On The Fly: What to watch in McDonald's earnings report

McDonald's (MCD) is scheduled to report results of its second fiscal quarter before the market open on Tuesday, July 26, with a conference call scheduled for 11:00 am EDT. What to watch for: 1. EXPANDING ALL DAY BREAKFAST: All Day Breakfast has been a significant part of McDonald's Chief Executive Officer Steve Easterbrook's turnaround plan. On July 6 the company announced it would expand its All Day Breakfast menu, saying "This September breakfast fans will fall in love all over again with McDonald's All Day Breakfast with more choices being added to the national All Day Breakfast menu." With the new menu, customers will be able to enjoy McMuffin and Biscuit sandwiches, as well as the newest addition, McGriddles. 2. SALES MOMENTUM: Investors will be looking to see if McDonald's can maintain its positive sales momentum into its second quarter. In the first quarter, U.S. comparable sales increased 5.4%, fueled by the ongoing popularity of All Day Breakfast and the introduction of McPick 2. Comparable sales for the international lead segment increased 5.2% for the quarter, led by strong performance in the U.K., Australia and Canada. This followed the company's fourth quarter, which saw U.S. comparable sales up 5.7% and international lead markets sales up 4.2%. However, on July 18, Cowen said it believes McDonald's second quarter release could include disappointing U.S. same store sales. Cowen maintained a Market Perform rating and $127 price target on McDonald's shares. 3. BEARISH ANALYSTS: In addition to Cowen's belief that McDonald's could report disappointing second quarter U.S. sales, two other firms -- Cleveland Research and Credit Suisse -- recently released cautious notes on McDonald's. Cleveland Research downgraded McDonald's to Neutral from Buy on July 6, citing aggressive competition, moderating All Day Breakfast lift, mixed promotional performance, and less favorable weather. The firm's analyst is more cautious on its fiscal 2016 outlook due to softer end market, aggressive price promotions, and tough comps. On June 27, Credit Suisse analyst Jason West maintained his Outperform rating but lowered his price target on McDonald's to $130 from $135 to reflect recent U.S. franchisee checks, potential fallout from the Brexit decision, and U.S. dollar strength. West lowered his second quarter earnings estimate to $1.40 from $1.41, and his 2016 estimate to $5.52 from $5.57. The analyst also lowered his second quarter U.S. same-store sales growth estimate to 2.3% from 3.5%, versus consensus of 3.7%, and Q2 global same-store sales growth estimate to 3.2% from 3.7%. 4. REFRANCHISING CHARGES: McDonald's announced on July 7 that in the second quarter, it expects to incur approximately $235M in pretax charges, or about 20c per share on an after-tax basis, consisting primarily of non-cash impairment charges related to the company's refranchising and G&A initiatives, as well as the relocation of the company's headquarters. These charges are related to a plan, originally announced on November 2015, to refranchise 4,000 restaurants by the end of 2018 with a net G&A savings target of $500M.