Will McDonald's Earnings Move the Dow?

With dozens of companies having already reported quarterly results, we're now in the heart of earnings season. The key to making smart investment decisions with stocks releasing their quarter reports is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed kneejerk reaction to news that turns out to be exactly the wrong move.

Let's turn to McDonald's (MCD -0.05%). With its stock losing nearly 10% in 2012, the fast-food giant was one of the worst performers in the Dow Jones Industrials (^DJI -0.11%). But can an improving economy actually help the value-oriented restaurateur? 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 next Wednesday.

Stats on McDonald's

Source: Yahoo! Finance.

Will McDonald's move the markets?
Analysts have kept their estimates on McDonald's relatively stable, with just a small 2% reduction in earnings-per-share targets in the past three months. But the stock has had a very good beginning to 2013 and has regained all the ground it lost after last quarter's negative earnings surprise.

McDonald's has suffered some unusual setbacks lately. For the first time in nine years, the company posted negative monthly same-store sales for October. Despite a rebound in November comps, McDonald's is still recovering from the damage done to investor confidence.

At the same time, food inflation is still playing a part in squeezing margins. Chipotle Mexican Grill (CMG 0.40%), which got spun off from McDonald's several years ago, recently plunged on word that high food prices would once again lead to slower earnings growth. McDonald's will see the same pressures going forward.

Moreover, McDonald's has been assaulted by competition from all sides. On one hand, its foray into coffee has drawn a big reaction from Starbucks (SBUX 1.00%), which has made several acquisitions aimed at restoring its dominance in the niche and aiming at healthier food options. Meanwhile, Burger King (BKW.DL) has gotten aggressive with its advertising and hopes to regain its No. 2 ranking in fast-food sales.

With McDonald's having miss expectations in the past two quarters, the fast-food leader needs to come back with a positive report this time around. That may prove to be a tall order, but with some signs of life emerging in the global economy, McDonald's has a chance to convince investors that it's still a strong long-term play.

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