McDonald's Corporation Earnings: Is Growth Finally Coming Back?


Source: McDonald's.

On Tuesday, McDonald's (NYSE: MCD  ) will release its quarterly report, and shareholders have suffered for a while now as the fast-food giant has been unable to produce the growth that long-term investors have historically seen. While McDonald's struggles to hold its own, not only against traditional fast-food rivals, but also coffee giant Starbucks (NASDAQ: SBUX  ) and fast-casual restaurants like former McDonald's subsidiary Chipotle Mexican Grill (NYSE: CMG  ) , the company needs to keep its franchisees happy as times have been difficult for them as well.

McDonald's still leads the fast-food world, with its presence ubiquitous around the world. But even as Starbucks and other rivals expand aggressively overseas, McDonald's has failed to restore its previous success, and investors are getting impatient for the company to break out of its funk and find a winning strategy for recovery. 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

$1.44

Change From Year-Ago EPS

4.3%

Revenue Estimate

$7.28 billion

Change From Year-Ago Revenue

2.8%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

What's next for McDonald's earnings?
In recent months, investors have marked down their views on McDonald's earnings, reducing second-quarter estimates by $0.02 per share and full-year 2014 projections by triple that amount. The stock has made up a bit of ground, rising 1% since mid-April.

McDonald's first-quarter earnings were just the latest in a series of disappointments for the company. U.S. same-store sales fell 1.7% for the quarter, and even though comparables rose 0.5% overall thanks to stronger performance in Europe and the Asia-Pacific region, earnings eased lower. By contrast, Chipotle's same-store sales rose by double-digit percentages, proving that the problem isn't universal throughout the industry, but rather is specific to McDonald's.


Source: McDonald's.

For the most part, news for McDonald's recently has seemed endlessly bad. A Consumer Reports survey put McDonald's at the bottom of the list among fast-food burgers, and multiple attempts at new menu items like the Bacon Clubhouse Burger have failed to gain traction among McDonald's customers. Meanwhile, competing chains have worked hard at new burger offerings that are having more success, and that poses a further threat to McDonald's long-term growth.

Moreover, the evidence continues to support the contention that customers are abandoning McDonald's in favor of Chipotle, Starbucks, and other rival restaurants. Starbucks has been a particular nuisance in the breakfast arena, where the coffee giant has worked hard to expand its food offerings and give customers an alternative to going to McDonald's for a full meal. McDonald's has had success with its coffee offerings, but the resulting stress on McDonald's workers has lengthened waiting times and created a customer-service problem. Meanwhile, Chipotle has grown well beyond even its own founder's wildest dreams, tapping into demand for higher-quality menu offerings that still offer good value.

Even McDonald's marketing efforts have received sharp criticism. Its new Happy Meal mascot proved to be a public-relations disaster, with many calling the character creepy and terrifying to the children who typically buy Happy Meals. Even franchisees are starting to lose confidence, with a recent survey finding that franchisees are more pessimistic about their immediate future sales than they've been in more than a decade.

In the McDonald's earnings report, watch to see if the company gives specific ideas for how it plans to get out of its long growth funk. Without concrete ideas for recovery, it'll be hard for McDonald's to convince investors that the worst is over for the fast-food giant.

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