McDonald’s Corporation (NYSE:MCD) is slated to announce its December quarter results on Wednesday 23, before the stock market opens. The company is expected to report in line results for the 4Q, but according to reports, sales comparisons year-over-year beginning December might provide a challenging scenario for the food and drinks company.


In a report published Tuesday, Sterne Agee analyst, Lynne Collier wrote, “Overall, we expect a mostly in-line quarter but note that McDonald’s Corporation (NYSE:MCD) faces very difficult y/y sales comparisons beginning in December, and we are very likely to see SSS deceleration near-term. However, our longer view that McDonald’s will continue to gain share given upgraded facilities, product innovation and superior marketing remain intact. Maintaining BUY rating”.

The restaurant asked franchises to stay open through Christmas, and it would be interesting to see how that paid off towards 4Q revenues. The Holiday season sales grew by a slower rate in 2012 compare to figures reported in 2011.

In the report published by Sterne Agee, McDonald’s Corporation (NYSE:MCD) is expected to report earnings of approximately $1.33 per share, from a revenue of $6.9 billion for the quarter. The analyst expects a decline in same store sales (SSS) globally at approximately -6%, but ticks revenue by 1.4 percent year-over-year. SSS U.S is estimated to plummet 6% while Europe could be down 1.1% and APMEA at -0.1%.

Operating margins for the restaurants are targeted at 17.2 percent a decline of 150 Bps. This could be attributed to the increase of 40 bps on food costs, and high cost of labor. SSS outlook looks good, but when compared to 2011, there is a challenging scenario. The sales are expected to grow by 7.3 for the first few months in 2013, compared to 10 percent reported in 1Q12. The analyst expects this trigger a temporary volatility in the company’s stock.

Additionally, the ghost of the Tsunami that hit japan still haunts McDonald’s in the Asian country. The company’s SSS sales slowed by approximately 6.3 percent in the country for 4Q12. The company has responded by announcing that it would serve breakfast 24 hours/day in the particular market.

In conclusion the analyst noted, “We expect commentary on each operating segment (U.S., Europe, APMEA), including the release of actual December SSS. We also expect to hear about the performance of key promotions (including how well the McRib fared this year), an outlook for the consumer/macro landscape and outlook for commodities”.

Sterne Agee also reiterated McDonald’s Corporation (NYSE:MCD) at Buy noting, “Despite tough upcoming SSS comparisons, we believe that changes to management, a focus on value and upcoming menu innovation will drive L-T out-performance for the brand. Our price target of $101 reflects a P/E of ~16x our FY14 EPS estimate of $6.34”.

McDonald’s Corporation (NYSE:MCD) closed at $92.95 on Tuesday.