McDonald's Weak Earnings Set to Continue

McDonald's is set to report quarterly results on Jan. 23, with sales and earnings expected to be nearly flat. Failed promotions and weakness in the United States, where rivals like Wendy's are becoming more competitive, will weigh on the company's results.

Jan 18, 2014 at 10:45AM

Fast-food giant McDonald's (NYSE:MCD) is set to release its fourth-quarter earnings on Jan. 23 before the bell, with failed promotions like Mighty Wings and weak sales in the U.S. likely to weigh on the results. McDonald's attempts to put healthier items on its menu have done little to drive sales in the United States, with domestic comparable-store sales rising just 0.1% through the end of November.

With fourth-quarter results expected to be essentially flat compared to the same quarter last year, it's unlikely that McDonald's investors will have much to cheer, as competitors like Wendy's (NASDAQ:WEN) continue to post solid results.

What analysts are expecting
Fourth-quarter revenue is expected to rise just 2.3% to $7.1 billion, up from $6.9 billion last year. For the full year, analysts expect revenue to come in at $28.1 billion, up 2% compared to 2012. If analysts are correct, 2013 will be the second year in a row that McDonald's has grown revenue at just 2%, although the Street expects growth to accelerate a bit in 2014.

Earnings per share is expected to rise a penny to $1.39 for the quarter, with the full- year result increasing to $5.55, 3.5% higher than last year. Earnings growth is also expected to pick up in 2014, with analysts looking for a 6.8% rise in EPS for the full year. Over the next five years, the average analyst estimate for annual earnings growth is a hair more than 8%. These estimates would require a significant improvement, however, and should be taken with a grain of salt.

What's going wrong at McDonald's?
For the last decade, McDonald's has been steadily growing its revenue and expanding its margins, in the process becoming a highly profitable company with a significant economic moat. But the industry has become more competitive, with chains like Chipotle stealing away younger, health-conscious customers in the United States. While McDonald's has tried introducing healthier items, like the McWrap, this has failed to revive domestic growth.

Burgers and fries are far from dead, however, and other chains may be stealing away some of McDonald's market share. Wendy's recently announced an expected 1.9% same-store sales increase for its fourth quarter, with particularly strong results in the second half of 2013 driven by premium, limited-time products like the Pretzel Bacon Cheeseburger. Earnings are expected to increase by a factor of five compared to the fourth quarter of last year, driven both by higher sales and a decrease in the number of company-operated restaurants.

McDonald's seems to be unable to hit the promotion sweet-spot like Wendy's has done, with Mighty Wings flopping and other premium items failing to move the needle. Innovation is the key, and McDonald's seems to be falling behind the competition.

One area where McDonald's is pushing hard is coffee, both in the United States and abroad. In the US, premium coffee drinks have been added to stores in an effort to boost sales, although the added complexity for employees has caused the restaurant-level efficiency to take a hit. McDonald's international coffee strategy looks more promising, with stand-alone McCafe stores being built in both Europe and Asia. Most of McDonald's future growth will come from international markets, and the expansion of both the McDonald's and McCafe brands in countries like China should help the company grow faster in the coming years.

The bottom line
McDonald's weak growth should continue in the fourth quarter, as promotions and premium menu items have failed to boost sales in the United States. McDonald's has a growth problem, and international markets may be the key to solving it, but maintaining its industry-leading margins as it expands will be a challenge.

Forget McDonald's. Here's 1 industry leader below to buy in 2014
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends McDonald's. The Motley Fool owns 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. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers