McDonald's Is Hip Again, Beats Analyst Estimates

Shas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Recently, McDonald’s Corp. (NYSE: MCD), the world’s largest fast-food chain, reported better-than-expected global comparable sales for the month of November. The better-than-expected November sales results follows a drop in monthly sales in October.

Back on Track

McDonald’s had last month reported a 1.8% drop in global comparable sales for October, which was the first decline in nine years. While investors were expecting weak sales in Europe and Asia for October, a drop in U.S. same-store sales came as a surprise. The company said last month that its comparable sales in the U.S. fell as modest consumer demand and heightened competitive activity offset the impact of Dollar Menu advertising, the Monopoly promotion, and the recent launch of Cheddar Bacon Onion premium sandwiches. However, with the November sales results, McDonald’s is once again back on track.

The Oak Brook, Illinois-based global restaurant company reported that its worldwide comparable sales rose 2.4% in November, well above the consensus forecast of an increase of 0.17%.

Don Thompson, President and CEO of McDonald’s said, “We are strengthening our focus on the global priorities that are most impactful to our customers – optimizing our menu, modernizing the customer experience and broadening accessibility to our Brand to move our business forward amid today's broad-based economic and competitive challenges.  I am confident that these strategies and the actions we are taking will solidify our foundation and deliver long-term profitable growth in the future.”

In the U.S., McDonald’s comparable sales climbed 2.5% last month, driven by ongoing popularity of the company’s breakfast along with balance across everyday value offerings, premium menu options and the beverage line-up. Comparable sales in Europe rose 1.4%, driven by positive results in the U.K., Russia and other markets, which were partially offset by weak performance in Germany. The company’s comparable sales in Asia/Pacific, Middle East and Africa (APMEA) rose 0.6%.

McDonald’s reported a 3.2% increase in system wide sales for November.

Q3 Results

Back in October, McDonald’s reported its third-quarter financial results. The company’s global comparable sales for the quarter rose 1.9%. Consolidated revenue for the quarter was $7.2 billion, flat compared to the same period in the previous year. Consolidated operating income for the quarter fell 4% to $2.3 billion, while diluted earnings per share for the quarter fell 1% to $1.43.

The weak third-quarter results reflected the challenging macro environment. However, CEO Thompson noted that he continues to see significant long-term opportunities for McDonald’s brandand remains confident in the underlying strength of the company’s business model.

While McDonald’s consolidated revenue for the third quarter was flat, rival Wendy’s Company (NASDAQ: WEN) reported a 4.1% increase in third-quarter consolidated revenue to $636.3 million. Wendy’s adjusted EBITDA from continuing operations for the third quarter was $84.5 million, down from $87 million reported for the same period in the previous year. Adjusted earnings per share for the quarter were $0.03 per share, compared to $0.05 per share reported for the same period in the previous year.

Meanwhile, Burger King Worldwide (NYSE: BKW), the world’s second largest fast food hamburger chain, reported a 25.8% drop in total third-quarter revenue to $451.1 million. The decline in revenue was mainly due to refranchising transactions in the U.S. and Canada, Europe, Middle East & Africa, and Asia Pacific, as well as due to the impact of exchange rate fluctuations. The company’s adjusted net income and adjusted diluted earnings per share for the quarter rose 12.7% and 10.6%, respectively.

Stock Performance

While McDonald’s October sales and third-quarter results were disappointing, the better-than-expected November sales results have given a boost to the stock. McDonald’s shares are up more than 1% in early trading today following the quarterly results. However, year-to-date, McDonald’s shares have underperformed the broad market, falling nearly 11%. In the same period, Wendy’s shares have gained more than 2%. The stock is currently trading well below its 52-week low of $102.22.

Valuation

McDonald’s shares are currently trading at a P/E ration (ttm) of 16.83, which is below the Industry average of 18.27. The stock currently has a dividend yield of 3.45%.

McDonald’s shares are attractively valued at current levels. The November sales results have highlighted the strength of the McDonald’s brand. Given these factors, I would recommend the stock for long-term investors.


StockRiters.com has no positions in the stocks mentioned above. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend Burger King Worldwide and McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure