) first-quarter 2013 earnings of $1.26 per share missed the Zacks
Consensus Estimate by a penny but grew 2% year over year. Flat
net income coupled with share repurchases drove the
year-over-year earnings growth.
Revenues nudged up only 1.0% year over year to $6.61 billion
during the quarter, missing the Zacks Consensus Estimate of $6.64
billion. The muted increase in sales can be attributed to a 1%
decline in global comparable store sales (comps) and tough
year-over-year comparison owing to an extra operating day in the
Behind the Headlines Numbers
In the first quarter, revenues from company-operated restaurants
were flat at $4.45 billion while the same from franchise-operated
restaurants were up 2.0% to $2.16 billion.
, comps declined 2.0% mainly due to a difficult eating-out
environment. Dollar-menu, menu innovation and re-imaging failed
to drive comps in the quarter. Operating income for the segment
also declined 3% year over year.
witnessed a comps decline of 1.1% due to reduced guest count.
Austerity measures arising out of lingering debt concerns
probably made cash-stripped customers dine out less, which in
turn took a toll on footfall. The contribution from value-menu,
premium products and restaurant reimaging were offset by the
ongoing concerns in the region.
However, operating income was up 1% (same in constant currencies)
mainly driven by strong performances from UK and Russia. However,
Germany was a dampener in the quarter.
Asia/Pacific, Middle East and Africa (APMEA)
, comps slackened 3.3%. Japan and China were the laggards in the
quarter. Japan is struggling to recover from the
after-effects of last year's natural calamities, which is
restricting consumers from dining out. Operating income in APMEA
was down 1% (up 2% in constant currencies).
Offering a value menu, expansion in breakfast lineup, better
service and convenience initiatives and new restaurant
development remain the areas of focus in this segment.
For the month of April, management expects global comps to be
slightly negative. Also the company expects near-term bottom-line
growth to reel under pressure while the top line will improve on
the back of easy comparisons.
For 2013, McDonald's plans to spend about $3.2 billion, up from
$2.9 billion in 2012, given the plans for 1,500 -1,600 new
restaurant openings and over 1,600 reimages.
The Oakbrook, Ill.-based fast food giant continues to struggle.
After recording a decline in comps in the first quarter,
management further guided a monthly decline in comps for April.
McDonald's has become extremely vulnerable to a fragile macro
Going forward, increasing fear as a result of the recent outbreak
of H7N9 Avian flu will likely affect the performance of
McDonald's China. Geographically, the performance of France and
Germany in Europe and Japan in Asia are expected to be soft due
to the ongoing macro tension.
The company has little pricing power in Europe due to wavering
consumer confidence. With increased focus on value proposition,
less pricing power and increasing investments toward media,
margins will likely suffer, going ahead.
However, investors should also note that McDonald's will likely
face easy comparisons across the globe as the year 2013
progresses. We prefer to remain on the sidelines until we see how
its efforts help it to come out of the tough time.
McDonald's currently carries a Zacks Rank #3 (Hold). Two of
Brinker International Inc.
Yum! Brands Inc.
) will likely report their third-quarter and first-quarter
earnings respectively on Apr 23. Another peer
The Wendy's Co.
) is expected to report its first-quarter earnings on May 8.
BRINKER INTL (EAT): Free Stock Analysis
MCDONALDS CORP (MCD): Free Stock Analysis
WENDYS CO/THE (WEN): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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