Fast-food chain and Dow-30-member McDonald's Corp. (MCD – Free McDonald’s Stock Report) served up solid first-quarter financial results this morning. Indeed, the company posted earnings of $1.72 a share, 17% higher than the year-earlier tally and pennies ahead of our call. Consolidated revenues were down 9%, year over year, to $5.139 billion, but this was due to management's strategic refranchising initiative. Plus, the decline was not as severe as Wall Street was anticipating. (We were looking for a 13% drop in the consolidated figure.) System-wide sales were up 7% on a constant-currency basis, and global comparable sales increased 5.5% on an uptick in the global guest count.
Foundational markets remained the best performer, notching a 8.7% increase in comparable sales, thanks to growth in each geographical segment. The International Lead segment was not too far off the pace, though, inking a 7.8% gain in the period, with continued growth in the United Kingdom and Germany leading the way. Meanwhile the High Growth segment posted a 4.7% advance, as strong showings in China and Italy offset ongoing weakness in South Korea. As for the United States, comp sales improved 2.9%, benefiting from higher average checks, the result of menu price increases and product mix shifts. However, this was well below the 4.5% growth enjoyed in the December quarter.
Management also continued to do a good job on the cost side of the ledger. To wit, it managed to lower company-operated restaurant expenses by some 24% and keep SG&A costs in check in the most-recent quarter. This, coupled with the aforementioned top-line growth, helped push the EBIT margin sharply higher.
We expect McDonald's to produce healthy earnings gains for the remainder of this year and next. Menu innovation, an ongoing focus on value, accelerated store remodels, expanded delivery services, and mobile pay/order should continue to resonate with customers around the globe. Management's recent success with the cost structure gives us confidence of further traction on this front, too. The recently enacted Tax Cuts and Jobs Act, meanwhile, is expected to result in a far lower effective tax rate. All things considered, we continue to look for share earnings of $7.60 for this year and $8.00 for all of 2019.
The investment community was pleased with the company's first-quarter results, and sent these shares higher on the news. And while the stock is not inexpensive from a price-to-earnings perspective, conservative accounts have a number of things to like here, including MCD stock's Safety rank (1; Highest), top mark for Price Stability (100 out of 100) low Beta coefficient, and above average dividend yield.
About The Company: McDonald's is a quick service restaurant with some 37,000 locations in more than 100 countries (as of December 31, 2017). The majority of the restaurants (over 90%) 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.
— Andre J. Costanza
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
