McDonald’s Corp (MCD)

Earlier today, McDonald’s reported Q4 EPS of $2.59, ahead of our $2.48 estimate and sell-side consensus (according to Consensus Metrix) of $2.46. Factors helping EPS in Q4 included robust same-store sales, higher-than-expected nonoperating income, and a more favorable tax rate than anticipated. On the other hand, SG&A/Revenues came in higher (worse) than expected.

Today we publish part 2 of 2 of the January 2023 edition of our proprietary McDonald’s Franchisee Survey. This report focuses on franchisees’ thoughts as to the “Best Burger” (a.k.a. “Better Burger”) initiative – involving cooking with smaller batches of beef patties, adding onions while the burgers are on the grill, etc. — that McDonald’s is implementing in the U.S. over the first six months of the year. This report also provides some general thoughts from the franchisees about any topic currently at the forefront of their minds.

McDonald’s plans to release its Q4 earnings before the market open on Tuesday, January 31st. Ahead of that, we publish part one of our two-part, proprietary McDonald’s Franchisee Survey today. (Look for part two, which will discuss franchisees’ views about the “Best Burger” initiative, later this week.)

With this note, we update some of our same-store sales and EPS projections for McDonald’s. Factors driving these updates include:

Earlier today, McDonald’s reported Q3 EPS of $2.68, ahead of our $2.62 projection and sell-side consensus (according to Consensus Metrix) of $2.58.

Today we publish part 2 of 2 of the October 2022 edition of our proprietary McDonald’s Franchisee Survey. This report focuses on franchisees’ thoughts as to how sales trends might fare should. There be a recession for part or all of 2023. This report also provides some general thoughts from the franchisees about any topic currently at the forefront of their minds.

McDonald’s plans to release its Q3 earnings before the market open on Thursday, October 27th. Ahead of that, we publish part one of our two-part, proprietary McDonald’s Franchisee Survey today. (Look for part two, which will discuss McDonald’s potential sales performance in a possible 2023 recession, either later this week or early next week.)

With this note, we take a look at the geographical breakdown of our full-year 2022E McDonald’s operating income forecast of $10.543 billion.

There are multiple potential positives regarding McDonald’s U.S. business that the Street may not be currently appreciating. For example, McDonald’s reported its Q2 earnings on July 26th, but did not quantify (or otherwise meaningfully comment on) July same-store sales trends at that time. Subsequent to that date, though, Wendy’s (WEN; Buy, $21.40) noted on its August 10th conference call that “we expect a significant step-up in one-year same-restaurant sales in the back half of the year, and our results through July are accelerating as planned.” In addition, on August 11th, the largest Burger King franchisee in the U.S., Carrols (TAST; Not Rated) – which operates over 1,000 Burger King restaurants – remarked that “During the second quarter, comparable restaurant sales at our Burger King restaurants increased 2.8% against a robust 12.6% comparison from the prior year period. The monthly sales trend demonstrated building momentum, with negative comparable restaurant sales in April as we lapped the end of the stimulus payments benefit, followed by mid-single digit growth in both May and June which has extended into July.” We believe that these trends are indicative of a good July for the U.S. quick-service burger sector in general, including segment leader McDonald’s (which we believe outperformed the sector to some degree).

Earlier today, McDonald’s reported adjusted Q2 EPS of $2.55, in between our $2.60 estimate and sell-side consensus (according to Consensus Metrix) of $2.47. Excluding one-time items, the Q2 adjusted tax rate was 18.7%, more favorable than our 21.0% projection and consensus of 20.8%. We calculate that Q2 EPS was helped by the more favorable-than-expected tax rate by about +6 cents, relative to consensus.

Today we publish part 2 of 2 of the July 2022 edition of our proprietary McDonald’s Franchisee Survey. This report focuses on franchisees’ thoughts as regards their relationship with corporate. This is in the context of The Wall Street Journal reporting on June 23rd that “McDonald’s Corp. is planning to make some of the biggest changes in decades to the franchising system that underpins its U.S. operations, as it seeks to reinvigorate its base of restaurant owners. Executives this week notified the burger chain’s franchisees that they will have to go through a more stringent review every 20 years to keep their restaurants…. McDonald’s will consider new factors, like performance history, as it asks owners to apply to keep their locations. The company will consider new factors, such as customer complaints, to determine which McDonald’s franchisees can add new locations. In a shift that could affect some of the chain’s longest-tenured restaurant operators, McDonald’s is also requiring that some next-generation heirs put up more cash to keep operating their locations — and to designate a single family member as the operator…. McDonald’s anticipates it will begin to implement the franchising changes next January.” For more info:

McDonald’s plans to release its Q2 earnings before the market open on Tuesday, July 26th. Ahead of that, we publish part one of our two-part, proprietary McDonald’s Franchisee Survey today.

Earlier today, McDonald’s reported better-than-expected Q1 results. First-quarter adjusted EPS amounted to $2.28, ahead of our $2.09 projection and sell-side consensus (according to Consensus Metrix) of $2.17.

Today we publish part 2 of 2 of the April 2022 edition of our proprietary McDonald’s Franchisee Survey. This report focuses on franchisees’ thoughts as regards market-share trends and opportunities over the next 3-5 years. This report also provides some general thoughts from the franchisees about any topic currently at the forefront of their minds.

McDonald’s plans to release its Q1 earnings before the market open on Thursday, April 28th. Ahead of that, we publish part one of our two-part, proprietary McDonald’s Franchisee Survey today.

McDonald’s plans to report its first-quarter earnings before the market open on Thursday, April 28th. Ahead of that, we retain our Q1E U.S. same-store sales forecast of +3.0%.

Earlier today, McDonald’s reported adjusted Q4 EPS of $2.23, falling short of our $2.35 estimate and sell-side consensus (according to Consensus Metrix) of $2.33 We attribute the EPS shortfall largely to: (1) tax rate (we calculate that the adjusted tax rate was about 23.8%, higher than our 21.0% projection and consensus of 21.0%), and (2) SG&A/Revenues of 14.0%, versus our 13.2% forecast and consensus of 13.1%. Management says that part of this higher SG&A was driven by performance-driven compensation expense, as results for 2021 exceeded plans.

Today we publish part 2 of 2 of the January 2022 edition of our proprietary McDonald’s Franchisee Survey. This report focuses on franchisees’ thoughts as regards the MyMcDonald’s Rewards loyalty program (rolled out nationwide in the U.S. in early July 2021), and also provides some general thoughts from the franchisees about any topic that is at the forefront of their minds.

McDonald’s plans to release its Q4 earnings before the market open this Thursday (January 27th). Ahead of that, we publish part one of our two-part, proprietary McDonald’s Franchisee Survey today.

Based on our channel checks, we adjust our Q4E McDonald’s U.S. same-store sales forecast.

Earlier today, McDonald’s reported Q3 adjusted EPS of $2.76, well above our $2.43 forecast and sell-side consensus (according to Consensus Metrix) of $2.46. Factors driving the outperformance include: (1) better-than-expected same-store sales across the board, (2) about +9 cents worth’ of tax help relative to our 22.0% tax-rate projection, and (3) more favorable than anticipated margins on the franchised side of the business.

Today we publish part 2 of 2 of the October 2021 edition of our proprietary McDonald’s Franchisee Survey. Much of this report focuses on how sales are going at present for the new-and-improved chicken sandwiches that McDonald’s launched in mid-Q1.

McDonald’s plans to release its Q3 earnings before the market open on Wednesday, October 27th. For Q3E, we retain our existing McDonald’s U.S. same-store sales forecast of +8.5%. According to Consensus Metrix data (as of this writing), sell-side consensus is at +8.2%.

With this note, we take a look at the geographical breakdown of our full-year 2021E McDonald’s operating income forecast of $9.863 billion.

Earlier today, McDonald’s reported adjusted Q2 EPS of $2.37, ahead of our $2.13 estimate and sell-side consensus (according to Consensus Metrix) of $2.12. Currencies helped Q2 EPS by +13 cents. Management looks for Q3 EPS to be helped by about +3 to +5 cents due to favorable currencies. The full-year outlook is +20 to +22 cents, suggesting perhaps a -2 cent hit to Q4 EPS.

Today we publish part 2 of 2 of the July 2021 edition of our proprietary McDonald’s Franchisee Survey. Much of this report focuses on challenges around labor availability.

McDonald’s plans to release its Q2 earnings before the market open on Wednesday, July 28th. For Q2E, we retain our existing McDonald’s U.S. same-store sales forecast of +24.3%. According to Consensus Metrix data, sell-side consensus has drifted upward in recent days to +24.0% — nearly coming to equal the Q2E projection we went to this past April 22nd.

Are signs starting to emerge that Domino’s long-term worldwide unit growth potential could be meaningfully higher than the Street currently believes?

Clients sometimes ask us what the detailed income statement of a typical McDonald’s U.S. franchisee looks like. What follows is our best efforts to put together a typical, detailed income statement for the “average” U.S. McDonald’s standard-size franchised store.

Earlier today, McDonald’s reported Q1 adjusted EPS of $1.92, above our $1.86 forecast and sell-side consensus (according to Consensus Metrix) of $1.82. The EPS outperformance was driven by better-than-expected same-store sales in each of McDonald’s three major business segments.

Today we publish part 2 of 2 of the April 2021 edition of our proprietary McDonald’s Franchisee Survey. Much of this report focuses on how sales are going so far for the new-and-improved chicken sandwiches that were launched in mid-Q1.

McDonald’s plans to release its Q1 earnings before the market open on Thursday, April 29th, to be followed that day by the related earnings release conference call. For Q1E, we retain our existing McDonald’s U.S. same-store sales forecast of +12.2%, which lies +190 basis points above current sell-side consensus (according to Consensus Metrix) of +10.3%. Our Q1E EPS estimate remains at $1.86, five cents above consensus of $1.81.

McDonald’s likely will release its Q1 2021 earnings in late April. How do MCD shares tend to trade heading into earnings, and the day of an earnings release?

With this report, we increase our Q1E U.S. same-store sales forecast for McDonald’s by +190 basis points, to +12.2%. According to Consensus Metrix data, this becomes the new “high on the sell-side forecast.” Sell-side consensus is presently at +9.7%.

In this report we examine the bull and bear cases regarding McDonald’s (MCD; Buy, $220.46). While we maintain our Buy rating on MCD — it continues to be our top large-cap restaurant-stock pick — it is good for investors interested in MCD to be aware of the bull and bear cases surrounding the stock, no matter what our rating on the shares is.

Earlier today, McDonald’s reported $1.70 in adjusted Q4 EPS, lower than our $1.72 forecast and sell-side consensus (according to Consensus Metrix) of $1.77. Fourth-quarter Company-Operated Restaurant Expenses/Sales by CompanyOperated Restaurants came in at 85.2%, worse than our 82.8% estimate.

Today we publish part 2 of 2 of the January 2021 edition of our proprietary McDonald’s Franchisee Survey. Much of this report focuses on relations between U.S. franchisees and corporate. As we noted in the part 1 report published late last week, we asked our franchisee respondents to quantify the current relationship between franchisees and McDonald’s Corporation, using a scale of one to five, with 1=Poor and 5=Excellent. The average response we received was 1.41 — the lowest average response we have received for this question since Q4 2018’s 1.39.

With this report, we update our data-driven Kalinowski Quick-Service Burger Index for Q4E to +4.5%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during October, November, and December. While we believe that sector same-store sales were fairly similar in each of these three months, it appears that November was the best of the three, and December the worst of the three, although all three ended up in the positive midsingle digits.

With this report, we lower our Q4E 2020 EPS estimate for McDonald’s by -24 cents, to $1.72. Our change reflects two factors: (1) reductions in our Q4E samestore sales forecasts for both the International Operated Markets and International Developmental Licensed Markets business segments, and (2) what we believe is an improved understanding of G&A expenses slated for Q4 (leading us to bump up our Q4E G&A projection to about $755 million.

Based on our data-driven checks, we believe that same-store sales for U.S. chain restaurants in the casual dining, family dining, and fine dining segments are all showing sequential deceleration for the first half of November relative to fullOctober. This new trend follows 5-6 consecutive months of either sequentially improving full-service same-store sales (or at least not meaningfully deteriorating sequential same-store sales).

Earlier today, McDonald’s reported adjusted Q3 EPS of $2.22, ahead of our $1.92 forecast and sell-side consensus (according to Consensus Metrix) of $1.92. Currencies helped Q3 EPS by +3 cents. Factors that drive the EPS beat include: (1) better-than-expected company-level restaurant operating margins (17.9% actual vs. 15.8% projected), a favorable tax rate (20.5% actual vs. our 24.0% estimate), and (3) better-than-expected SG&A/Revenues (9.8% actual vs. our 10.4% forecast).

Today we publish part 2 of 2 of our proprietary McDonald’s Franchisee Survey. Much of this report focuses on the breakfast daypart, which has lagged behind in recovery over the last 3-5 months not just for McDonald’s, but for the restaurant industry in general.

McDonald’s plans to release its full-Q3 earnings before the market open on Monday, November 9th, to be followed that day by the related earnings release conference call and a Virtual Investor Update. McDonald’s has already released its Q3 samestore sales results, including a U.S. advance of +4.6%.

For the second time in a month, we raise our Q3E same-store sales forecast for McDonald’s U.S. — this time by +60 basis points, to +3.6%. This is based on robust same-store sales from the second half of September, thanks largely to: (1) a limitedtime promotional tie-in with rapper Travis Scott (which launched September 8th), and (2) a limited-time offer featuring Spicy Chicken McNuggets (which launched September 16th). Both of these promotions did so well that at times restaurants were sold out of the items involved well before the official promotional end dates.

With this report, we update our data-driven Kalinowski Quick-Service Burger Index for Q3E to +3.6%. This figure is based on our latest proprietary checks/data as regards same-store sales performance for this segment during July 2020 and August 2020, as well as our best guess for what September 2020 is bringing us. The approximate monthly figures we use are +2% to +3% for July 2020, +3% to +4% for August 2020, and approximately +6% for September 2020.

Earlier today, McDonald’s (MCD; Buy, $199.26) reported Q2 EPS of $0.65, short of our $0.85 forecast and sell-side consensus (according to Consensus Metrix) of $0.73. There was a $31 million one-time payment to distribution centers for obsolete inventory, and an increase in bad debt reserve (related to rents and royalty deferrals) of $45 million. By our math, these items combined represent about 8 cents on an EPS basis. For more info see today’s 8-K at:
http://d18rn0p25nwr6d.cloudfront.net/CIK-0000063908/ fea3a523-303b-43df-830a-5228f5ee4148.pdf

Earlier today, McDonald’s (MCD; Neutral, $183.93) reported Q1 EPS of $1.47, short of our $1.52 forecast and sell-side consensus (according to Consensus Metrix) of $1.55. SG&A/Revenues of 12.5% (versus our 11.7% projection) accounts for the difference between Q1 EPS and our EPS estimate. However, part of this SG&A relates to non-recurring costs, such as $40 million for the company’s cancelation of its biannual worldwide convention, and $20 million for “payments of contractual obligations as [McDonald’s] reduced the scope and ongoing spend in R&D work of certain restaurant technology.”

Earlier today, McDonald’s (MCD; Buy) reported Q4 EPS (excluding an $0.11 worth of income tax benefits due to new regulations) of $1.97, below our $2.00 forecast, but one cent above sell-side consensus (according to Consensus Metrix) of $1.96. Closely-watched U.S. same-store sales rose by +5.1% in Q4, nearly matching our +5.0% projection, and coming in 40 basis points above consensus of +4.7%. Fourthquarter same-store sales for International Operated (+6.2% actual vs. our +5.5% estimate and +5.3% consensus) and International Licensed (+6.6% actual vs. our +6.0% estimate and +6.4% consensus) also came in above expectations.

Earlier today, McDonald’s (MCD; Neutral) reported third-quarter EPS of $2.11, falling short of our $2.21 forecast and sell-side consensus (according to Consensus Metrix) of $2.21. Tax rate accounts for $0.02-$0.03 of the difference between actual and our forecast. Other factors behind the EPS miss include lower-thananticipated revenues from franchisee/affiliates ($3.014 billion actual vs. $3.090 billion projected), weaker-than-projected franchised margins (81.4% actual vs. 81.9% projected), lower-than-anticipated Other Operating Income ($49.5 million actual vs. $66.2 million estimated), and higher-than-forecasted SG&A/Revenues (10.0% actual vs. 9.8% forecasted).

Earlier today, McDonald’s (MCD; Buy) reported adjusted Q2 EPS of $2.05, one cent short of our $2.06 forecast, but in line with sell-side consensus (according to Consensus Metrix) of $2.05. However, investor eyes may be more focused on the robust Q2 same-store sales trends across the board.