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McDonald's (MCD) Tops Q4 Earnings on Global Comps Growth

McDonald's Corp.MCD posted strong results in the fourth quarter of 2016, wherein both the bottom line and the top line outpaced the Zacks Consensus Estimate.

Earnings and Revenue Discussion

Earnings per share (EPS) of $1.44 surpassed the Zacks Consensus Estimate of $1.41 by 2.1% and improved 10% from the year-ago quarter. The upside can be attributed to the turnaround plan announced by CEO Steve Easterbrook in May 2015.

Meanwhile, foreign currency translation had a negative impact of 3 cents per share on earnings in the quarter. Notably, at constant currency, earnings grew 12% year over year.

Revenues of $6.03 billion fell 5% year over year, mainly due to the impact of refranchising. At constant currency, the figure declined 3%. Revenues, however, surpassed the Zacks Consensus Estimate of $5.98 billion by nearly 1%.

Behind the Headline Numbers

In the quarter, revenues at company-operated restaurants declined 9% to $3.65 billion. Revenues at franchise-operated restaurants, however, grew 3% to $2.38 billion.

Global comps grew 2.7%, supported by positive comps across the International Lead, High Growth and Foundational segments, marking the sixth consecutive quarter of positive comparable sales. However, comps compared unfavorably with last quarter's increase of 3.5%.

McDonald's Corp. Price, Consensus and EPS Surprise

McDonald's Corp. Price, Consensus and EPS Surprise | McDonald's Corp. Quote

Segment Details

Effective Jul 1, 2015, the company began reporting results under four segments: U.S. (the company's largest segment), International Lead Markets (mature markets including Australia, Canada, France, Germany and the U.K.), High-Growth Markets (markets that have high restaurant expansion and franchising potential such as China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands) and Foundational Markets (the remaining markets in McDonald's system).

U.S.: Comps declined 1.3% in the fourth quarter, reflecting the challenging comparison against the prior-year launch of the very successful All-Day Breakfast. Moreover, comps growth compared adversely with the prior-quarter improvement of 1.3% due to softening industry growth.

Segment operating income decreased 11%, as the U.S. segment lapped a prior-year gain on the strategic sale of a unique restaurant property.

Going forward, the company will remain focused on growing guest traffic.

International Lead Markets: Comps at the International Lead Markets segment grew 2.8%, driven by strong performance across most of the segment, led by the U.K. The upside reflects multiple menu, service and value initiatives across most of the markets, which led to positive consumer response. However, comps were not as good as the increase of 3.3% recorded in the last quarter.

Operating income was up 1%, including the impact of foreign exchange headwinds. At constant currency, the figure was up 6% on the back of sales-driven improvements in franchised margin dollars across most markets.

High-Growth Markets: Comps grew 4.7% in High-Growth Markets, led by strong performance in China and positive results across the entire segment. Notably, comps had witnessed growth of 1.5% in the last quarter.

The segment's operating income rose 16% (18% in constant currencies) fueled by improved restaurant profitability in China, which benefited from the recent VAT reform.

Foundational Markets: Comps in Foundational Markets jumped 11.1% primarily on the back of strong sales in Japan and certain markets in Latin America, as well as solid results across the segment's remaining geographical regions. Moreover, the figure compared favorably with comps growth of 10.1% in the last quarter.

Operating income in the quarter increased reflecting a gain from the sale of McDonald's Singapore in connection with the company's refranchising initiatives, as well as improved performance in Japan.

Full-year 2016 Results

For 2016, earnings were $5.44 per share; up 13% from 2015. Further, earnings increased 16% in constant currencies.

Revenues were $24.62 billion, down 3% year over year. Excluding currency translation revenues that remained flat in 2016.

Zacks Rank & Stocks to Consider

McDonald's has a Zacks Rank #3 (Hold). Some better-ranked stocks in the Retail-Restaurants space, include:

Dave & Buster's Entertainment, Inc. PLAY sporting a Zacks Rank #1 (Strong Buy). It has seen current year estimates rise 6.2% over the last 60 days. You can see the complete list of today's Zacks #1 Rank stocks here .

Bob Evans Farms, Inc. BOBE is a Zacks Rank #1 company. Its earnings have surpassed the Zacks Consensus Estimate in all of the last four quarters, with an average beat of 14.74%.

Wingstop, Inc. WING carries a Zacks Rank #2 (Buy). It posted positive earnings surprises in all of the last four quarters, with an average beat of 11.99%.

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McDonald's Corporation (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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