Why Arcos Dorados' Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Arcos Dorados (Nasdaq: ARCO  ) , the largest McDonalds (NYSE: MCD  ) franchisee in the world, were serving up some delicious gains today after the company reported second-quarter earnings.

So what: Despite the positive market reaction to Arcos' quarterly results, the company actually missed Wall Street's estimates on both the top and bottom line. Analysts' consensus called for $0.07 in per-share earnings on $918 million in revenue, while the company only managed $904 million in sales and $0.06 in earnings per share.

Even if we don't stack results up to analysts' estimates, they still didn't look terribly good, as revenue rose a mere 1.8%, while earnings fell. However, the company has been dealing with very unfavorable currency movements, which make its dollar-denominated results look weak. Digging beyond that, Arcos delivered 10.4% year-over-year comparable-store sales growth and "organic Adjusted EBITDA" growth of 6.3%.

Now what: Even after today's big pop, Arcos' stock is still down roughly 30% from a year ago, so it's clear that investors' haven't had particularly high expectations for the company of late. As such, the earnings "miss" for the second quarter may still be a relief for investors if they were concerned that the company might report even worse numbers.

Want to keep up to date on Arcos Dorados? Add it to your watchlist.

The Motley Fool owns shares of McDonald's and Arcos Dorados Holding. Motley Fool newsletter services have recommended buying shares of 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.

Fool contributor Matt Koppenheffer owns shares of McDonalds, but does not have a financial interest in any of the other companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool’s disclosure policy prefers dividends over a sharp stick in the eye.


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