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Market Update

Earnings on Tap: McDonald's

The fast-food giant is capable of generating superior returns on invested capital over an extended horizon.

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Fast-food giant  McDonald's (MCD) will be reporting second-quarter results before the markets open Monday.

The consensus estimate calls for earnings of $1.40 per share compared with $1.32 per diluted share reported in the corresponding quarter a year ago.

The company posted higher first-quarter profit, but it fell short of market expectations as sales declined for its both international and domestic operations. Global comparable sales decreased 10% while U.S. comparable sales were 1.2% lower during the period. However, despite these disappointing results, the golden arches outperformed competition and increased market share. Diluted earnings came in 2% higher at $1.26 per share for the first quarter, and the company returned $1.1 billion to shareholders through dividends and share repurchases during the period.

Morningstar analyst R.J. Hottovy has faith in McDonald's resilience despite an increasingly challenging environment for restaurant operators. According to Hottovy, it is unlikely that the firm will duplicate the almost 1,500 basis points of operating margin expansion it posted during the past five years, but he is optimistic that the fast-food giant is capable of generating superior returns on invested capital over an extended horizon. 

Shares of the company are up 13.5% on a year-to-date basis and are presently trading near Hottovy's fair value estimate.

 

Gazala Parveen does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.