It has been about a month since the last earnings report for McDonald's Corporation MCD. Shares have added about 5.8% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
McDonald's Tops Q4 Earnings on Global Comps Growth
McDonald's posted strong results in the fourth quarter of 2016, wherein both the bottom line and the top line outpaced the Zacks Consensus Estimate.
Earnings and Revenue Discussion
Earnings per share (EPS) of $1.44 surpassed the Zacks Consensus Estimate of $1.41 by 2.1% and improved 10% from the year-ago quarter. The upside can be attributed to the turnaround plan announced by CEO Steve Easterbrook, in May 2015.
Meanwhile, foreign currency translation had a negative impact of $0.03 per share on earnings in the quarter. Notably, at constant currency, earnings grew 12% year over year.
Revenues of $6.03 billion fell 5% year over year, mainly due to the impact of refranchising. At constant currency, the figure declined 3%. However, revenues surpassed the Zacks Consensus Estimate of $5.98 billion by nearly 1%.
Behind the Headline Numbers
In the quarter, revenues at company-operated restaurants declined 9% to $3.65 billion. Nevetheless, revenues at franchise-operated restaurants grew 3% to $2.38 billion.
Global comps grew 2.7%, supported by positive comps across the International Lead, High Growth and Foundational segments, marking the sixth consecutive quarter of comparable sales growth. However, comps compared unfavorably with last quarter’s increase of 3.5%.
Segment Details
Effective Jul 1, 2015, the company began reporting results under four segments: U.S. (the company's largest segment), International Lead Markets (mature markets including Australia, Canada, France, Germany and the U.K.), High-Growth Markets (markets that have high restaurant expansion and franchising potential such as China, Italy, Poland, Russia, South Korea, Spain, Switzerland and the Netherlands) and Foundational Markets (the remaining markets in McDonald's system).
U.S.: Comps declined 1.3% in the fourth quarter, reflecting the challenging comparison against the prior-year launch of the very successful All-Day Breakfast. Moreover, comps growth compared adversely with the prior-quarter improvement of 1.3% due to softening industry growth.
Segment operating income decreased 11%, as the U.S. segment lapped a prior-year gain on the strategic sale of a unique restaurant property.
Going forward, the company will remain focused on growing guest traffic.
International Lead Markets: Comps at the International Lead Markets segment grew 2.8%, driven by strong performance across most of the segment, led by the U.K. The upside reflects multiple menu, service and value initiatives across most of the markets, which led to positive consumer response. However, comps were not as good as the increase of 3.3% recorded in the last quarter.
Operating income was up 1%, including the impact of foreign exchange headwinds. At constant currency, the figure was up 6% on the back of sales-driven improvements in franchised margin dollars across most markets.
High-Growth Markets: Comps grew 4.7% in High-Growth Markets, led by strong performance in China and positive results across the entire segment. Notably, comps had witnessed growth of 1.5% in the last quarter.
The segment's operating income rose 16% (18% in constant currencies) fueled by improved restaurant profitability in China, which benefited from the recent VAT reform.
Foundational Markets: Comps in Foundational Markets jumped 11.1% primarily on the back of strong sales in Japan and certain markets in Latin America, as well as solid results across the segment's remaining geographical regions. Moreover, the figure compared favorably with comps growth of 10.1% in the last quarter.
Operating income in the quarter increased reflecting a gain from the sale of McDonald's Singapore in connection with the company's refranchising initiatives, as well as improved performance in Japan.