MCD will announce September sales, along with 3Q11 results, before the market opens on Friday, October 21st.
I suspect that there will not much to complain about when MCD reports 3Q11 numbers on Friday. Over the past three months, 3Q11 consensus estimates have declined by 0.4% and now stand at $1.42. I suspect that the $0.06-$0.07 of currency benefit the company guided to at the start of the quarter is likely now only $0.01-$0.02. Given all that and any non-operating items, MCD should come close to hitting consensus; but there not a lot of wiggle room. I put it at $1.41 for the quarter.
From a MACRO stand point MCD is facing some issues. In particular, beef prices continue to trade higher and consumer confidence and retail sales numbers in Europe are sluggish.
Recapping the quarter to date sales trends, we know July was a strong month, beating expectations globally. August, on the other hand, was not a very strong month for MCD sales, largely due to timing issues and one-time items in Europe (Ramadan) and APMEA (power outages in Japan), respectively. Global comps came in at +3.5%, below the street’s +4.7% estimate. U.S. comps of +3.9% were only 10 bps shy of expectations, but Europe comps came in +2.7% versus +5.5% expectations. APMEA missed by the widest margin, -0.3% versus the street at +3.9%. Weak sales in Japan weighed on the overall results.
As important as the reported number in the quarter, sales trends in September and October will likely have a bigger impact on market psychology. On that front, I suspect that MCD will have sequentially better month in September.
Compared to September 2010, September 2011 had one less Wednesday and one additional Friday. As a result, I would not anticipate any major calendar shift. Below I go through my take on what numbers will be received by investors as GOOD, BAD, and NEUTRAL, for MCD comps by region. For comparison purposes, I have adjusted for historical calendar and trading day impacts.
U.S. - facing a compare of +5.7% (including a calendar shift which impacted results by +0.1% to +0.3%, varying by area of the world).
GOOD: A print above 5.0% would be received as a good result, as it implies acceleration in two-year average trends. Despite the slight miss in August, two-year average trends improved on a calendar-adjusted basis. It will be interesting to see if McDonald’s can continue to drive trends higher in September. I am expecting a strong month.
NEUTRAL: A print between 3.0% and 5.0% would be received as a neutral result by investors given that the mid-point of this range implies two-year average trends, on a calendar-adjusted basis, that are relatively in line with trends in August.
BAD: Same-restaurant sales below 3.0% would imply a sequential slowdown in two-year average trends and could raise significant doubt about the ability of MCD to maintain its recent impressive top-line performance.
EUROPE - facing a compare of +4.9% (including a calendar shift which impacted results by +0.1% to +0.3%, varying by area of the world). Europe was a disappointment in August but the timing of Ramadan was largely responsible for the sales shortfall. As a result, investors are expecting to see this trend reverse in September.
GOOD: A print of 5% or higher would be received as a good result for Europe as it would imply a nearly 200 bp acceleration in two-year average trends after the 190 bp decline (calendar-adjusted basis) in August. If MCD can reverse last month’s slowdown, investors will more likely be convinced that the slowdown in August was indeed a timing issue.
NEUTRAL: A result between 3% and 5% would be received as a neutral result because it would imply two-year average trends that are improved from the weaker-than-expected trends in August
BAD: A result below 3% would imply two-year average trends that are only slightly better than or level with the disappointing two-year average trends seen in August.
APMEA - facing a difficult compare of +6.2% (including a calendar shift which impacted results by +0.1% to +0.3%, varying by area of the world). As in Europe, MCD faced some one-time issues in APMEA during August as power outages negatively impacted results in Japan.
GOOD: A print of 6% or higher would be received as a good result as it would imply a sequential acceleration of nearly 200 bps in two-year average trends, thereby showing a reversal of the slowdown during August. Again, this would help to convince investors that the power outages in Japan were largely to blame for the significant falloff in trends in August.
NEUTRAL: A result between 4% and 6% would be received as a neutral result because it would imply two-year average trends that have accelerated from the worse-than-expected trends in August.
BAD: Same-restaurant sales in APMEA below 4% would be received as a bad result because it would imply only a slight uptick or level trends with what was a disappointing month.
Howard Penney
Managing Director
Rory Green
Analyst
