On Monday, McDonald’s (MCD) posted third-quarter results that left much to be desired. Global comparable sales barely moved higher at 0.9%, while consolidated operating income advanced a modest 6%. Diluted earnings per share increased at a similar pace to $1.52 per share, but the disappointment was certainly from the top line. Comparable stores in the US increased just 0.7% in the third quarter thanks to the popular Monopoly promotion and the new Mighty Wings. We thought the latter would have had a greater impact given the significant recent marketing promotions.
Comparable sales in Europe jumped 0.2% thanks to strong performance in the UK and Russia, partially offset by weakness in Germany. Same-store sales in the Asia/Pacific, Middle East and Africa (APMEA) region declined 1.4% during the quarter, and operating income dropped 12% in the region. Weakness was prevalent in China, Japan and Australia.
McDonald’s fourth-quarter outlook was also less-than-encouraging. Global comparable sales for the month of October are expected to be flat, and we might be staring down negligible same-store sales growth for the entire fourth quarter. McDonald’s also noted that it expects restaurant margins to face some pressure in the current period.
Valuentum’s Take
We’re not rushing to put money to work in McDonald’s in either of our actively-managed portfolios at this time. McDonald’s fair value estimate remains unchanged. Our favorite idea in the restaurant space continues to be Buffalo Wild Wings (BWLD), which has performed spectacularly since we added it to the portfolio of our Best Ideas Newsletter.
