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Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the second quarter of 2024, MCD reported dismal reports with adjusted earnings per share and revenues missing the Zacks Consensus Estimate by 3.6% and 2.4%, respectively. Both the metrics declined year over year by 6% and 0.1%, respectively. The results reflected softer global comps trends due to restrictive consumer spending and inflationary pressures hitting the margins.
The company has a mixed earnings surprise history, having surpassed expectations in two of the four instances and missing on the remaining two occasions. The average surprise over this period is 1.8%, as observed in the chart below.
Image Source: Zacks Investment Research
MCD’s Trend in Estimate Revision
The Zacks Consensus Estimate for the third-quarter adjusted EPS has trended upward to $3.17 from $3.15 over the past 30 days. The estimated figure indicates a 0.6% decline from the year-ago EPS of $3.19.
Image Source: Zacks Investment Research
The consensus mark for revenues is pegged at $6.78 billion, indicating 1.4% year-over-year growth.
What Our Model Unveils for MCD
Our proven model predicts 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: MCD has an Earnings ESP of +0.54%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
The top line of McDonald’s is expected to have increased year over year, thanks to its focus on the strategic pillars of growth encompassing the primary motto of enhancing the customer experience and facilitating business growth. With the implementation of the Accelerating the Arches strategy, the company is primarily concentrating on building resilience in its business and moving through the ongoing market uncertainties. The core aspects of the strategy include marketing, core business, digital, delivery, drive-thru and development.
Furthermore, MCD’s take on increasing franchised store units across the globe and an attractive take on maintaining shareholder value are likely to have contributed to the uptrend. Although softer comparable sales trends due to demand softness as consumers feel wary of discretionary spending are troubling, the tailwinds discussed above are likely to have aided the company’s top-line performance.
Our model expects Franchised restaurant revenues to increase 0.1% year over year to $4.05 billion. We expect comps to decline 0.6%.
Margins
The bottom line of McDonald’s is expected to have declined year over year due to ongoing inflationary pressures. Increased restaurant and occupancy expenses, along with selling, general and administrative expenses, are likely to have taken a toll on the company’s margins.
Our model expects total operating costs and expenses to increase 4.1% year over year to $3.63 billion. The adjusted operating margin is expected to remain flat year over year.
Given the headwinds, leverage from the top-line growth is likely to have lessened the pressures on the margins to some extent.
Price Performance & Valuation of MCD Stock
Shares of McDonald’s have showcased an upward trend in the past three months. The stock has gained 19.7% in the said time frame, outpacing the Zacks Retail - Restaurants industry’s 19% growth. The company also performed notably better than a few of the primary industry players including Yum! Brands, Inc. (YUM - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Wingstop Inc. (WING - Free Report) in the same time bracket as shown below.
Image Source: Zacks Investment Research
Regarding the value MCD stock offers to investors, it is currently trading at a discount compared with the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis.
Image Source: Zacks Investment Research
What Are the Thoughts on Investment?
Undertaking effective business decisions and tackling market challenges while maintaining the brand image of being one of the renowned global fast-food chains is not an easy job. The company is continuously opting for opportunities to expand its market reach globally through efficient service offerings in-stores and delivery, making it well-positioned to emerge from the uncertain market scenario and inflationary risks.
A positive earnings estimate trend, along with a discounted valuation, makes McDonald’s an attractive investment option compared with its industry. The company’s recent take on hiking its quarterly dividend and maintaining regular dividend payments showcases its ability to efficiently utilize its free cash flow and its commitment to shareholders. Investors holding MCD stock are advised to retain their positions.
On the other hand, an increased expense and cost structure might be a turn-off regarding the prospects of the company. Although the earnings estimate trend has been positive, it indicates a year-over-year decline in growth, thereby confusing the judgment of investors regarding MCD stock. Considering these uncertainties, prospective investors are advised to wait for a more favorable entry point regarding McDonald’s.
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Should You Buy, Hold, or Sell McDonald's Stock Ahead of Q3 Earnings?
McDonald's Corporation (MCD - Free Report) is slated to report third-quarter 2024 results on Oct. 29, before the opening bell.
Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.
In the second quarter of 2024, MCD reported dismal reports with adjusted earnings per share and revenues missing the Zacks Consensus Estimate by 3.6% and 2.4%, respectively. Both the metrics declined year over year by 6% and 0.1%, respectively. The results reflected softer global comps trends due to restrictive consumer spending and inflationary pressures hitting the margins.
The company has a mixed earnings surprise history, having surpassed expectations in two of the four instances and missing on the remaining two occasions. The average surprise over this period is 1.8%, as observed in the chart below.
Image Source: Zacks Investment Research
MCD’s Trend in Estimate Revision
The Zacks Consensus Estimate for the third-quarter adjusted EPS has trended upward to $3.17 from $3.15 over the past 30 days. The estimated figure indicates a 0.6% decline from the year-ago EPS of $3.19.
Image Source: Zacks Investment Research
The consensus mark for revenues is pegged at $6.78 billion, indicating 1.4% year-over-year growth.
What Our Model Unveils for MCD
Our proven model predicts 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: MCD has an Earnings ESP of +0.54%. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors to Define McDonald’s Quarterly Results
Revenues
The top line of McDonald’s is expected to have increased year over year, thanks to its focus on the strategic pillars of growth encompassing the primary motto of enhancing the customer experience and facilitating business growth. With the implementation of the Accelerating the Arches strategy, the company is primarily concentrating on building resilience in its business and moving through the ongoing market uncertainties. The core aspects of the strategy include marketing, core business, digital, delivery, drive-thru and development.
Furthermore, MCD’s take on increasing franchised store units across the globe and an attractive take on maintaining shareholder value are likely to have contributed to the uptrend. Although softer comparable sales trends due to demand softness as consumers feel wary of discretionary spending are troubling, the tailwinds discussed above are likely to have aided the company’s top-line performance.
Our model expects Franchised restaurant revenues to increase 0.1% year over year to $4.05 billion. We expect comps to decline 0.6%.
Margins
The bottom line of McDonald’s is expected to have declined year over year due to ongoing inflationary pressures. Increased restaurant and occupancy expenses, along with selling, general and administrative expenses, are likely to have taken a toll on the company’s margins.
Our model expects total operating costs and expenses to increase 4.1% year over year to $3.63 billion. The adjusted operating margin is expected to remain flat year over year.
Given the headwinds, leverage from the top-line growth is likely to have lessened the pressures on the margins to some extent.
Price Performance & Valuation of MCD Stock
Shares of McDonald’s have showcased an upward trend in the past three months. The stock has gained 19.7% in the said time frame, outpacing the Zacks Retail - Restaurants industry’s 19% growth. The company also performed notably better than a few of the primary industry players including Yum! Brands, Inc. (YUM - Free Report) , Domino's Pizza, Inc. (DPZ - Free Report) and Wingstop Inc. (WING - Free Report) in the same time bracket as shown below.
Image Source: Zacks Investment Research
Regarding the value MCD stock offers to investors, it is currently trading at a discount compared with the industry peers on a forward 12-month price-to-earnings (P/E) ratio basis.
Image Source: Zacks Investment Research
What Are the Thoughts on Investment?
Undertaking effective business decisions and tackling market challenges while maintaining the brand image of being one of the renowned global fast-food chains is not an easy job. The company is continuously opting for opportunities to expand its market reach globally through efficient service offerings in-stores and delivery, making it well-positioned to emerge from the uncertain market scenario and inflationary risks.
A positive earnings estimate trend, along with a discounted valuation, makes McDonald’s an attractive investment option compared with its industry. The company’s recent take on hiking its quarterly dividend and maintaining regular dividend payments showcases its ability to efficiently utilize its free cash flow and its commitment to shareholders. Investors holding MCD stock are advised to retain their positions.
On the other hand, an increased expense and cost structure might be a turn-off regarding the prospects of the company. Although the earnings estimate trend has been positive, it indicates a year-over-year decline in growth, thereby confusing the judgment of investors regarding MCD stock. Considering these uncertainties, prospective investors are advised to wait for a more favorable entry point regarding McDonald’s.