How Will McDonald's (MCD) Stock Be Affected By Reports Of Double Digit Decline In August Sales

NEW YORK (TheStreet) -- McDonald's (MCD)  reported a 14.5% decline in August sales in its Middle East, African and Asian markets from the previous year on Wednesday as the company continues to face fallout in the Asian region from its tainted meat scandal. 

Japanese sales fell 26% during August and the company announced that it expects to lose 15 cents - 20 cents per share off of its third quarter earnings due to lost business from the scandal, according to Bloomberg and the Nikkei Asian Review reports. 

The fast food restaurant's American based meat supplier in China was discovered to be selling tainted meat that had been handled with employees' bare hands and had even been processed after falling on the floor. 

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The company reported that same store sales for stores open for at least 13 months fell 3.7% in August, worse than the 3.1% drop analysts were expecting.

McDonald's shares are up 0.2% to $91.28 in trading today.

TheStreet Ratings team rates MCDONALD'S CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate MCDONALD'S CORP (MCD) a BUY. This is driven by several positive factors, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MCD's revenue growth has slightly outpaced the industry average of 5.6%. Since the same quarter one year prior, revenues slightly increased by 1.4%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The debt-to-equity ratio is somewhat low, currently at 0.96, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.46, which illustrates the ability to avoid short-term cash problems.
  • 44.52% is the gross profit margin for MCDONALD'S CORP which we consider to be strong. Regardless of MCD's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, MCD's net profit margin of 19.31% compares favorably to the industry average.
  • MCDONALD'S CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, MCDONALD'S CORP increased its bottom line by earning $5.56 versus $5.36 in the prior year. For the next year, the market is expecting a contraction of 0.1% in earnings ($5.56 versus $5.56).
  • The change in net income from the same quarter one year ago has exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income has decreased by 0.7% when compared to the same quarter one year ago, dropping from $1,396.50 million to $1,387.10 million.
  • You can view the full analysis from the report here: MCD Ratings Report

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