McDonald’s (MCD) Exceeds Third Quarter Earnings and Revenue Estimates – October 27, 2022

McDonald’s Corporation (MCD Free Report) released third-quarter 2022 results, with earnings and revenue above Zacks’ consensus estimate. However, both the high and the low have shrunk year over year. Following the results, the company’s shares rose 2.9% in the premarket trading session.

McDonald’s President and CEO Chris Kempczinski said, “Our performance in the third quarter of 2022 demonstrated broad-based business momentum, with global comparable sales increasing nearly 10%. I remain confident in our strategy to accelerate the arches as our teams around the world continue to perform at a high level.”

Profit and revenue discussion

During the third quarter of 2022, McDonald’s reported adjusted earnings per share (EPS) of $2.68, beating Zacks’ consensus estimate of $2.57 by 4.3%. In the prior year quarter, MCD reported adjusted EPS of $2.86.

Quarterly net revenue of $5,872.1 million exceeded the consensus mark of $5,711 million by 2.8%. Revenue fell 5.3% year-on-year.

At company-operated restaurants, sales were $2,124.8 million, down 18% year-over-year. The same in franchise-operated restaurants was $3,671.2 million, up 5% year-over-year.

Composition details

For the quarter under review, global composition increased 9.5%, compared to a gain of 12.7% in the prior year quarter.

Strong competitions in all segments

WE: During the second quarter, earnings for this segment increased 6.1% year over year, while a 9.6% gain was recorded in the prior year period . This is the ninth consecutive quarter of comps growth for the segment. McDonald’s competitors for the quarter benefited from higher menu pricing, positive guest numbers and marketing initiatives.

International operated markets: Earnings in this segment rose 8.5% year over year, compared to a 13.9% gain in the prior year quarter. MCD benefited from strong comparable sales in Germany, Australia and France.

International development licensed segment: During the quarter, comparable segment sales increased 16.7% year-over-year. In the prior year quarter, his comps were up 16.7%. McDonald’s benefited from strong performances in Japan and Brazil. However, this was partially offset by negative offsets in China due to government restrictions related to COVID-19.

Highlights and Operating Expenses

During the third quarter, McDonald’s total operating costs and expenses were $3,108.2 million, down 3.3% from year-ago quarter levels.

During the quarter, operating profit decreased 7% year over year to $2,763.9 million. Net income during the quarter totaled $1,981.6 million, down 8% from $2,149.9 million in the prior year quarter.

Zacks ranking and key picks

McDonald’s currently carries a Zacks Rank #3 (Hold). You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some top-ranked stocks in the Zacks Retail – Restaurants sector are Potbelly Corporation (PBPB free report), Chipotle Mexican Grill, Inc. (GCM free report), Arcos Dorados Holdings Inc. (ARCO free report).

Potbelly is currently ranked No. 1 over Zacks. PBPB has a four-quarter earnings surprise of 22.2% on average. Shares of PBPB are down 20.6% over the past year.

Zacks’ consensus estimate for Potbelly’s 2022 sales and EPS suggests growth of 17.9% and 101.9%, respectively, from levels in the corresponding period of the prior year.

Chipotle currently carries a Zacks rank #2 (buy). CMG has a surprise on earnings for the last four quarters of 4.1% on average. The stock is down 16.4% over the past year.

Zacks’ consensus estimate for Chipotle’s sales and EPS in 2022 suggests growth of 15.7% and 29.8%, respectively, from levels in the corresponding period of the prior year.

Arcos Dorados currently carries a No. 2 Zacks rank. ARCO has a trailing four-quarter earnings surprise of 102.6%, on average. ARCO shares are up 52.6% over the past year.

Zacks’ consensus estimate for Arcos Dorados sales and EPS in 2023 suggests growth of 6.3% and 18%, respectively, from prior year comparable period levels.

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