What McDonald's Must Do to Get the Stock Moving After Earnings

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McDonald’s  (MCD) - Get Report posted a mixed first quarter, but its stock fell after the earnings print, which stated that negative sales trends will continue indefinitely. 

The stock fell 2.46% to $183 a share Thursday after the morning earnings report. 

Here were the results:

  • Revenue: $4.71B v. $4.47B analyst estimates
  • Same-store-sales: -3.4% v. -3.4%
  • Operating Margin: 36% v. 41% 
  • EPS: $1.47 v. $1.57

Management did not mention much on the earnings print or call regarding costs, but it did note there was some uptick in General and Administrative expense, a negative for the operating margin and flow through to the bottom line. 

The negative same-store-sales result was driven lower by the company’s international markets, which were impacted by Coronavirus for most of the quarter, while the U.S. was impacted only towards the end. That trend may very well reverse itself in the second quarter, which analysts think will cause a second quarter same-store-sales contraction of roughly 22%, according to FactSet data. 

Management said it is withdrawing full year 2020 and long-term guidance, as a lack of visibility takes hold. The company said the negative U.S. sales trends seen at the end of March are continuing into April as safety restrictions remain in place. 

Most companies have gotten a pass from investors on these types of comments, as the market looks past an ugly 2020 and has almost fully priced in an expected strong 2021 earnings rebound. 

Chipotle  (CMG) - Get Report shares rose considerably after earnings in mid April and is up 35% for April, with much of that pop coming after earnings. 

But McDonald’s shares were up 11.5% for April coming into earnings and trading at a rich multiple of earnings. The stock traded at almost 29 times earnings for the next 12 months just after earnings, and with the downdraft Thursday, is closer to 27 times. But the stock has rarely traded at that level for the past several years. 

Investors will be looking for cues into the Q2 report for a positive directional sales trend and they’ll be encouraged by any easing of lockdowns. 

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