What McDonald's Q2 Results Indicate About Future Performance

McDonald’s Corp. (NYSE: MCD) reported second-quarter 2020 results before markets opened Tuesday. The fast-food restaurant chain posted diluted earnings per share (EPS) of $0.65 on revenues of $3.76 billion. In the same period a year ago, the company reported EPS of $1.97 on revenues of $5.41 billion. Second-quarter results also compare to the consensus estimates for EPS of $0.74 and $3.68 billion in revenues.

Comparable store sales dipped 23.9% worldwide due to the COVID-19 pandemic. U.S. same-store sales were down 8.7% year over year, although sales improved each month. In June, same-store sales were down 2.3% compared with June of 2019.

As of June 30, 99% of U.S. stores were operating drive-thru, delivery or take-out with a limited menu for limited hours. All told, 96% of the company’s stores worldwide were operating similarly to the U.S. stores or with reduced seating available.

About 93% of McDonald’s stores worldwide are franchised, and the company reports sales from its franchises separately. They are not included in the company’s own revenue number. Total worldwide franchise sales were down 23% year over year to $17.46 billion.

McDonald’s operates or franchises 39,020 stores around the world, an increase of 912 year over year. The company committed more than $200 million during the quarter to “incremental franchisee support for marketing to accelerate recovery and drive growth.” About half that was committed in the U.S. market.

McDonald’s also has deferred cash collections for some rent and royalties due from franchisees in “substantially all markets” as a consequence of the COVID-19 pandemic. The company noted that if franchisee sales trends deteriorate or do not improve quickly, “our financial results will continue to be negatively affected, which may be material.”

The company has to maintain a balance between ensuring that the brand’s value is not harmed during the coronavirus outbreak and boosting payments from franchisees who are also suffering.

Worldwide operating income dropped 58% year over year to $961.1 million, and net income dropped by 68% to $483.8 million.

The company did not provide guidance, but analysts are forecasting third-quarter EPS of $1.67 on revenue of $4.91 billion. For the full year, analysts are looking for EPS of $5.75 on revenue of $18.48 billion. The consensus price target on the stock is $209.03.

Shares traded down about 1.9% in Tuesday’s premarket, at $197.52 in a 52-week range of $124.23 to $221.93. McDonald’s pays a dividend yield of 2.52% ($5.00 per share annually).

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