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.

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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