McDonald’s To Continue Momentum For Q4 And Full Year 2018 Results?
McDonald’s (NYSE: MCD) will release its 2018 fourth quarter and full year financial results on January 30, 2019. The market expects the revenue to be around $21.04 billion, down by about 7% year on year (YOY). This is primarily due to the refranchising of its restaurants that the company has been undertaking for a couple of years. The company’s long-term goal is for 95% of McDonald’s restaurants to be owned by franchisees, and at the end of FY 2017, this figure stood at 92%. The strategy has resulted in cutting down costs and thus improving margins and earnings. Consequently, the consensus earnings expectation is about $7.75, up by around 6.6% YOY.
We have a $191 price estimate for McDonald’s. The charts have been made using our new, interactive platform. The various driver assumptions can be modified by clicking here for our interactive dashboard on Our Outlook For McDonald’s in FY 2018, to gauge their impact on the revenue, earnings, and price per share metrics.
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Factors That May Impact Future Performance:
- Refranchising Restaurants: This strategy has been afflicting the company’s revenues for a number of quarters now. Although, as mentioned, it has had a positive impact on the earnings. Another benefit of the franchise model is that the company can take advantage of the significant real estate portfolio it has built up over the years, and collect rent and royalty income.
- Technology Initiatives: McDonald’s is revamping its stores to create “Experience Of The Future” restaurants which will have self-serve kiosks and table service. The mobile ordering and payment system are expanding at a rapid pace and they are also effectively using the data captured via this platform for personalized marketing and customizations. The company has also partnered with UberEats and introduced delivery services. CFO Kevin Ozan has stated that the delivery check size is generally one-and-a-half to two times the in-store check. Consequently, an effective use of technology is another key growth factor for McDonald’s, as it can drive the average check higher.
- New Launches: McDonald’s launched its fresh beef burgers in select markets in the U.S. to a good response, and completed its national roll-out in Q2. CEO Steve Easterbrook noted that in the pilot markets of Dallas, “90% of customers who tried the burgers said they’d buy them again.” The company has also launched its premium burgers in other countries, such as Gourmet Creations in Australia and Mighty Angus in Canada. Increased sales of these products can help to increase the average revenue per consumer.
- Positive Industry Environment: According to insights provided by TDn2K’s Black Box Intelligence, year-over-year restaurant same-store sales increased 2% in December which is the best monthly performance in over three years. On the other hand, the guest count metric continued to be weak, with store traffic declining 0.9% during the month, and 1.6% in the quarter. Although the average guests checks grew by 3.1% during the fourth quarter year over year.
In conclusion, McDonald’s has had strong growth in the first 3 quarters in earnings and is expected to report strong earnings for the year end also. The Revenues have come down but that is due to the re-franchising strategy which is also bringing down the costs and increasing margins and earnings.
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