3 Things You Need to Know Before McDonald's Reports Earnings Tomorrow

The world's favorite burger joint is set to report fiscal fourth-quarter and full-year earnings results before the market opens tomorrow. However, some of the challenges McDonald's (NYSE: MCD  ) faced in 2013 may have carried over into the New Year. Let's take a closer look at where the fast-food chain stands today and why investors might want to temper their expectations heading into tomorrow's results.

Softness abroad
Weak comparable-store sales and increased competition should continue to weigh on the bottom line. Sales have been especially worrisome at McDonald's stores open at least a year in the Asia-Pacific region. For the company's fiscal third quarter, for example, McDonald's cited a 1.4% decline in comps for its Asia-Pacific, Middle East, and Africa locations. Worse still, the company expects same-store sales to be flat in its fiscal fourth quarter.

Of course, McDonald's wasn't the only foodie to suffer from a challenging retail environment abroad in 2013. Yum! Brands (NYSE: YUM  ) is also struggling to find its footing in the Asia-Pacific market after panic over the bird flu tarnished its brand image -- a factor that also hurt McDonald's in the region. In fact, Yum! Brands' same-store sales fell 11% in China alone, during the chain's third quarter.

Yum! Brands beat out McDonald's for most popular Western-style fast-food chain in China in 2012. Moreover, if McDonald's wants to get an edge on Yum!, it needs to boost same-store sales overseas in the quarters to come. This is especially important since international sales account for as much as 70% of revenue today at McDonald's.

It's no wonder, then, why analysts remain cautious about the prospects for McDonald's.

A frothy forecast
Wall Street lowered its expectations for McDonald's for the fourth quarter, following the company's tepid growth in Q3. Analysts are now looking for quarterly earnings of $1.39 per share on revenue of $7.1 billion in the period. That's significantly below the EPS of $1.52 McDonald's earned in the prior quarter.

Investors will also want to keep an eye on the company's full year results. As it stands, analysts expect McDonald's to post year-over-year revenue growth of just 2% in fiscal 2013, with the chain's revenue clocking in at $28.1 billion for the year. While there are certainly low expectations built into this name, it's not all bad news for McDonald's.

The contrarian point of view
Long-term investors should remember that despite recent setbacks, McDonald's is still a blue chip stock that pays a reliable dividend. Shares of Mickey D's currently yield 3.24%, with a dividend payout ratio of 55% -- not to mention that McDonald's is a dividend aristocrat because it has increased its dividend every year since 1976. As a result, the fast-food chain should continue to reward income investors in the year ahead, even as it struggles to unlock new growth channels.

Although cost pressures will persist in 2014, McDonald's is better positioned than most to weather such headwinds. After all, McDonald's remains the industry leader when it comes to generating free cash flow.

Nine fresh dividend stocks for 2014
One of the dirty secrets that few finance professionals will openly admit is that dividend stocks as a group handily outperform their non-dividend-paying brethren. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2805473, ~/Articles/ArticleHandler.aspx, 9/3/2015 11:17:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Tamara Rutter

I've been an analytical writer for The Motley Fool since 2011. I cover the sectors of Consumer Goods, Technology, and Industrials. Connect with me on Twitter using the handle, @TamaraRutter -- I'd love to hear from you!

Today's Market

updated Moments ago Sponsored by:
DOW 16,522.72 171.34 1.05%
S&P 500 1,973.10 24.24 1.24%
NASD 4,790.82 40.85 0.86%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 11:01 AM
MCD $96.85 Up +0.81 +0.84%
McDonald's CAPS Rating: ***
YUM $80.78 Up +0.51 +0.64%
Yum! Brands CAPS Rating: ****