Q2 Preview: McDonald's (MCD) Could Produce Smooth-ie Results as Bev Sales Pick Up
Tweet
Share
E-mail
Get Alerts MCD Hot Sheet
Price: $270.19 +1.02%
Financial Fact:
Operating income: 2.14B
Today's EPS Names:
EDXC, BICX, FBPI, More
Financial Fact:
Operating income: 2.14B
Today's EPS Names:
EDXC, BICX, FBPI, More
Join SI Premium – FREE
McDonald's (NYSE: MCD) is looking rather healthy into its second-quarter earnings report, expected out before the market opens tomorrow.
Investors will probably shift attention from meaty products (like burgers and chicken sammies), to delicious thirst-quenching products (McCafe and smoothies). Though McDonald's profits on both, recent increases in beef costs has eaten into margins, leaving burgers to contribute just 60 percent to the top-line, while bevs submit a kingly 80 percent. What's driving growth in beverages? Mango-pineapple smoothies, so pay attention for commentary.
In the quarter, McDonald's should report earnings of $1.28 per share with revenue of $6.63 billion. Earnings would be an 11 percent sequential gain, but just 13.3 percent jump from the same period last year.
Shares gained 11.6 percent through the quarter, to $84.32 at the end of June. The stock is 2.4 percent better since then, and is currently 14.3 stronger on the year.
According to peer Yum! Brands (NYSE: YUM), commodity costs rose as much as 7 percent this year, though the USDA forecast an increase in food costs of just 4 percent for 2011. Ground beef prices increased 16 percent in June to $2.77 per pound, according to U.S. BLS data.
Last quarter, per-store profits narrowed from 18.2 to 17.7 percent, on commodity and labor costs.
Data from Bloomberg has 16 analysts with a Buy rating on McDonald's, 11 at Hold, and none suggesting to Sell. The analyst price target average is $89 with a low of $80 and high of $95. Shares have traded in a range of $68.59 to $87.04 over the last 52-weeks.
Analyst Thoughts
Goldman Sachs says that McDonald's will be able to deliver sustained returns to investors, regardless of economic conditions. The firm's biggest concern is U.S. store comps, noting "US SSS have dipped to the 2%-3% range in recent months, behind the sustained 4%-6% range experienced pre-recession...We are concerned that if in fact the macro environment does remain accommodative, MCD could potentially lose the share of advertising voice advantage it enjoyed during the recession." Golmand sees EPS of $1.29 on revs of $6.739 billion in the quarter.
Wells Fargo is looking for EPS of $1.29 in the quarter. Wells states, "currency translation is now expected to benefit Q2 EPS by $0.09 - 0.10, up from prior guidance of $0.06 - 0.07, due to recent strengthening of foreign currencies."
Deutsche Bank is modeling for EPS of $1.28 and revs of $5.642 billion, with comps increasing 4.4 percent globally. Deutsche is also expecting "global restaurant margins to come under some pressure in 2Q (down 70bps) due to commodity inflation, but the combination of incremental pricing, solid comps/traffic, and a favorable hiring environment should help offset food inflation."
Continuing, "We could see a modest uptick in MCD’s US inflation outlook (currently +4.0-4.5%), though given the company’s predominantly franchised business model, each 1% move in US inflation has minimal impact on annual EPS (~1-2c for 1% move in US inflation)."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.
Investors will probably shift attention from meaty products (like burgers and chicken sammies), to delicious thirst-quenching products (McCafe and smoothies). Though McDonald's profits on both, recent increases in beef costs has eaten into margins, leaving burgers to contribute just 60 percent to the top-line, while bevs submit a kingly 80 percent. What's driving growth in beverages? Mango-pineapple smoothies, so pay attention for commentary.
In the quarter, McDonald's should report earnings of $1.28 per share with revenue of $6.63 billion. Earnings would be an 11 percent sequential gain, but just 13.3 percent jump from the same period last year.
Shares gained 11.6 percent through the quarter, to $84.32 at the end of June. The stock is 2.4 percent better since then, and is currently 14.3 stronger on the year.
According to peer Yum! Brands (NYSE: YUM), commodity costs rose as much as 7 percent this year, though the USDA forecast an increase in food costs of just 4 percent for 2011. Ground beef prices increased 16 percent in June to $2.77 per pound, according to U.S. BLS data.
Last quarter, per-store profits narrowed from 18.2 to 17.7 percent, on commodity and labor costs.
Data from Bloomberg has 16 analysts with a Buy rating on McDonald's, 11 at Hold, and none suggesting to Sell. The analyst price target average is $89 with a low of $80 and high of $95. Shares have traded in a range of $68.59 to $87.04 over the last 52-weeks.
Analyst Thoughts
Goldman Sachs says that McDonald's will be able to deliver sustained returns to investors, regardless of economic conditions. The firm's biggest concern is U.S. store comps, noting "US SSS have dipped to the 2%-3% range in recent months, behind the sustained 4%-6% range experienced pre-recession...We are concerned that if in fact the macro environment does remain accommodative, MCD could potentially lose the share of advertising voice advantage it enjoyed during the recession." Golmand sees EPS of $1.29 on revs of $6.739 billion in the quarter.
Wells Fargo is looking for EPS of $1.29 in the quarter. Wells states, "currency translation is now expected to benefit Q2 EPS by $0.09 - 0.10, up from prior guidance of $0.06 - 0.07, due to recent strengthening of foreign currencies."
Deutsche Bank is modeling for EPS of $1.28 and revs of $5.642 billion, with comps increasing 4.4 percent globally. Deutsche is also expecting "global restaurant margins to come under some pressure in 2Q (down 70bps) due to commodity inflation, but the combination of incremental pricing, solid comps/traffic, and a favorable hiring environment should help offset food inflation."
Continuing, "We could see a modest uptick in MCD’s US inflation outlook (currently +4.0-4.5%), though given the company’s predominantly franchised business model, each 1% move in US inflation has minimal impact on annual EPS (~1-2c for 1% move in US inflation)."
Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Etsy upgraded to buy at BofA on durable growth, buyback potential
- ACRES Commercial Realty says labor dispute is hindering hotel sale
- Wolfe remains "broadly bullish on AI semis stocks", names Top Pick
Create E-mail Alert Related Categories
Earnings, Insiders' BlogRelated Entities
Deutsche Bank, Earnings, Wells FargoSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
