Why is McDonald’s (MCD) down 9.1% since its last earnings report?

It’s been about a month since McDonald’s (MCD) last reported earnings. The stock lost about 9.1% in that time, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is McDonald’s due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

McDonald’s first-quarter results aren’t great, top revenue estimates

McDonald’s released first-quarter 2024 results, which showed earnings missed the Zacks Consensus Estimate, but revenues remained flat. Both profits and profits increased year-on-year.

Chris Kempczinski, president and CEO of McDonald’s, said that as consumers become increasingly scrutinizing every dollar they spend, the company’s goal is to consistently earn their patronage by providing superior quality, reliable value and exceptional service. Looking ahead to the rest of 2024 and beyond, MCD remains focused on maximizing the competitive advantages identified in its Accelerating the Arches strategy and increasing its market share in the quick service restaurant sector to drive sustainable growth.

Discussion about earnings and revenues

For the first quarter of 2024, McDonald’s reported adjusted earnings per share (EPS) of $2.70, missing the Zacks Consensus Estimate of $2.71. However, adjusted earnings increased 2% year-over-year.

Quarterly net revenues of $6,169 million topped the consensus estimate of $6,168 million. The value of revenues increased by 5% year on year.

Sales at company-operated restaurants were $2.35 billion, up 6% year-over-year. Sales at franchised restaurants were $3.72 billion, up 4% year-over-year. Other revenues increased 6% year-over-year to $91 million.

Build details

In the quarter under review, global indices rose 1.9% compared to 12.6% in the prior-year quarter. The company’s results increased for the 13th quarter in a row.

Strong compositions in segments

US: In the first quarter, segment statements increased by 2.5% compared to 12.6% a year ago. Comparable sales increased due to increased average control resulting from strategic menu price adjustments. Strong execution at the restaurant level, effective marketing initiatives emphasizing core menu offerings and continued development of digital and delivery services played a role in delivering strong comparable sales.

International markets served: Segment data increased 2.7% compared to 12.6% in the same quarter last year. Strong comparable sales in Germany and the UK resulted in growth.

International Licensed Development Segment: Comparable segment sales recorded a decline of 0.2% compared to an increase of 12.6% in the prior-year quarter. Despite positive comparable sales in Japan, Latin America and Europe, the ongoing effects of the conflict in the Middle East outweighed profits.

The story continues

Key events and operating expenses

In the first quarter, McDonald’s total operating costs and expenses were $3.43 billion, up 2% year-over-year.

Operating income increased 8% year-over-year to $2.73 billion. Net income was $1.92 billion, up 7% year over year.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

VGM results

Currently, McDonald’s has a solid growth score of B, a rating with the same momentum score. However, the stock is rated D for value, putting it in the bottom 40% for this investment strategy.

Overall, the stock has a Total VGM Score of C. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, McDonald’s carries a Zacks Rank of #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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