Fly Intel: What to watch in McDonald's earnings report

McDonald's (MCD) is scheduled to report results of its fiscal third quarter before the market open on Tuesday, October 22, with a conference call scheduled for 11:00 am ET. What to watch for: 1. COMMENTARY FROM Q2: When it reported its Q2 earnings results on July 25, McDonald's said it expected commodity pressures to ease "somewhat" in the second half of the year, adding that it still saw a fiscal year 2019 tax rate of 24%-26% and a FY19 foreign currency impact of 18c-20c. 2. DELIVERY: McDonald's said on its Q2 earnings conference call that it expects delivery to be a $4B business in 2019, adding that McDelivery was available in over 9,000 U.S. restaurants. In August, McDonald's announced it was expanding its McDelivery food delivery relationship with DoorDash, an Uber Eats competitor, causing Uber (UBER) shares to slide. Earlier in October, McDonald's announced expanded delivery availability with Grubhub (GRUB) across New York and the Tri-state area. Following the partnership announcement, customers can now order McDelivery from approximately 500 McDonald's locations on Grubhub and the company's New York brand, Seamless. 3. PLANT-BASED MENU ITEMS: On McDonald's Q1 call, the company had said its menu teams were "paying close attention" to plant-based products. On May 23 at its annual shareholder meeting, McDonald's executives had added that the company was monitoring plant-based meat substitutes, but was not currently planning to add a plant-based burger to its menu. In September, however, McDonald's announced it was conducting a twelve-week test of a new plant-based burger called the P.L.T., which stands for Plant. Lettuce. Tomato. in 28 restaurants in Southwestern Ontario, starting September 30. The P.L.T. is made with a Beyond Meat (BYND) plant-based patty "that has been crafted exclusively by McDonald's, for McDonald's, to deliver the iconic taste customers know and love." 4. ANALYSTS WEIGH IN: On October 1, JPMorgan analyst John Ivankoe said he believes McDonald's Q3 comps will miss consensus expectations. The analyst, who uses MillerPulse as the proxy for U.S. quick service restaurant sales, said results continue to show negative same-store-sales traffic "despite what is otherwise solid underlying fundamentals." As a result, he reduced his Q3 comp estimate for McDonald's to up 5% from up 6%, versus the consensus at 5.5%. However, he believes the company's long-thesis remains intact and kept an Overweight rating on the shares with a $230 price target. On October 11, Cleveland Research said its checks indicate that U.S. comps for McDonald's look mixed for Q3, but are likely still ahead of consensus expectations. Good early quarter momentum appears to have been offset by slower August and September trends, the firm stated. Cleveland Research lowered its Q3 U.S. comp growth estimate for McDonald's to up 5.6% from up 6% to reflect the "mixed" September checks.