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Comps likely to drive McDonald’s (MCD) Q3 earnings on Oct 22

McDonald’s Corporation (NYSE: MCD) is set to release its third-quarter earnings results on Tuesday before the market opens. Despite foreign currency translation, the fast-food chain’s results will be driven by global same-store sales, which is likely to be positive for the seventeenth consecutive quarter.

The average check, traffic, and cash flow per restaurant could be driving the US comps. On the other hand, the international same-store sales will be driven by the market share in France and Germany as well as the average franchisee restaurant cash flow in Russia. It also includes ticket and guest count in the three largest markets – Brazil, China, and Japan.

Comps likely to drive McDonald's Q3 earnings on Oct 22
Courtesy: McDonald’s

The top line will be hurt by the impact of strategic refranchising initiative as well as the effect of changes in interest rates and foreign currency fluctuations. However, this could generate more stable and predictable revenue and cash flow in the future. The fast-food restaurant chain has managed to lower expenses on a year-over-year basis over the past six quarters.

As of June 30, 2019, the company has 38,108 restaurants in 120 countries of which 35,461 were licensed to franchisees. McDonald’s believes that ownership of the real estate, combined with the co-investment by franchisees, enables to achieve restaurant performance levels. Franchisees are also responsible for reinvesting capital in their businesses over time.

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Analysts expect the company’s earnings to increase by 5.20% to $2.21 per share and revenue will rise by 2.30% to $5.49 billion for the third quarter. The company has surprised investors by beating analysts’ expectations twice in the past four quarters. The majority of the analysts recommended a “buy” rating with an average price target of $232.44.

For the second quarter, McDonald’s reported a 1% rise in earnings helped by a 6.5% growth in comparable-store sales despite flat revenues. The growth in comps reflects solid sales across all segments. In the US, comparable sales increased by 5.7%, helped mainly by the local deal offerings.

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Tariff woes could hurt iRobot Q3 earnings

iRobot (NASDAQ: IRBT) is scheduled to report third-quarter 2019 earnings results after the closing bell on Tuesday, October 22. The maker of robotic home appliances is expected to report lower earnings and revenues during the quarter, hurt by headwinds related to the US-China trade tariffs.

When the company last reported results in July, it saw weakness in top-line growth despite beating bottom-line estimates. This forced iRobot to cut full year revenue target to a range of $1.20-1.25 billion, from the previous range of $1.28-1.31 billion. EPS outlook was also slashed to $2.40-3.15, versus the prior outlook of $3.15-3.40.

irobot
Image courtesy: iRobot

iRobot’s primary market is North America but most of its manufacturing happens in China, thus placing it in a tough spot. The company had last quarter stated that it sees the recently implemented 25% tariffs to constrain its US market segment growth in the second half of the year.

Of course, iRobot is in the process of shifting production from China to Malaysia to offset some of the tariff headwinds, but any material impact from these activities will take at least another two quarters to shape up.

irobot Q2 earnings

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The company already holds an enviable share of around 60% in the robot vacuum market. But price hikes driven by tariffs as well as competition from new entrants will become a major spoilsport. While Terra-branded lawn movers are on the way, it should be noted that the market for robotic movers are not as large as that of robotic vacuums.

For the third quarter, analysts expect earnings of $0.52 per share, compared to $1.12 per share. Revenues are projected to slip 2% to $259.38 million.

IRBT stock has tumbled 28% since the beginning of this year. It has a Moderate Buy rating in the market.

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