down 15.1%, Starbucks Corporation (SBUX - Free Report) , down 22.3%, and Restaurant Brands International Inc. (QSR - Free Report) , down 10.5%.
Image Source: Zacks Investment Research
Let's assess the value MCD offers to investors at its current levels.
From the valuation point of view, the stock is trading at a discount. MCD’s forward 12-month price-to-earnings ratio stands at 19.97, lower than the industry’s ratio of 21.18 and the S&P 500's ratio of 21.71.
Image Source: Zacks Investment Research
Investment Thoughts
MCD is well-positioned to benefit from its strategic initiatives, including digital growth, menu innovation and unit expansion. The company continues to expand its global footprint. The company plans to expand in Australia through new restaurant openings, leveraging its strong position. Existing restaurants will be enhanced with delivery rooms and integrated McCafe beverage cells, aiming for growth against the company.
The company continues to improve and enhance the delivery experience for its customers. This includes the addition of delivery order capabilities within the mobile app, which is available in five of its top markets. The company aims to boost the percentage of system-wide delivery sales originating from its mobile app to 30% by 2027.
Given its discounted valuation and solid growth prospects, current investors are advised to retain their holdings in McDonald's stock. New investors should be cautious of short-term challenges, including inflationary pressures and macroeconomic uncertainties. It's also crucial to closely monitor the company's performance in the upcoming earnings report.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.