A month has gone by since the last earnings report for McDonald's (MCD). Shares have added about 8.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is McDonald's due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
McDonald's Q2 Earnings Miss Estimates, Comps Down
McDonald's reported mixed second-quarter 2020 results, wherein the bottom line missed the Zacks Consensus Estimate but the top line beat the same. However, both earnings and revenues declined year over year. Results in the quarter were impacted by the coronavirus pandemic. Limited operations and change in consumer behavior also hurt the company’s performance.
However, robust drive-thru presence and its investments in delivery and digital over the past few years have aided the company during the current scenario. The company witnessed continued improvement in results throughout the second quarter. As of Jun 30, 2020, most of the company’s restaurants are open globally.
The company reported adjusted earnings of 66 cents per share, which missed the consensus of 76 cents. Moreover, the bottom line declined 68% year over year. Meanwhile, foreign currency translation had a negative impact of 1 cent per share on earnings in the quarter under review.
Revenues & Comps Discussion
In the second quarter, revenues of $3,761.5 million beat the Zacks Consensus Estimate of $3,698 million. However, the figure declined 30% year over year. This downtrend can primarily be attributed to the coronavirus pandemic. Moreover, on a constant-currency basis, the top line decreased 29% on a year-over-year basis.
At company-operated restaurants, revenues came in at $1,593.7 million, down 34% year over year. Moreover, the same at franchise-operated restaurants slumped 29% to $2,088 million.
In the quarter global comps declined 23.9%, against a gain of 6.5% in the prior-year quarter. Comps declined for the second straight quarter after reporting positive comps in the trailing 19 quarters. In first-quarter 2020, comps were down 3.4%.
Solid Comps Across Segments
U.S.: Comps at this segment declined 8.7% in the second quarter, against a gain of 5.7% rise in the prior-year quarter. However, the company witnessed sequentially improvement in comps throughout the quarter. At the end of April, May and June comps were down 19.2%, 5.1% and 2.3%, respectively.
International Operated Markets: Comps at this segment declined 41.4% year over year, against a gain of 6.6% in the year-ago quarter. Comps were hurt by temporary restaurant closures and limited operations, particularly in the U.K. and France. However, the company witnessed positive comps in Australia in May and June driven by drive-thru performance.
International Developmental Licensed Segment: The segment’s comparable sales decreased 24.2% in the second quarter. In the prior-year quarter, the segment’s comps had risen 6.5%. Comps were negatively impacted by temporary restaurant closures across nearly all geographies, primarily in Latin America.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 7.55% due to these changes.
Currently, McDonald's has a subpar Growth Score of D, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, McDonald's has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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