Investors Buying McDonald’s Turnaround Story Despite Poor Sales

July 23, 2015 by Paul Ausick

Source: courtesy of McDonald's Corp.
McDonald’s Corp. (NYSE: MCD) reported second-quarter 2015 results before markets opened Thursday. The fast-food restaurant chain posted diluted earnings per share (EPS) of $1.26 on revenues of $6.5 billion. In the same period a year ago, the company reported EPS of $1.40 on revenues of $7.18 billion. Second-quarter results also compare to the Thomson Reuters consensus estimates for EPS of $1.24 and $6.45 billion in revenues.

Reported EPS includes a negative impact of $0.13 per share in currency translation effects and $45 million in restructuring charges.

U.S. same-store sales fell 2% year over year in the second quarter. McDonald’s blamed a drop in guest traffic “as the featured products and promotions did not achieve expected consumer response amid ongoing competitive activity.” Operating income fell 6% reflecting the weak sales performance.

European same-store sales rose 1.2%, but operating income fell 20% reflecting “economic challenges in certain key markets and strategic charges associated with the global business turnaround plan.”

In the company’s Asia/Pacific/Middle East/Africa segment, same-store sales fell 4.5% and operating income dropped 26% “primarily due to the impact of prolonged, broad-based consumer perception issues in Japan along with negative performance in China and other Asian markets.”

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Globally, same-store sales in the first quarter fell 0.7% and consolidated operating income was down 16%, due in part to the $45 million restructuring charge.

CEO Steve Easterbrook said:

To position the business for long-term growth, we’ve undergone significant organizational change and are streamlining our global resources to improve our efficiency and effectiveness. While our second quarter results were disappointing, we are seeing early signs of momentum. Looking ahead to third quarter, we expect positive global comparable sales led by growth in our newly-created International Lead Market segment and China’s continuing recovery from the 2014 APMEA supplier issue. I am confident that we will create the transformation necessary for McDonald’s to become a modern, progressive burger company delivering a contemporary restaurant experience.

McDonald’s said it returned $2.5 billion to shareholders through dividends and share buybacks in the second quarter.

The consensus estimates for the third quarter call for EPS of $1.31 on revenues of $6.46 billion. The current full-year 2015 forecast calls for EPS of $4.74 on revenues of $25 billion.

McDonald’s shares were up about 1.4% just after the opening bell, at $98.92 in a 52-week range of $87.62 to $101.09. Thomson Reuters had a consensus analyst price target of $102.75 before the report.

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