Can Mcdonald’s Share Price Hit a New Record High With Its Upcoming Earnings?
Carolane De Palmas
4 min read
Now under focus are issues relating to exposure internationally as well as the effect of inflation and rising interest rates, particularly for consumers in the US.
With its headquarters in Chicago, the burger chain manages 40,000 restaurants throughout more than 160 countries, employing a combined total of two million people in its franchised locations. The US is home to around 13,000 of these stores, but to meet growing customer demand, CEO Chris Kempczinski has also pushed for a faster rollout of additional restaurant locations.
Are McDonald’s shares a buy right now considering rising costs and global headwinds? Let’s take a look at what the company faces in the near term and what it might mean for its share’s performance.
Corporate Layoffs Pending
In order to facilitate the further expansion of the company in difficult times, Kempczinski recently made public his intention to reduce the number of corporate positions at the company later this year.
In a memo to employees earlier this month, the CEO warned that challenging conversations and tough choices were ahead as the company assesses its functions and workforce levels. He highlighted that some projects would be put on the back burner, while others would be canceled, and the purpose of the layoffs was to be able to move more quickly as a company and save money on international expenses as a result.
Around 200,000 individuals are employed by McDonald’s in corporate positions and company-owned restaurants globally, with around 75% of those workers working outside of the US. According to Kempczinski, the chain will start making layoffs in April 2023 but no numbers have been mentioned as yet.
International Difficulties
Due in part to the strengthening of the dollar and Russia’s invasion of Ukraine, McDonald’s international growth has somewhat dragged on the company’s bottom line. Recently, the company also stated it was pulling out of Kazakhstan, which borders Ukraine, because of supply issues brought on by the ongoing conflict with Russia.
McDonald’s was one of several Western businesses that also promised to leave Russia in May last year. In protest of Russia’s invasion of Ukraine, the company sold its more than 800 Russian outlets to a Russian businessman named Alexander Govor. Gover has since changed the name of the stores but kept much of the previous restaurant characteristics so that customers wouldn’t notice a difference.
Fast Food Industry a Recessionary Survivor
At first glance, it could seem that a consumer stock like McDonald’s would suffer during a period of increasing interest rates and recessionary conditions. However, there are more arguments in favor of the contrary being true.
Fast food restaurants with low prices behave a lot like bargain stores in that they are often among the last to go out of business when people in the middle and lower classes are feeling the economic pinch.
Despite the difficulties of the last few years with the pandemic and now tightening monetary conditions eroding consumer purchasing power, there will always be a need for food, and many people rely heavily on restaurants as their main food source. Only those restaurants that can swiftly and effectively adjust to new circumstances by developing new menu items and service concepts will succeed.
McDonald’s, during the economic downturn that occurred in 2008 and 2009, for instance, fared very well under the circumstances, as one of the only publicly traded restaurant chains that showed positive profit revisions during the whole of the downturn.
What Can We Expect from Q4 and the Company Share Price?
Looking back at earnings for the third quarter of 2022, they were above analyst forecasts, thanks to the company’s marketing efforts and increased menu pricing, but were somewhat offset by the strong U.S. dollar. The company reported profits of $5.8 billion during the quarter up to September, which was a decrease from the $6.2 billion it recorded for the same time in 2021.
Earnings for the fourth quarter are expected to be $2.45 per share, up from $2.23 in the same period last year, according to the Zacks Consensus Estimate. The estimate for sales from the same researcher is up over $5.7 million, which is a decrease of 4.9% when compared to the same period last year.
McDonald’s shares did relatively well in 2022, outperforming the market due to strong demand in the fast-food industry. In most regions, the company saw increased consumer traffic and was able to pass on additional expenses just by increasing their menu pricing.
If its finances keep doing well, McDonald’s stock is generally expected to continue providing strong gains. Like the majority of its competitors, its profits decreased last year as prices rose and demand growth slowed. However, the chain’s extensively franchised business model protected profits.
McDonald’s is less vulnerable to the hazards of a recession because of its larger geographic distribution, emphasis on discount menu items, and franchised operations, and these contribute to the explanation of why the restaurant stock performed so well in 2022.
Daily McDonald’s chart – Source: ActivTrades
How will McDonald’s shares perform in 2023? Do you believe it’s the right moment to buy the share?
Disclaimer
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 85% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
ActivTrades Corp is authorised and regulated by The Securities Commission of the Bahamas. ActivTrades Corp is an international business company registered in the Commonwealth of the Bahamas, registration number 199667 B.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.
All information has been prepared by ActivTrades (“AT”). The information does not contain a record of AT’s prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
