An Early Preview of McDonald's Earnings

On Friday, McDonald's (NYSE: MCD  ) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

McDonald's is the sole restaurant chain in the Dow Jones Industrials (DJINDICES: ^DJI  ) , and its golden arches have been a ubiquitous part of American culture for more than half a century. But fast food is big business, and McDonald's has to face many of the same pressures as more traditional industrial members of the Dow. Let's take an early look at what's been happening with McDonald's over the past quarter and what we're likely to see in its quarterly report.

Stats on McDonald's

Analyst EPS Estimate

$1.27

Change From Year-Ago EPS

3.3%

Revenue Estimate

$6.59 billion

Change From Year-Ago Revenue

0.7%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance.

Will McDonald's finally get its growth up this quarter?
Analysts have been resolute in recent months about their views on McDonald's earnings, adding a penny per share to their estimates for the just-ended quarter and keeping full-year 2013 estimates unchanged. The stock has been hitting new all-time highs, rising 13% since mid-January.

At first glance, it's hard to understand why the stock has been doing well. Same-store sales have been dismal lately, with declines both in January and February marking a big reversal from a nine-year string of rising comps that ended last fall. Yet as the company comes out with new product offerings geared toward healthy-eating trends, investors have been reassured that McDonald's is taking steps to control the damage and get back into the growth groove.

Still, McDonald's has had to deal with several new problems recently. An outbreak of avian flu in China has hurt both McDonald's and the KFC unit of Yum! Brands (NYSE: YUM  ) , as fears of contaminated chicken keep patrons away. The hit will be bigger for Yum!, as it has almost 6,000 stores in China compared to a target of 2,000 by the end of the year for McDonald's, but McDonald's could still see pressure from the outbreak. Meanwhile, in the U.S., workers held a strike to protest low pay for fast-food workers, although it's unclear whether labor groups remain strong enough to have an impact on big employers like McDonald's. A rise in customer service complaints has also raised questions about whether premium beverages take too long to make and hold up orders. Given the fact that McDonald's owed much of its growth in recent years to taking business from premium-coffee giant Starbucks (NASDAQ: SBUX  ) , a reversal of its strategy there could hurt McDonald's but help Starbucks regain even more of its core business.

In McDonald's earnings report, look for guidance on whether problems in China will cause the fast-food giant to rein in on its expansion there. Given the difficulties the company has already faced in keeping same-store sales up, the last thing it needs is a slowdown in its store-count growth to hold overall revenue back.

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