McDonald's Beats on Earnings, Misses Rev - Analyst Blog

McDonald's Corporation ( MCD ) posted mixed fourth quarter 2013 results. Earnings of $1.40 per share beat the Zacks Consensus Estimate of $1.39 per share and were up 1.4% year over year. The upside was driven by an increase in top line, which was partially offset by a rise in expenses and a decline in comparable sales (comps).

Revenues grew 2.0% year over year to $7.0 billion during the quarter. However, revenues failed to meet the Zacks Consensus Estimate of $7.1 billion owing to sluggish comps. Comps decreased 0.1% in contrast to expectations of an increase of 0.9% as fewer customers ate at its restaurants.

Behind the Headlines Numbers

In the fourth quarter, revenues from company-operated restaurants increased 1.8% to $4.8 billion, while the same from franchise-operated restaurants were up 2.4% to $2.3 billion.

In the United States, comps declined 1.4% compared to an increase of 0.7% during the third quarter of the year. The decline could be attributed to the strike by fast food workers in the U.S., stiff competition, relatively flat industry traffic trends and inclement weather in December. Operating income in the U.S. was up 1.0% year over year.

Despite the challenging macroeconomic conditions, comps in Europe nudged up 1.0%, better than a 0.2% increase in the prior quarter, driven by strong performance in the U.K., Russia and France, which was partially offset by weak performance in Germany.

Operating income increased 3.0% (remained flat in constant currencies) in Europe. Overall, results in Europe were supported by the company's attempts to fulfill demand via innovative value platforms and popular seasonal food events.

Asia/Pacific, Middle East and Africa (APMEA) continued to underperform as comps declined 2.4% compared to a decline of 1.4% during the third quarter. The results reflect weakness in Japan and relatively flat performance in China and Australia.

Operating income in APMEA declined 8.0% (up 1.0% in constant currencies).

Full Year 2013 Highlights

For full year 2013, McDonald's reported earnings per share of $5.55, up 3.5% year over year and revenues of $28.1 billion, up 2.0% year over year. Comps inched up 0.2% driven by higher average check.


For the first month of the first quarter of 2014, the company expects comps to remain relatively flat.

Though the company with its strong brand recognition continues to focus on innovative offerings and premium products across all regions to boost its performance in the long term, prevailing macroeconomic concerns are likely to pressurize its business in the near term.

The company expects capital expenditures in the range of $2.9 - $3.0 billion. It intends to open 1,500 - 1,600 new restaurants and reimage more than 1,000 existing locations.

Our Take

McDonalds reported better-than-expected earnings, while revenues missed the consensus mark. Though this fast-food chain company is trying to gain by offering value propositions and menu innovation, it has become extremely vulnerable to macroeconomic headwinds like debt concerns in Europe, decelerating growth in Asia and intense competition in the U.S.

McDonald's presently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Fiesta Restaurant Group, Inc. ( FRGI ), Jack in the Box Inc. ( JACK ), and Buffalo Wild Wings Inc. ( BWLD ). While Fiesta Restaurant carries a Zacks Rank #1 (Strong Buy), Jack in the Box and Buffalo Wild Wings carry a Zacks Rank #2 (Buy).

BUFFALO WLD WNG (BWLD): Free Stock Analysis Report

FIESTA RESTRNT (FRGI): Free Stock Analysis Report

JACK IN THE BOX (JACK): Free Stock Analysis Report

MCDONALDS CORP (MCD): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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