Supplier Food Quality, Safety Pressured McDonald's (MCD) Sales Growth in Oct. - RBC Capital

RBC Capital comments on McDonald's (NYSE: MCD) following October sales results reported earlier. The firm has McDonald's at Sector Perform with a price target of $98.

Analyst David Palmer summarized: McDonald's global same-store-sales (SSS) decline was -0.5%, ahead of our -2% estimate and cons' -2.5%. US SSS declined -1% (RBCe -1.5%, cons -2.3%), Europe SSS declined -0.7% (RBCe -1%, cons. -2.3%), and APMEA declined -4.2% (RBCe -7%, cons -4.3%). Sales in APMEA continue to be affected by supplier food quality and safety issues primarily in Japan and China, while store closures in Russia once again hurt Europe. In addition, strength in the Other Countries & Corporate segment, which primarily includes Canada and Latin America, likely added 0.5% to global SSS growth.

Looking closer at APMEA: While supplier issues continue to weigh on the APMEA segment, China is showing sequential improvement and Australia continues to have strong performance, aided by a shift in its Monopoly promotion from February to September/ October. We estimate that APMEA ex-Japan SSS improved to +4% (calendar adjusted) following 0% in September and -8% and August as restaurants in China were able to resume full product offerings and the company starts to take steps to rebuild consumer trust. In the interim, we expect APMEA EBIT margins to weigh on global profitability due to: 1) sales deleverage; 2) spending on food safety messaging; 3) franchisee assistance costs; and 4) supply-chain rebuilding.

For an analyst ratings summary and ratings history on McDonald's click here. For more ratings news on McDonald's click here.

McDonald's closed at $95.10 yesterday.

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