McDonald's (MCD) Earnings Beat Underscores Long-Term Recovery

McDonald's ()

McDonald's ()

Shares of McDonald's (MCD) are trading lower about 1.77% in early trading Monday, despite fast food giant reporting fourth quarter fiscal 2016 earnings results that beat Wall Street estimates on both the top and bottom lines.

With the novelty and excitement in All-Day Breakfast gone, McDonald’s needed ways to revive growth amid stiff competition from the likes of Jack in the Box (JACK) and Wendy's (WEN). MCD stock returned just 3% over the past year, trailing the better than 16% rise in the S&P 500 Index. In other words, MCD not only needed to get its customers back, it needed to convince investors it can strengthen its position and deliver long-term sustainable growth. To that end, Monday’s results were a good start.

In the three months that ended December, McDonald’s posted earnings per share rose up 7.6% to $1.44 on a 5.5% decline in revenue of $6.03 billion, which beat consensus estimates from Thomson Reuters that called for $1.41 in EPS and revenue of $5.99 billion. The measures compare to the year-ago quarter when the company earned $1.31 per share on $6.34 billion in revenue.

Despite the top- and bottom-line beat, revenue declined on a year-over-over basis. This is because of the excitement All-Day Breakfast created last year, which drove sales higher. But amid consumers’ shift towards healthier foods, McDonald’s is now scrambling to respond to competitors that are offering fresher ingredients. Ahead of the quarter, fearing the impacts of bad weather, analysts had lowered McDonald’s same-store sales estimates. It would seem they were right.

McDonald’s suffered a 1.3% decline in U.S. same-store sales, which measures the performances of stores opened last least one year. Weakness in the U.S., however, was offset by gains in International markets, which were higher in areas such as the U.K., China, Japan and certain Latin American markets. In total, global comparable sales grew 2.7%.

“Throughout 2016, we worked diligently to lay the groundwork for our long-term future,” CEO Steve Easterbrook said in a statement. “We focused on driving changes in our menu, restaurants and technology to deliver an enhanced McDonald's experience for our customers around the world.” Easterbrook, who has also initiated various digital technology such as digital menus, added, ”We also expect brand perceptions to continue to strengthen due to improved food quality (preservative-free nuggets, antibiotic free chicken, cage-free eggs).”

Shares of McDonalds closed Friday at $122.26. The stock, which has a consensus price target of $128, fell below $120 in Monday’s early trading session.

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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Richard Saintvilus

After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.

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