McDonald’s Corporation (MCD): Can it Report Upsize Earnings?

McDonald’s: Can it Report Upsize Earnings?
In the upcoming earnings, investors will be waiting to see whether McDonald’s Corporation has been able to fight off the stronger dollar or not

McDonald's Corporation (NYSE:MCD) is all set to announce its second quarter earnings for fiscal 2016 on Tuesday, July 25 before the opening bell. The investors are waiting to see whether the giant burger chain will be able to post another quarter of double-digit earnings and revenue growth or not.

Last year, McDonald’s stock was one of the best performing retailer stock on S&P 500 index. Any major surprise in the upcoming earnings release may cause an upward movement in its stock price.

According to the past performance, it successfully outperformed Wall Street analysts’ expectations in past three straight quarters. In the first quarter of 2016, the company reported the earnings of $1.23, which surpassed the analysts’ expectations of $1.16. Despite upbeat earnings, the stock went down nearly 0.23%.

In the earnings, the restaurant retailer notified that Germany and France were the areas where the company is struggling at the moment.

For the first quarter, Wall Street analysts predict that the revenue will fall while the earnings per share (EPS) will improve on year-over-year basis. The giant hamburger chain has said that its results are going to be impacted by 2-4 cents per share due to stronger dollar.

The analyst forecast that the company will earn EPS of $1.39 per share, more than $1.28 it had earned same quarter a year ago. Revenue is projected to clock in at $6.28 billion, slightly down from last year’s figure of $6.49 billion. In the earnings call, investors should also look for the full year guidance of the fiscal 2016.

Though the company published positive comps in the past three quarters, the trend has remained sluggish. Many analysts expect that this trend is going to continue in this quarter and also in some of McDonald’s key international regions.

Due to a slowdown in the Chinese economy, sales of the giant hamburger chain is getting hurt in the region, which accounts for a huge chunk of the company’s revenues, thereby shackling the overall top-line performance. Hence, analysts anticipate the weaker sales trends to remain in the second quarter.

In the meantime, due to macroeconomic uncertainties and reducing consumer purchasing power in Russia attached with challenging political and economic conditions in Europe may further impact results.

McDonald’s margins are likely to persist under pressure from worldwide wage raise and costs related to brand positioning in the US. Apart from this, despite the weakening of the US dollar against other key foreign currencies in the recent times, it is still predicted that negative currency translation is likely to dent profits in the second quarter.

Keeping all things away, McDonald’s All-Day Breakfast scheme along with some of it sales initiatives such as innovation, marketing strategies, and promotional offers are predicted to aid top-line growth.

Recently, the hamburger chain confirmed that it will be knotting up a sponsorship agreement with Niantic, the maker of Pokémon GO in Japan, where the game was introduced on Wednesday. This new game will be open to 3,000 of its outlets. The affiliation is a latest change for the giant food retailer, which has struggled with deteriorating burger sales and tumbling analyst sentiment. In fact, it will be a coup for both parties

Hence we predict that McDonald’s might post stronger results from its domestic as well as high growth markets.

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