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McDonald's (MCD) Down 0.3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
·4-min read

It has been about a month since the last earnings report for McDonald's (MCD). Shares have lost about 0.3% 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 Q4 Earnings and Revenues Lag Estimates

McDonald's reported fourth-quarter 2020 results, wherein earnings and revenues missed the Zacks Consensus Estimate. Notably, the top line missed the consensus mark after beating the same in the preceding four quarters.

Robust drive-thru presence, and investments in delivery and digital over the past few years have aided the company amid the ongoing crisis. Robust digitalization will continue to help the company to drive long-term growth and capture market share.

McDonald's president and CEO Chris Kempczinski said, “2020 will be remembered as one of McDonald's (MCD) most challenging, yet inspiring, moments in our long history. The resilience of the McDonald's System was on display – making safety and service a priority, putting our customers and people first, and running great restaurants.”

The company reported adjusted earnings of $1.70 per share, which beat the Zacks Consensus Estimate of $1.75. Moreover, the bottom line declined 14% year over year. Meanwhile, foreign currency translation had a negative impact of 4 cents per share on earnings in the quarter under review.

Revenues & Comps Discussion

In the fourth quarter, revenues of $5,313.8 million missed the Zacks Consensus Estimate of $5,320 million. Moreover, the top line declined 2% year over year. This downtrend was due to the coronavirus pandemic. Moreover, on a constant-currency basis, revenues decreased 3% year over year.

At company-operated restaurants, revenues were $2,233.3 million, down 5% year over year. Moreover, the same at franchise-operated restaurants amounted to $2,985.3 million, flat year over year.

In the quarter, global comps declined 1.3%, against growth of 5.9% in the prior-year quarter. Comps declined for the fourth straight quarter after reporting positive comps in the trailing 19 quarters.

Solid Comps Across Segments

U.S.: Comps at this segment rose 5.5% in the fourth quarter, compared with increase of 5.1% in the prior-year quarter. The company’s comps in the quarter benefited from robust average check growth and strong performance at all major daypart.

International Operated Markets: Comps at this segment declined 7.4% year over year, against a gain of 6.2% in the year-ago quarter. Comps were hurt by dismal comps particularly in France, Spain, Germany and Italy. However, the company witnessed positive comps in Australia and the U.K. during the quarter under review aided by drive-thru performance.

International Developmental Licensed Segment: The segment’s comparable sales decreased 3.6% in the third quarter. In the prior-year quarter, the segment’s comps had risen 6.6%. Comps were negatively impacted by dismal comps in Latin America and Asia, which was marginally offset by robust comps in Japan.

Other Financial Information

The company ended the quarter with cash and cash equivalent of $3,449.1 million, compared with $898.5 million at the end of Dec 31, 2019. As of Dec 31, 2020, long-term debt stood at $35,196.8 million, compared with $34,118.1 at the end of Dec 31, 2019.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, McDonald's has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, 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 upward for the stock, and the magnitude of these revisions looks promising. 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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