Can McDonald's Earnings Top Yum! Brands and Starbucks?

McDonald's  (NYSE: MCD  )  will release its quarterly report on Thursday, and investors haven't been happy with the sluggish growth that the company has produced lately. Even as it shares some challenges that fast-food rival Yum! Brands  (NYSE: YUM  )  faces, McDonald's also has to overcome competition with Starbucks  (NASDAQ: SBUX  )  in the premium-coffee space as well as fast-casual restaurant chains that have taken away some of McDonald's higher-end customers.

McDonald's dealt with big problems in 2013, most notably poor same-store sales results that have created a sense of urgency within the company. But even as it has changed its menu to expand its profit potential into Starbucks' traditional territory and to try to draw customers away from Yum! Brands and its triple-chain threat, McDonald's has struggled to execute on its growth plans. But the company has plenty of tricks left up its sleeve. 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 report.

Stats on McDonald's

Analyst EPS Estimate

$1.39

Change From Year-Ago EPS

0.7%

Revenue Estimate

$7.11 billion

Change From Year-Ago Revenue

2.3%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

Will McDonald's earnings be able to start growing again?
In recent months, analysts haven't been very upbeat about McDonald's earnings, cutting their fourth-quarter estimates by $0.06 per share and their full-year 2014 projections by three times that amount. The stock hasn't responded well, rising just 2% since mid-October.

McDonald's didn't give investors much comfort from its third-quarter results, with the fast-food giant reporting a 2.4% gain in revenue on just a 0.9% increase in same-store sales worldwide. Weakness in the Asia-Pacific region continued, as both McDonald's and Yum! Brands have struggled badly in China following avian flu scares and other economic headwinds. Still, earnings growth of 5% showed that McDonald's has kept doing what it can to make the most of its tough situation.

Unfortunately, many of the problems that have plagued McDonald's in the past continued during the fourth quarter. Menu innovations like its expanded Dollar Menu, with new offerings at higher price points, haven't delivered the gains in monthly comps that investors wanted to see and have instead raised concerns that the company is out of touch with its value-seeking customer base. Its much-maligned Mighty Wings promotion failed to inspire customers either, with the move against Yum!'s KFC unit largely backfiring on McDonald's.

Still, McDonald's is making smart moves to try to bolster growth. After having spent a huge amount of effort building up its premium coffee business to compete against Starbucks, McDonald's said it would enter a partnership with Kraft Foods to sell its McCafe coffee in grocery stores. McDonald's hopes that the partnership will help it leverage the value of its well-known brand, which until now hasn't been a major presence in the grocery world.

In the McDonald's earnings report, watch to see what strategy the company presents to try to work its way out of its sales funk. With so many possible ideas, McDonald's needs to focus on those with the best chances of succeeding while relying on its traditional brand strength to provide growth in the long run.

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