McDonald’s Delivers an Earnings Whopper… Sort Of!

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Judging by July 26 trading, Investors don't seem too excited or disappointed by the latest earnings report from McDonald's (NYSE: MCD ). While MCD stock earnings had some bad parts to its second-quarter 2018 report, I believe there is still enough good stuff to call it a successful quarter.

Here's why.

The Bad Stuff

Both its U.S. and High Growth Markets delivered same-store sales in the quarter below analyst expectations.

It's the first time in the past eight quarters that the restaurant chain has missed estimates for same-store sales growth, setting of the alarm bells for some investors.

In the U.S. its company-owned and franchised locations accounted for 37% of its $5.4 billion in revenue during the quarter and those restaurants saw same-store sales increase by 2.6% - 36 basis points less than analyst estimates and 130 basis points lower than a year earlier.

Also of concern is the fact its overall same-store sales increased just 4.0% in the quarter, 230 basis points lower than a year earlier, but 40 basis points higher than analyst estimates.

As for the 14% decline in overall revenue excluding currency, investors ought not to worry about that. Due to the company's ongoing refranchising program, as it moves to an asset-light business model, revenues are going to continue to drop as restaurants get converted.

On balance, the company's top line during the quarter wasn't spectacular, but it wasn't negative either.

As McDonald's continues to work on reigniting sales in the U.S., there are going to be some missteps along the way.

I'd continue to watch what's happening with U.S. sales, but I don't think it's nearly enough for current shareholders to consider selling.

The Good Stuff About MCD Stock Earnings

Excluding one-time items, McDonald's grew net income by 7.4% to $1.57 billion from $1.46 billion a year earlier. On a per share basis, earnings rose by 13.7% (12% excluding currency) to $1.99 per share from $1.75 a year earlier - beating analyst estimates by seven cents in the process.

The earnings were a result of higher margins from franchises along with a tax rate that was 640 basis points lower than last year at 25.9% .

Thank you, Mr. Trump.

During the quarter, McDonald's repurchased 10.4 million shares at $163.5 a share, a price that's higher than what the shares are trading for now.

Over the first six months of 2018, it's done a little better, repurchasing 20.8 million shares at an average price of $158.65 and reducing its share count by about 4%.

Since the end of 2012, McDonald's has reduced its share count by 23% to 787 million outstanding as of June 30.

If you like share repurchases you can count on a steady diet of about 4% each year.

The Bottom Line on MCD Stock Earnings

I don't believe there's anything from its Q2 2018 report that screams "sell".

On the other hand, I don't see anything that screams "I gotta buy or else".

At the beginning of 2018, I suggested MCD stock could hit $200 this year by winning with its value meals, generating real revenue from its dinnertime delivery initiative and goosing the margins.

So far, it appears to be doing okay on value meals. The company is making real progress on its delivery program and growing margins through its refranchising program.

So, even though it's doing a decent job meeting my three objectives in 2018, its Q2 report isn't enough for me to think it's going to hit $200 this year, as I predicted it might.

That said, I would buy a small position today, and definitely add to that should it fall into the $140s.

McDonald's might be dow, but I don't think it's out.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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The post McDonald's Delivers an Earnings Whopper… Sort Of! appeared first on InvestorPlace .

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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