LONDON, UK / ACCESSWIRE / July 27, 2016 / Active Wall St. announces its post-earnings coverage on McDonald’s Corp. (NYSE: MCD). The company announced its second quarter financial results before the markets opened on July 26, 2016. The Golden Arches announced the fourth consecutive quarter of positive same-store sales across all of McDonald’s business segments. Register with us now for your free membership at: http://www.activewallst.com/register/.
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Earnings Reviewed
For the quarter ended on June 30, 2016, McDonald’s reported net income of $1.09 billion, or $1.25 per share, as compared to net income of $1.20 billion, or $1.26 per share, in the year ago period. On an adjusted basis, McDonald’s earned $1.45 per share, higher than analysts’ expectations of $1.38 per share. The fast food giant generated $6.27 billion in revenue for Q2 FY16, matching analysts’ estimate of $6.27 in revenue. However, it marked a 4% decline as compared to the prior-year period. The company attributed the decline in revenue on its refranchising plan, under which the company plans to sell 3,500 of its restaurants to franchisees by 2018.
Sales Growth Decelerates
The weakest part of McDonald’s Q2 FY16 results was the comparable store sales (Comps). Globally, the company reported that Comps increased 3.1%. However, Wall Street estimated that the fast food giant would report Q2 FY16 Comps growth of 3.6%. In McDonald’s High Growth segment Comps rose 1.6% led by positive growth in China and Russia. The International Lead segment saw Comps rise 2.6% during Q2 FY16. In Foundational markets, Comps gained 7.7%, reflecting strong performance in Japan and other markets.
McDonald’s posted U.S. Comps growth of 1.8% while analysts were expecting the company’s all-day breakfast strategy to generate 3.4% Comps growth in the U.S. Even though the U.S. growth rate was weaker than expected, this marked the fourth-consecutive quarter that the fast food chain reported positive Comps growth across all its business segments.
All Day Breakfast
McDonald’s acknowledged that all-day breakfast helped make up for “softening industry growth” during Q2 FY16. The company introduced all-day breakfast at its U.S. restaurants in October 2015, in a bid to attract more patrons in the face of growing competition. The move has helped the fast food giant report an uptick in sales; however, it did not have the same impact that analysts were expecting.
McDonald’s CEO, Steve Easterbrook, said during a conference call with analysts: “Whether through elections or global events, people are mindful of the unsettled world. When families are uncertain, caution prevails.”
McDonald’s comments echoed the statement made by other Food and Beverage giants about a more cautious sentiment settling into consumer mind-set. In its earnings release on July 21, 2016, Starbucks Corp. reported that its sales grow slowed down with CEO Howard Schultz blaming a mix of “social and political turmoil at home, weakening consumer confidence” and rising global uncertainty. Yum! Brands Inc., owner of KFC and Pizza Hut, warned of a “malaise” among U.S consumers as its sales declined for a third consecutive quarter in its earnings release on July 13, 2016.
Step Up to Increase Engagement
McDonald’s also stated that it was making “steady progress” in its turnaround plan, which was unveiled in May 2015. As part of the program the company has introduced all-day breakfast, the company has also added customized sandwiches and healthier ingredients like kale. McDonald’s also announced the refranchising plan.
Furthermore, McDonald’s is taking steps to further increase customer engagement. On July 15, 2016, McDonald’s Japan announced a partnership with Pokemon Go, under which, McDonald’s 3,000 restaurants in Japan will be turned into virtual Pokémon gyms. “Clearly, we are a preferred partner,” stated Easterbrook. “It’s been a fun program, it’s been great for the business.”
Stock Repurchase and Guidance
During Q2 FY16, McDonald’s returned $4.1 billion to shareholders through share repurchases and dividends. This brings the cumulative return to shareholders to $24.4 billion, compared to the targeted return of about $30 billion for the three-year period ending 2016.
Stock Performance
Following the earnings release, shares of McDonald’s declined 4.47% to close July 26, 2016, trading session at $121.71. The company’s stock price has gained 30.78% in the past 12 months.
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