) posted second quarter 2012 earnings of $1.32 per share, missing
the Zacks Consensus Estimate of $1.38 as well as the year-ago level
of $1.35 per share. The lower-than-expected result was due to lower
comparable-store sales across all regions and unfavorable currency
However, excluding the adverse effect of currency translation of 7
cent in the reported quarter, earnings grew 3.0% year over year.
McDonald's, one of the nation's largest chains, reported revenues
of $6.92 billion during the quarter, flat year over year but below
the Zacks Consensus Estimate of $6.94 billion. Excluding the
negative impact of foreign currency translation, revenues grew 5.0%
year over year.
Revenues from company-operated restaurants fell 1% to $4.67 billion
while the same from franchise-operated restaurants jumped 2% to
$2.24 billion. Total operating income contracted 2% to $2.16
McDonald's global comparable sales continued to remain positive for
the quarter, but were below the year-ago level. The company
witnessed a 3.7% upside in global comparable sales (comps) for the
quarter, lower than the year-ago level of 5.6%.
The company witnessed downward moves across all three
geographical segments, namely the United States, the U.K. and
APMEA, on a yearly basis. While the United States and Europe
delivered similar performances, the Asia/Pacific, Middle East and
Africa (APMEA) region was the main dampener in the quarter.
MCDONALDS CORP (MCD): Free Stock Analysis
YUM! BRANDS INC (YUM): Free Stock Analysis
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In the United States, comps grew 3.6% versus 4.5% in the prior-year
quarter. The comps in the quarter were backed by strong customer
demand for core offerings like breakfast menu and the McCafe
beverage line-up. The everyday value-menu was the other major
contributor in the quarter. Additionally, the upside in comps was
driven by restaurant refurbishments. Operating income for the
segment rose 2% during the quarter.
Europe saw growth of 3.8% as opposed to 5.9% in the year-ago
quarter. The growth was backed by stronger performance in the U.K.,
France, Germany and Russia. The efficient mix of premium as well as
value-menu and a restaurant reimaging program were responsible for
the quarter's performance. However, operating income for the
segment slipped 3%, but was up 8% in constant currency.
In APMEA, comparable sales nudged up 0.9% versus 5.2% in the
year-ago quarter. A somewhat healthy performance was palpable
primarily in China and Australia. However, Japan continued to post
sluggish results. A continued focus on daypart value options,
variety in menu as well as locally relevant items drove the
segment. However, operating income declined 2%, but inched up 1% in
Franchised restaurant occupancy expenses and selling, general and
administrative expenses escalated 1% and 5%, respectively, and
company-operated expenses remained flat year over year.
In the second quarter of 2012, McDonald's returned $1.6 billion to
its shareholders through share repurchases and dividend payments.
The company expects comps to remain positive for the month of July
as well, but lower that the second quarter.
The fast-food chain's comps performance in the reported quarter was
below par, as the company is caught up with difficulties like
implementation of austerity measures in Europe, increasing
commodity costs in the US and decelerating growth in Asia. With the
focus on value proposition along with less pricing power, margins
will likely be affected going ahead. In addition, high levels of
unemployment are projected to continue in the foreseeable
However, McDonald's has so far efficiently endured the recent
economic turmoil in Europe. Moreover, company's revitalization
initiative, the "Plan to Win" program, aiming to sustain growth by
increasing restaurant visits, providing everyday value, innovating
new menu items, as well as re-imaging restaurant along with market
campaigns will continue to bolster the company's growth.
Consequently, the company has a Zacks #4 Rank (short-term Sell
rating). We also reiterate our long-term Neutral recommendation.
One of McDonald's primary competitors,
Yum! Brands Inc.
) recently reported second quarter 2012 adjusted earnings of 67
cents per share, missing the Zacks Consensus Estimate of 70 cents.
Earnings nudged up just 1% year over year. A hike in tax-rate,
inflated cost structure, especially in China and settlement of a
California employment lawsuit at Taco Bell were responsible for the
underperformance of earnings per share.