McDonald's (MCD) Falls Victim to Lofty Expectations

Despite reporting solid fourth quarter results Tuesday morning, shares of McDonald’s (NYSE: MCD) slumped about 2 percent. Weakness was due in part to a broad decline in equities, but may also be a result of high expectation from the fast food juggernaut.

U.S. comps increase 4.5 percent, in-line with estimates, with strong performance of core menu items featured under the McPick 2 platform and beverage value, as well as strong consumer response to its new Buttermilk Crispy Tenders, and delivery. Global comps increase 5.5 percent, slightly ahead of views.

For 2018, McDonald’s plans to invest about $2.4 billion of capital, the majority of which will be dedicated to reinvesting in its existing locations. It also plans on opening of about 1,000 new McDonald's restaurants.

“We could see mild softness in shares today on the lack of a headline comp beat, but the medium- to long-term thesis is intact,” said Goldman Sachs analyst Karen Holthouse.

Deutsche Bank equity analyst Brett Levy characterized results as “solid,” with good U.S. same-store sales, but he said this was against “high bars.”

Cowen analyst Andrew M. Charles said expectation from McDonald’s were “lofty.”

Goggeheim’s analyst Matthew DiFrisco had a slightly different view. “We expect investors will be concerned with initial 2018 [General and Administrative costs] guidance which forecasts a 1% reduction, falling short of current consensus which assumes an 8% reduction. The difference equates to ~$0.14 of EPS. Likewise $2.4bn 2018 CapEx guidance is ahead of the current consensus $1.75bn.”

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