05/24/13 09:34AM EDT

McDonald’s is unique in that it has the highest exposure to Europe of any of the major Quick Service players. Besides issues in the United States, which we and others have highlighted, Europe continues to be a major headwind for the company’s earnings growth.

Dark Ages in Europe

Despite equity markets in Europe reacting to the recent rate cuts, the underlying employment trends are not positive for McDonald’s business. The European division accounts for almost 40% of the company’s operating income. The bull case for MCD this year rests firmly on the shoulders of the U.S. business, which is struggling under structural issues and increasing competition. Listening to the MCD AGM yesterday, there was no evidence of any change in strategy to address current challenges.

We remain negative on MCD.

MCD EURO PROBLEM - mcd eu sss ttm eu unempl


MCD EURO PROBLEM - mcd operating income


Howard Penney

Managing Director

Rory Green

Senior Analyst

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