Analysts are expecting McDonald's to report EPS of $1.96 on revenue of $5.3B
McDonalds (MCD) is scheduled to report results of its fiscal fourth quarter before the market open on Wednesday, January 29, with a conference call scheduled for 8:30 am ET. What to watch for:
1. COMMENTARY FROM Q3: When McDonald's reported its third quarter results on October 22, 2019, it did not provide specific financial guidance, but did give some forward-looking commentary. The company said it saw a Q4 foreign currency impact of 1c-3c, as well as higher G&A costs year-over-year in 2020. Additionally, McDonald's added that it expected delivery to be a $4B business in 2019, and noted that its McDelivery service was available in over 20,000 restaurants in 80 countries.
After the company's CEO transition, new CEO Chris Kempczinski said he saw flat U.S. customer traffic in 2020 but has plans for a 4% increase in U.S. comparable store sales growth in an internal video for franchisees, according to Bloomberg.
2. CEO OUSTED: On November 3, McDonald's announced that its board had named Chris Kempczinski, most recently president, McDonald's USA, as president and CEO, effective immediately. Kempczinski was also been elected to the McDonald's board. Kempczinski succeeded Steve Easterbrook, who had separated from the company following the board's determination that "he violated company policy and demonstrated poor judgment involving a recent consensual relationship with an employee." The company added that this leadership transition is unrelated to the company's operational or financial performance.
On November 4, 2019, Piper Jaffray analyst Nicole Miller Regan downgraded McDonald's to Neutral from Overweight with a price target of $195, down from $224. While the company's fundamentals are solid, CEO changes "of this magnitude tend to be disruptive," Regan noted. As such, the analyst took a "more cautionary view" on the shares, noting the potential lack of momentum and time involved in formalizing a new management team.
The same day, Stephens analyst Will Slabaugh said that the departure of CEO Steve Easterbrook was a "fairly significant negative" for investors, given his history of impressive and consistent global results. The analyst, however, likes the "quick choice" of Chris Kempczinski as the next CEO, given his existing relationships with domestic operators and "leadership experience during some of the U.S.'s best years in decades." Slabaugh viewed the shares as attractive and kept an Overweight rating on the name with a $225 price target.
3. PLANT-BASED MENU ITEMS: On January 7, Impossible Foods said it was no longer trying to win a coveted deal to supply McDonald's with plant-based burgers, telling Reuters it cannot produce enough of its imitation meat to partner with the fast-food chain. Referring to McDonald's, Impossible Foods CEO Pat Brown told Reuters in an interview that, "it would be stupid for us to be vying for them right now... Having more big customers right now doesn't do us any good until we scale up production."
On January 8, McDonald's said it was expanding the global test of its plant-based burger to include 52 restaurants in Southwestern Ontario, starting January 14, for 12 weeks. The P.L.T., which stands for Plant. Lettuce. Tomato., is made with a Beyond Meat (BYND) plant-based patty that has been crafted exclusively by McDonald's, the company said in a statement. The global P.LT. test first launched last September in 28 restaurants in London, Ontario and the surrounding areas. As of January 14, the P.L.T. will be priced at C$5.99 plus tax. "The initial test of the P.L.T. allowed us to learn more about guest demand and how to integrate this new menu item into restaurant kitchen operations, while delivering the P.L.T. to our guests with the level of quality and craveability they know and love from McDonald's," said Jeff Anderson, Chef, McDonald's Canada. "As a test and learn company, the McDonald's expansion of the P.L.T. into more restaurants in the Southwestern Ontario region will help us learn more about our guests' tastes while continuing to provide variety within our menu."
4. TESTING CHICKEN OPTIONS: On December 2, 2019, it was reported that McDonald's was testing out a crispy chicken sandwich, in both a regular and deluxe version, in markets including Knoxville, Tennessee, and Houston, Texas, according to CNN's Danielle Wiener-Bronner. The new menu item may placate franchise operators, who have been lobbying hard for a new chicken sandwich to better compete with rivals like Restaurant Brands' (QSR) Popeyes and Chick-fil-A. On January 13, Bloomberg reported that McDonald's was now testing chicken sandwiches with monosodium glutamate, an ingredient that adds taste but has also elicited health concerns from consumers.
On January 28, McDonald's announced it was adding McChicken to its morning menu nationwide, saying "For the first time, customers across the country can wake up to McDonald's Chicken McGriddles and McChicken Biscuit breakfast sandwiches for a limited time. Available as early as 6am for fans looking to get a jump on their mornings, and always 7 days a week. A staple long-beloved by McDonald's Southern customers, the two menu additions now give everyone the chance to enjoy McChicken for breakfast."
5. CORONAVIRUS: The coronavirus outbreak prompted McDonald's to suspend operations indefinitely in five cities in China - Wuhan, Ezhou, Huanggang, Qianjing, and Xiantao, all in Hubei province, according to a NY Post report from January 24.
On January 27, Guggenheim analyst Matthew DiFrisco said among the restaurant stocks he covers, Starbucks (SBUX) has the greatest exposure to China as measured by percentage of worldwide system revenues and operating income, followed by McDonald's. The analyst noted that there are roughly 3,300 McDonald's stores in China. DiFrisco kept a Buy rating on McDonald's.