McDonald’s Corporation (MCD) posted first quarter 2011 earnings of $ 1.15 per share, a penny better than the Zacks Consensus Estimate.
Earnings increased 15% from $ 1.00 in the prior-year quarter. However, excluding the favorable currency impact of 3 cents in the reported quarter, earnings grew 12.0% year over year.
The earnings growth was driven by a rise in comparable-store sales across all regions due to higher traffic. The company also continues to benefit from its “Plan to Win” program, which aims to sustain growth by increasing restaurant visits, providing everyday value, innovating new menu items, re-imaging restaurant and market campaigns.
Quarter Highlights
The leading fast food chain operator said revenues for the quarter climbed 9% to $ 6.11 billion, outperforming the Zacks Consensus Estimate of $ 5.98 billion. Excluding the positive impact of foreign currency translation, revenues grew 7.0% year over year.
Revenues from company-operated restaurants rose 9% to $ 4.15 billion while revenues from franchise-operated restaurants jumped 8% to $ 1.96 billion. Total operating income grew 9% to $ 1.83 billion.
McDonald’s global comparable sales continue to grow, while maintaining healthy margins on an expanding market share. Global comparable-store sales rose 4.2% during the quarter with U.S. sales up 2.9%, Europe up 5.7% and Asia/Pacific, Middle East and Africa (APMEA) up 3.2%.
Product innovation along with value menu offerings and a wider variety have perked up U.S. comps and operating income.
In Europe, comps and operating income growth of 12% were driven by strong performances in France, Russia and the U.K. Germany also posted a positive score. A signature menu at a reasonable price, sustained focus on multiple-tier menus, new products across all price tiers and the restaurant reimaging program continued to drive market share gains.
In APMEA, comps and operating income increased on higher consumer demand resulting from menu innovation, core value menu offerings, promotional activities, service initiatives around drive-thru, longer operating hours and the restaurant reimaging program. The upside was also led by strong performances in Australia and China.
Company-operated expense and franchised restaurant occupancy expenses saw sharp gains of 10% and 4% year-over-year, respectively. Selling, general and administrative expenses scaled up 3% from the prior-year quarter.
Financial Position
During the quarter, McDonald’s returned $ 2.0 billion to shareholders through share repurchases and dividend payment.
Outlook
The company expects the positive trend to continue in 2011 and beyond.
Our Take
McDonald’s continues to grow same-store sales while maintaining healthy margins. Over the next few quarters, we believe revenues will grow through unit expansion and strong comps momentum. Based on a strong balance sheet and consistent earnings, the stock provides relative safety and moderate growth prospects due to its exposure to faster-growing international markets.
Moreover, the franchising strategy that is predominant in McDonald’s business model helps drive steady cash flow streams, margins and returns. However, economic headwinds, steeply rising commodity and labor costs, and intense competition remain areas of concern.
Consequently, we have a Zacks #2 Rank (short-term ‘Buy’ recommendation) on the shares. We also reiterate our long-term Neutral rating.
One of McDonald’s primary competitors, Yum! Brands Inc. (YUM) has reported first quarter 2011 adjusted earnings of 63 cents, a penny below the Zacks Consensus Estimate. Earnings increased 7% year over year mainly on the back of strong performance at its China division.
MCDONALDS CORP (MCD): Free Stock Analysis Report
YUM! BRANDS INC (YUM): Free Stock Analysis Report
Zacks Investment Research
Be the first to comment