McDonald's Corp. (MCD – Free McDonald’s Stock Report) has reported better-than-expected fourth-quarter financial results. For the period, the restaurant operator and Dow-30 component, registered share earnings of $1.44. That figure was a few pennies higher than our estimate, and represented a healthy year-over-year gain of 10%. Revenues came in at $6.028 billion for the December quarter, or 5% lower than the year-earlier tally. However, the top-line decline, in our view, was not overly concerning, since the drop mostly stemmed from the impact of refranchising and unfavorable currency translations. In addition, more closely followed figures on comparable-store sales were upbeat. Specifically, global same-store sales rose 3.8% in the fourth quarter, displaying growth in all of the company's reporting segments and marking the sixth-consecutive quarter of positive comps. On the other hand, sales in the United States declined 1.3%, reflecting a tough year-over-year comparison due to the hugely successful 2015 rollout of All-Day Breakfast. As for the equity, the stock price was down modestly in early market trading, following the announcement of fourth-quarter financial results.
For full-year 2016, McDonald's posted earnings of $5.74, or 15% higher than the prior-year tally. The solid results can mainly be attributed to a 9% decrease in company-operated store expenses, as well as a lower share count. On the latter note, during the year, management returned $14.2 billion to shareholders via share buybacks and dividends.
Looking ahead, our outlook for McDonald's is just decent. We think that the operating environment at home will remain challenging due to stiff competition and commodity cost deflation, which has made eating at home more affordable. That said, management's efforts to cut costs, refranchise, offer a better customer experience, and improve its digital strategy while not straying from the three pillars of value, convenience, and taste, should keep earnings on an upswing. On that note, for 2017, our share-earnings estimate sits at $6.15, which would represent a year-over-year gain of 7%.
As for the issue, for the most part, it has struggled of late. More specifically, over the past year, the stock price has advanced just 3%. For comparison, the Dow Jones Industrial Average is up 23% over the same time frame. This underperformance does have its benefits since, unlike many other stocks in this near-record-level market, McDonald's is currently trading at a modest price-to-earnings ratio. All told, we think that conservative investors may want to take a look at MCD, thanks to its top rank for Safety and perfect score for Price Stability. Income seekers should also note that the quarterly cash dividend was recently raised 6%, to $0.94 a share. McDonald's is currently yielding more than 3%.
About The Company: McDonald's is a quick service restaurant with over 36,000 locations in more than 100 countries (as of September 30, 2016). The majority of the restaurants (over 80%) are operated by franchisees or affiliates. The company is best known for its hamburgers and French fries, but it now has a diverse menu that includes breakfast items and an array of coffee-based drinks.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
