MCD | Right on Track

 

MCD is on the Hedgeye Restaurants Best Ideas list as a LONG.

 

McDonald’s (MCD) reported 2Q15 earnings result yesterday, performing more or less in-line with our expectations. Global same-restaurant sales (SRS) decreased 60 basis points YoY to -0.7%, versus consensus of -0.4%, reflecting negative guest traffic in all major segments. Although negative, it is a marked sequential improvement versus the -2.3% seen in 1Q15. We will break down the numbers by segment later in the note. Company-operated restaurant revenue of $4.26B outperformed consensus estimates of $4.16B, yet still down roughly 11% YoY. Franchise operated revenue came in right on target matching consensus at $2.24B down roughly 6.5% YoY. 2Q15 EPS was $1.26 beating consensus of $1.23 by $0.03, but declining 10% YoY. 

 

Management highlighted that 80% of the decline in operating profits came from two countries, U.S. and Japan.  Highlighting that MCD is strong company with just a few regions of the world causing the company’s growth related issues. 

 

U.S. 2Q15 SRS decreased -2.0% versus consensus expectation of -1.5%, sequentially seeing a minor 60 basis point improvement. These results reflect negative guest traffic, as new products and LTO’s did not achieve the lift expected. All-day breakfast tests have been going well, and we are optimistic on the effect its rollout would have on the performance.

 

MCD | Right on Track  - CHART 1

 

Europe 2Q15 SRS sales increased +1.2%, just shy of consensus estimates of 1.5%, a notable improvement sequentially, coming off four consecutive quarters of negative comps.  Results are being affected by continued economic challenges in key markets, and charges as part of the global business turnaround plan.

 

MCD | Right on Track  - CHART 2

 

APMEA 2Q15 SRS decreased -4.5% versus consensus of -3.4%, again showing improved trends sequentially, as the effects of the supplier issue continue to dissipate in Asia.

 

MCD | Right on Track  - CHART 3

 

After listening to the call there are obviously still issues to figure out, especially domestically in the U.S., as turnaround efforts have not performed well to date. But we are very encouraged by positive performance across the International Lead Markets segment, in which management stated quarter to date performance is positive and showing strength.

 

Notable comments during the call:

  • Financial results remain disappointing but they are seeing early signs of momentum, expecting to see positive growth globally in Q3, led by International Lead Markets and High Growth Markets.
  • International Lead Markets segment is moving in the right direction, Australia, Canada and UK are seeing strong performance, France is gaining share and Germany is turning the corner.
  • UK, 37 consecutive quarters of positive comps.
  • Canada focusing on convenience, rollout of dual lane drive-thrus, strong breakfast growth, free coffee promotion earlier this year and new salads on the core menu.
  • Germany, 1st quarter since 2Q12 of positive comps.
  • Developmental license agreement for 100 new sites along the Autobahn in Germany.
  • China as a whole had a -3% comp in 2Q15, the top five cities which represent 50% of sales are flat quarter to date. While lower tier cities are being effected by macro-economic factors and not recovering as quickly.
  • U.S. remains disappointing, low price structure implemented this year was an important first step. Northwest region was top performing, having positive results in the first month of Q3.
  • Launching mobile app in Q3, designed to streamline customer service experience. Initially will have limited capabilities, but will be updated over time to include mobile ordering.
  • Expanding all day breakfast into a limited number of new markets to learn more.

 

We at Hedgeye believe Q3 will be the inflection point to this turnaround, as a lot of the little things management has implemented will have ample time in the market to take full effect.

 


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more