MCD: REBUILDING NOT STRENGTHENING

Takeaway: How much will it cost to rebuild?

“Looking ahead to 2014, the U.S. is intent on rebuilding its underlying business momentum by strengthening key elements of customer service and leveraging the breadth of menu choices across all dayparts and value tiers.”


- McDonald’s November Press Release

 

We found the above quote to be quite interesting.  In October, McDonald’s spoke of strengthening its underlying business momentum in 2014.  In November, however, the talk has shifted to rebuilding its underlying business momentum in 2014.  As we have been calling out for the greater part of 2013, MCD has issues in its underlying core business that management must address.  The fact that management finally acknowledged it needs to rebuild its U.S. business momentum is a positive; but it is not a solution.

 

MCD reported November global same-store sales growth of +0.5% vs. +2.4% in 2012 and missed consensus expectations by 10 bps.  The two-year trend ticked up 210 bps sequentially. 

 

The U.S. and APMEA regions showed same-store sales declines of -0.8% and -2.3%, respectively.  The U.S. missed consensus expectations by 110 bps, while APMEA missed by 160 bps.  The two-year trend in the U.S. and APMEA improved sequentially to +0.9% and -0.9%, respectively.

 

Europe was the sole bright spot in November with +1.9% same-store sales growth, beating consensus expectations by 110 bps.  Positive performance in the U.K., France and Russia was slightly offset by poor results in Germany.  The two-year trend accelerated sequentially to +1.7%.

 

Overall, November marked another disappointing month for MCD, as the company missed muted global same-store sales estimates.  The U.S. was once again a major source of disappointment, as the company attributed the weak comparable sales to the competitive environment and flat industry traffic trends.  To be clear, this suggests that MCD is losing market share in the U.S. and, we contend, they have been for a while.

 

Despite the temporary uptick in two-year trends, our bearish thesis remains in play.  With the street looking for 7% EPS growth in 2014, we continue to believe there is disconnect between investor’s expectations and the company’s fundamentals.  Until we see a legitimate change in company operations or strategy, we fail to see how MCD will be able to hit the street's current 2014 EPS target. 

 

MCD: REBUILDING NOT STRENGTHENING - twoyear avg

MCD: REBUILDING NOT STRENGTHENING - TTM

MCD: REBUILDING NOT STRENGTHENING - table

 

 

 

Howard Penney

Managing Director

 


SECTOR SPOTLIGHT | Live Q&A with Healthcare Analyst Tom Tobin Today at 2:30PM ET

Join us for this edition of Sector Spotlight with Healthcare analyst Tom Tobin and Healthcare Policy analyst Emily Evans.

read more

Ouchy!! Wall Street Consensus Hit By Epic Short Squeeze

In the latest example of what not to do with your portfolio, we have Wall Street consensus positioning...

read more

Cartoon of the Day: Bulls Leading the People

Investors rejoiced as centrist Emmanuel Macron edged out far-right Marine Le Pen in France's election day voting. European equities were up as much as 4.7% on the news.

read more

McCullough: ‘This Crazy Stat Drives Stock Market Bears Nuts’

If you’re short the stock market today, and your boss asks why is the Nasdaq at an all-time high, here’s the only honest answer: So far, Nasdaq company earnings are up 46% year-over-year.

read more

Who's Right? The Stock Market or the Bond Market?

"As I see it, bonds look like they have further to fall, while stocks look tenuous at these levels," writes Peter Atwater, founder of Financial Insyghts.

read more

Poll of the Day: If You Could Have Lunch with One Fed Chair...

What do you think? Cast your vote. Let us know.

read more

Are Millennials Actually Lazy, Narcissists? An Interview with Neil Howe (Part 2)

An interview with Neil Howe on why Boomers and Xers get it all wrong.

read more

6 Charts: The French Election, Nasdaq All-Time Highs & An Earnings Scorecard

We've been telling investors for some time that global growth is picking up, get long stocks.

read more

Another French Revolution?

"Don't be complacent," writes Hedgeye Managing Director Neil Howe. "Tectonic shifts are underway in France. Is there the prospect of the new Sixth Republic? C'est vraiment possible."

read more

Cartoon of the Day: The Trend is Your Friend

"All of the key trending macro data suggests the U.S. economy is accelerating," Hedgeye CEO Keith McCullough says.

read more

A Sneak Peek At Hedgeye's 2017 GDP Estimates

Here's an inside look at our GDP estimates versus Wall Street consensus.

read more

Cartoon of the Day: Green Thumb

So far, 64 of 498 companies in the S&P 500 have reported aggregate sales and earnings growth of 6.1% and 16.8% respectively.

read more