McDonald’s Q1 Earnings Preview: Signs of improvement or more challenges ahead?

McDonald’s Corporation (NYSE: MCD) is actively working to recover from the recent food contamination incident, which has hurt sales and dealt a blow to its reputation. The focus is on driving customer traffic and increasing sales, as the affected franchises experience a significant slump. For the company, the first half of 2024 was equally challenging, prompting measures like the McValue program, menu innovations, and marketing campaigns.

Last month, shares of the fast-food giant climbed to a new high of $321.29, after recovering from the weakness experienced in the early weeks of the year. They have gained 6.6% in the past six months. McDonald’s is a dividend aristocrat liked by income investors, having consistently hiked the dividend for more than four decades and offering a bigger-than-average yield. With healthy cash flows and a loyal customer base, the company offers a good investment option.

Weak Outlook

As per estimates, the recent weakness in earnings and revenue performance continued in the early months of fiscal 2025, reflecting lingering safety concerns surrounding McDonald’s products. On average, analysts following the business forecast earnings of $2.67 per share for the first quarter, which is broadly in line with the profit generated in the prior-year quarter. The consensus revenue forecast is $6.13 billion, representing a 1% decline from the year-ago quarter. The report is slated for release on Thursday, May 1, at 7:00 am ET.

McDonald’s CEO Chris Kempczinski said at the Q4 2024 earnings call, “As we transition into 2025, several factors give me confidence that our performance will return to proper form over the next several quarters. First, we have the right strategy: Accelerating the Arches. Our MCD growth pillars still offer significant growth opportunities, and I’m pleased with the 2025 market plans, particularly their balance of value and full-margin food innovation. Second, the U.S. food safety issue is now largely behind us, and we expect to have fully recovered by the beginning of Q2.”

Flat Sales

McDonald’s net income slid 1% YoY to $2 billion in the fourth quarter of 2024, while earnings per share remained unchanged at $2.80. On an adjusted basis, earnings declined 4% annually to $2.83 per share. At $6.4 billion, revenue was flat compared to the same period a year ago, while global comparable sales increased 0.4%. Revenue and profit both missed estimates, after beating in the prior quarter. At the end of the quarter, the company had around 175 million loyalty program users who were active in the past 90 days across 60 markets.

Comparable sales in the US declined in the most recent quarter, reflecting the impact of the food safety incident. The company was forced to recall the usage of silvered onions in burgers after several customers fell ill and one person died from an E. coli outbreak linked to its Quarter Pounders. While sales benefitted from the launch of value-meal last year, the momentum waned after the food safety incident.

MCD’s last closing price is much higher than its 52-week average value of $287.37. The stock traded slightly lower in early trading on Monday.