McDonald’s Corporation Earnings Preview: Strong SSS Growth Expected

McDonald’s Corporation (NYSE:MCD) is set to release its next earnings report on Tuesday before opening bell. Analysts are expecting to see McDonald’s earnings come in at $1.59 per share on $5.23 billion in revenue for Q4. In the same quarter a year ago, the fast food chain reported $6.03 billion in sales.

McDonald's earnings q4 2017
Quartzla / Pixabay

McDonald’s earnings preview for Q4 2017

Wall Street is waiting to see how McDonald’s is faring from its Dollar Menu, and sentiment is generally upbeat. Analysts are also starting to weigh the impacts of the tax reform bill on the company’s 2018 earnings results, so we can expect the company to offer commentary about it on the earnings call.

Deutsche Bank analyst Brett Levy said in a preview note on McDonald’s earnings that he expects the fast food chain’s global same store sales were up by about 5.1% year over year globally. He’s expecting a 5% increase in domestic same store sales. The consensus estimates stand at a 5% global increase and a 4.5% domestic increase. Levy is also ahead of consensus on earnings at $1.62 per share.

Q4 earnings benefited from Value Menu

Bank of America Merrill Lynch analyst Gregory Francfort said in his preview note on Q4 McDonald’s earnings that changes in foreign exchange rates pushed him to an upward revision in his estimates for this year and next. He notes that the U.S. dollar has been weak in the beginning of this year. Further, he adds that the Street has bumped estimates up by just 2% since the tax reform bill went into effect.

He’s also ahead of consensus on McDonald’s earnings at $1.60 per share. He’s looking for a 5.5% global increase in same store sales, including a 4% domestic increase and 5.5% increase in the International Lead segment. He’s looking for High Growth market same store sales to be up 5% and Foundational market sales to be up 9%.

Francfort reiterated his Buy rating and $200 price target on McDonald’s stock going into the Q4 earnings release.

Here’s what’s more important than same store sales

Levy added that although the company’s Q4 same store sales growth is important, he believes investor will care more about “how they got there,” like whether delivery helped. He also believes investors want to hear about progress on the introduction of the new value menu early this year, which is aimed at regaining traffic that has been lost in recent years. However, he also warned that because data has been limited, and because the company eliminated monthly releases of its same store sales updates a few years ago, management might “not be prepared or willing to provide much of an update.”

Levy maintained his Buy rating and $185 price target on McDonald’s stock going into the Q4 2017 earnings release.

Looking for tax reform updates

Levy also noted that the Street is expecting an update on tax reform. On the McDonald’s earnings call, he wants to hear the company’s new effective tax rate, which compares to the previous rate in the 32%to 33% range. He also wants to hear how much of the savings will flow through profit and loss or whether McDonald’s will invest in its people, marketing and products, technology, or anything else. Further, he wants to know if shareholders can expect increased cash returns.

McDonald’s stock was unchanged in premarket trades at $178.36 Monday morning.