McDonald's Earnings Preview: 5 Questions

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A preview of McDonald's 2nd Quarter 2014 earnings: five big-picture questions.

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McDonald's Earnings Preview: 5 Questions

  1. 1. Bacon Clubhouse Burger Image: McDonald’s McDonald’s Earnings Preview: 5 Questions
  2. 2. McDonald’s reports 2nd Quarter 2014 earnings on July 22: • In Q1 2014, McDonald’s revenue rose only 1% versus the prior-year quarter. Operating income declined 1%. • Investors will avidly watch for improvement in revenue and earnings trends. They’ll also seek clarity on several fronts, including the following 5 questions…
  3. 3. What’s the status of “The Test?” • McDonald’s is testing a mobile ordering app in Columbus, Georgia. • Customers will be able to save favorite orders on their smartphones. • Is the app ready for nationwide rollout? How will this affect revenue? Image: iTunes App Store.
  4. 4. Have we got a problem with millennials? • A Consumer Reports study out this month pegged MCD dead last out of 21 burger restaurants for consumer preference. • Millennials in particular are avoiding McDonald’s. • Coca-Cola predicts that the global youth market will control 70% of the world’s spending power by 2020…
  5. 5. Have we got a problem with millennials? Image: McDonald’s Instagram feed home page. • And they formed an entire business strategy around this fact -- a year ago. • Will McDonald’s address the Consumer Reports findings on its conference call? • MCD investors want to know that a detailed plan exists to change millennials’ perceptions about the company.
  6. 6. Any progress on McDonald’s 4 problem children? • MCD has four problem countries in 2014, or, as management likes to call them, “priority markets:” the U.S., Germany, Japan & Australia. Geschmacksvolltreffer (Taste Hit)! German McRib image by goodiesfirst under Creative Commons license.
  7. 7. Any progress on McDonald’s 4 problem children? • Germany and Japan have been particularly vexing, pulling down otherwise positive results in Europe and Asia in Q1. • In total, the four countries contribute more than 60% to MCD’s total operating income. • In the second half of 2014, as these four markets go, so will go the rest of McDonald’s financial performance.
  8. 8. Is the back-to-basics theme gaining market share in 2014? • Management has refocused on its most profitable daypart, breakfast. • It’s also promoting MCD’s core menu in 2014, including stalwarts such as the Big Mac and the company’s signature french fries. The humble, mega-selling french fry. Image: McDonald’s.
  9. 9. Is the back-to-basics theme gaining market share in 2014? • The refocus seems sound. • Look for initial indications of this push on the earnings conference call. Coffee drives breakfast traffic. Image: McDonald’s.
  10. 10. How is new store development in China proceeding? • China is a bright spot in Asia. • Comparable sales grew 6.6% last quarter. • China McDonald’s locations offer delivery, a service that’s growing by double digits. McDonald’s China delivery bike image by Augapfel under Creative Commons License.
  11. 11. How is new store development in China proceeding? • The company plans to open 300 new stores in China this year. How many have been opened in the first half of the year? • Still on target for 300 by year end? World’s smallest McDonald’s, Pudong district, Shanghai, China. Image by David Leo Veksler under Creative Commons License
  12. 12. Watch for MCD Earnings on July 22: • The Golden Arches need some burnishing -- it’s high time the company shows strong same-store sales growth. • Information on the 5 questions outlined here will also provide some sense of where McDonald’s is headed in the back half of 2014.
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