By Brian Nelson, CFA
On November 5, McDonald’s (MCD) reported third quarter results that missed expectations on both the top and bottom lines. Global comparable sales came in better than expected at 3.6%, with broad-based growth across all segments. U.S. comps increased 2.4%, international operated markets increased 4.3%, while international developmental licensed markets increased 4.7%. Consolidated revenues increased 3% (1% in constant currencies), while global systemwide sales were over $36 billion for the quarter, an increase of 8% year-over-year (6% in constant currency).
Management had the following to say about the quarter:
We increased global Systemwide sales by 6% and grew comp sales across all segments, a testament to our ability to deliver sustainable growth even in a challenging environment. We’re fueling momentum by delivering everyday value and affordability, menu innovation, and compelling marketing that continue to bring customers through our doors.
In the U.S., we continue to see a bifurcated consumer base with QSR traffic from lower income consumers declining nearly double digits in the third quarter, a trend that’s persisted for nearly 2 years. In contrast, QSR traffic growth among higher income consumers remained strong, increasing nearly double digits in the quarter.
In the quarter, McDonald’s consolidated operating income increased 5% (3% in constant currencies). Excluding certain one-time items, adjusted consolidated operating income increased 3% (1% in constant currencies). Diluted earnings per share for the quarter was $3.18, up 2% (flat in constant currencies). Excluding one-time items, however, adjusted diluted earnings per share was flat at $3.22 (a decrease of 1% in constant currencies). McDonald’s is benefiting from higher income consumers trading down, while it faces weakness from the lower-income cohort. Shares look fairly valued on the basis of our discounted cash-flow process.
—–
Brian Nelson owns shares in SPY, SCHG, QQQ, QQQM, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, QQQM, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.