McDonald's Corp. MCD posted robust results for the fourth quarter of 2017, wherein both top and the bottom lines beat the Zacks Consensus Estimate.
Adjusted earnings per share (EPS) of $1.71 surpassed the consensus mark of $1.59 by 7.5% and improved 19% from the year-ago quarter (16% in constant currencies). The upside reflects stronger operating performance and G&A savings.
Meanwhile, foreign currency translation had a positive impact of 4 cents per share on earnings in the quarter. Notably, adjusted earnings exclude the impact of a net tax cost associated with the Tax Cuts and Jobs Act of 2017.
McDonald’s plans to invest $2.4 billion in 2018, mostly toward accelerating deployment of its Experience of the Future in the United States, which focuses on adding technology to its eateries.
Shares of McDonald’s have gained 42.5% over the past year, significantly outperforming the industry’s 22% rally.
Revenues Decline but Global Comps Improve
Revenues of $5.34 billion beat the consensus mark of $5.26 billion by 1.5% but declined 11.4% year over year. The decline reflects the impact of the company’s strategic refranchising initiative.
Revenues at company-operated restaurants declined 26.8% year over year to $2.67 billion. However, the same at franchise-operated restaurants increased 12.2% to $2.67 billion.
Global comps grew 5.5%, supported by encouraging guest count across segments. This marked the tenth consecutive quarter of positive comparable sales. Meanwhile, comps growth was slightly lower than the last quarter’s increase of 6%.
Solid Comps Across Segments
U.S.: Comps grew 4.5% in the fourth quarter driven by solid performance of core menu items under the McPick 2 platform and beverage value, as well as robust consumer response to new Buttermilk Crispy Tenders and delivery. Comps growth was slightly better than the prior quarter rise of 4.1%.
Segment operating income increased 4% on the back of higher sales-driven franchised margin dollars and G&A savings, partially offset by lower company-operated margin dollars.
International Lead Markets: Comps at this segment grew 6% year over year, higher than 5.7% rise witnessed in the last quarter. Continued momentum in the United Kingdom and Canada along with upbeat results across all other markets drove comps.
Operating income was up 14%, including the impact of foreign currency translation. At constant currency, the figure was up 7%, primarily on the back of sales-driven improvements in franchised margin dollars.
High-Growth Markets: Comps grew 4%, lower than the prior-quarter’s increase of 6.2%, led by strong performance in China as well as positive results across majority of the segments, partially offset by continual challenges in South Korea.
Foundational Markets: Comps in Foundational Markets grew 8% on the back of positive sales performance across all geographic regions. However, the figure came in lower than 10.2% growth recorded in the last quarter.
Zacks Rank & Upcoming Releases
McDonald’s has a Zacks Rank #2 (BuyYou can see the complete list of today’s Zacks #1 Rank stocks here.
Among other firms in the restaurant space, Dunkin' Brands Group DNKN and Chipotle Mexican Grill CMG are expected to release their fourth-quarter numbers on Feb 6. Yum! Brands YUM will report fourth-quarter results on Feb 8.
The Zacks Consensus Estimate for Dunkin' Brands, Chipotle Mexican Grill and Yum! Brands’ earnings is pegged at 63 cents, $1.35 and 80 cents, respectively.
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