McDonald's Corp. (NYSE: MCD): Q4 Earnings Preview 2010

McDonald's Corp. (NYSE: MCD), the world's largest hamburger chain, is scheduled to release fourth-quarter earnings before the opening bell on Monday, January 24, 2011. Analysts, on average, expect the company to report earnings of $1.16 per share on revenue of $6.21 billion. In the year ago quarter, the company reported earnings of $1.03 per share on revenue of $5.97 billion.

McDonald's Corporation, together with its subsidiaries, operates as a worldwide foodservice retailer. The company operates more than 32,000 local restaurants in more than 100 countries.

In the preceding third quarter, the Oak Brook, Illinois-based restaurant operator's net income was $1.39 billion, or $1.29 a share, compared to $1.26 billion, or $1.15 a share, in the year-earlier quarter. On an adjusted basis, the company earned $1.32 a share in the latest quarter. Revenue increased 4% to $6.3 billion from $6 billion in the same quarter last year. Analysts, on average, expected the company to report earnings of $1.24 per share on revenue of $6.21 billion. The results were driven by value offerings and premium products, and a rise in comparable-store sales across all regions.The company also benefited from its strategy to renovate restaurants and innovate new menu offerings, which drove higher traffic in the reported quarter. Global comparable sales increased 6.0%, with the U.S. up 5.3%, Europe up 4.1% and Asia/Pacific, Middle East and Africa up 8.1%.

McDonald's performance has recently been helped by its compelling food and beverage value offerings, like the addition of Frappes to the McCafe line-up as well as the popularity of the Shrek-themed Chicken McNugget and Happy Meal promotions to motivate kids to eat more fruits, vegetables and dairy products.  

Last month, the company said that sales at all restaurants in operation for at least thirteen months grew 4.8% in November, driven primarily by strength in the US and European markets. For the month of October, global comparable sales - a measure of sales at all restaurants in operation for at least thirteen months - grew 6.5%, driven by growth across all markets. 

At its last earnings call in October, McDonald's noted that as foreign currencies have weakened, currency translation is expected to negatively impact fourth quarter earnings by $0.01 to $0.02 per share at current exchange rates.

McDonald’s expects food cost to increase 1% to 2% year over year in the U.S and slightly in Europe in the fourth quarter of 2010. However, for full year 2010, the company expects commodity cost to be down year over year.

For 2011, McDonald’s forecasts commodity cost to jump 2% in the U.S and labor cost to rise moderately. In Europe, the company expects commodity costs to increase approximately 3%. Based on these inflation expectations, management noted it would need to achieve same-store sales of 2-3% to grow margins next year.

The company anticipates capital expenditure for 2010 to be approximately $2.3 billion. Nearly half the amount will be reinvested in existing restaurants, including the refurbishment of over 1,800 locations worldwide. The rest will primarily be used to open about 1,000 restaurants.

The company is expanding aggressively in fast growing emerging markets. The fast food giant plans to boost investment in China and double its presence there by 2013. McDonald's has increased its investment in China by a substantial 25% in 2010. The company now plans to increase its investment in 2011 by 40%, which will mainly be used to speed up opening about 200 new restaurants, upgrade existing restaurants and the expansion of more convenient services. Further, it plans to add a few menu items next year that will target the ever health-conscious Chinese consumers. The new restaurant openings are planned in the bigger cities of China such as Shanghai and Beijing, with half of them being drive-through outlets. The company is also looking to change its franchise model in China to boost growth by licensing restaurants on a province basis rather than the current city basis. Also, it targets the redesigning of 80% of its existing outlets in China by 2013. 

However, stiff competition from other quick-service restaurant operators and macroeconomic factors influencing consumer spending patterns still remain concerns. Though the company has been reporting rise in same-store sales over the past months and has been faring better than its competitors, the persistent weakness in US market is now hurting the business of one of the world’s most recognizable brands.

In terms of stock performance, McDonald's shares have gained nearly 20 percent over the past year.

Full Disclosure: None.

McDonald's Corp. (NYSE: MCD): Q4 Earnings Preview 2009

McDonald's Corp. (NYSE: MCD) is scheduled to release its fourth quarter earnings for 2009 before the market open on Friday, January 22, 2010. Analysts, on average, expect the company to report earnings of $1.02 per share on revenue of $5.93 billion. In the year ago period, the company reported earnings of 87 cents per share on revenue of $5.57 billion.

McDonald's Corporation, together with its subsidiaries, franchises and operates McDonald's restaurants in the food service industry worldwide. Its restaurants offer various food items, soft drinks, and coffee and other beverages. The company runs more than 32,000 restaurants in more than 100 countries.

The fast-food restaurant chain benefited from recession amid continued emphasis on its core menu, branded affordability, breakfast and convenience. In October, the Oak Brook, Illinois-based company reported that its third-quarter net income advanced 6% to $1.26 billion from $1.19 billion in the prior-year quarter. On a per share basis, earnings totaled $1.15, up 10% from the previous year's $1.05. Quarterly revenue dropped 4% to $6.05 billion from $6.27 billion reported a year ago. Analysts, on average, expected the company to report earnings of $1.11 per share on revenue of $6.10 billion.

It appears that McDonald’s growth is finally cooling. Though the company has been reporting rise in same-store sales over the past months and has been faring better than its competitors, the persistent weakness in US market is now hurting the business of one of the world’s most recognizable brands. Last month, the McDonald's reported said sales at restaurants open at least a year fell 0.6 percent in the U.S in November as elevated unemployment levels curtailed sales. It was the second consecutive monthly decline for the measure, an important indicator of a restaurant chain's health, and a steeper fall than October's 0.1 percent.

The company is also feeling the heat of heightened competition from other fast food chains such as Burger King (NYSE: BK), Taco Bell (NYSE: YUM) and others who have increasingly been pushing value menus and discounts of their own. Meanwhile, as competitors take aim at McDonald’s value options, McDonald’s continues to promote their McCafe coffee drinks as a cheap alternative to competitors like Starbucks (NASDAQ: SBUX).

For the fourth quarter, McDonald's expects recording approximately $85 million of after tax income, a roughly $0.08 per share benefit, primarily due to the resolution of certain liabilities retained in connection with the 2007 Latin America developmental license transaction.

The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 14.12 and PEG ratio (5 yr expected) of 1.66. In terms of stock performance, McDonald's shares have gained nearly 8% since over the past year.

Full Disclosure: None.

Starbucks Corp. (NASDAQ: SBUX): Q1 Earnings Preview 2010

Starbucks Corp. (NASDAQ: SBUX), the world's largest specialty coffee retailer, is scheduled to release financial results for fiscal first quarter after the closing bell on Wednesday, January 20, 2010. Analysts, on average, expect the company to report earnings of 26 cents a share on revenue of $2.58 billion. In the year ago quarter, the company reported earnings of 15 cents per share on revenue of $2.62 billion. The chain has topped expectations in the last three quarters.

The firm quickly adapted to changing macroeconomic environment and streamlined operations. Starbucks took a number of actions in fiscal 2008 and 2009 to rationalize its store portfolio. These actions have included plans (announced in July 2008 and January 2009) to close a total of approximately 800 Company-operated stores in the US, restructure its Australia market, and close approximately 100 additional Company-operated stores internationally. As of the end of fiscal 2009, nearly all of the approximately 800 US stores, 61 stores in Australia and 41 stores in other International markets have been closed. The remaining International closures are expected to be completed by the end of fiscal 2010.

Early in November, the Seattle, Washington-based company reported that its fourth quarter profit rose sharply from last year, as its cost cutting initiatives helped improve margins. Net income surged to $150.0 million or $0.20 per share, compared to $5.4 million or $0.01 per share in the year-ago period. Excluding restructuring charges, non-GAAP net income for the fourth quarter was $184.1 million, or $0.24 per share, compared to $71.0 million, or $0.10 per share, in the prior year quarter. Quarterly revenue dropped 4% to $2.42 billion from $2.52 billion in the same quarter last year. Analysts, on average, expected the company to earn $0.21 per share on revenue of of $2.39 billion. The company attributed the revenue decline mainly to the the impact of a stronger U.S. dollar relative to the British pound and Canadian dollar, 385 net fewer company-operated stores open in the quarter as compared to a year ago and a 1% decline in consolidated same-store sales.

GAAP operating margin for the quarter improved to 8.2% from 0.6% a year ago, while non-GAAP operating margin increased to 10.4% from 4.7% last year. The improvement was driven by cost savings initiatives, majority of which are the result of in-store operating improvements focused on labor efficiencies and reduced product waste, and lower non-store support costs.

Thanks to improving same store sales trends and the increasing impact of its cost savings efforts, Starbucks in November raised its earnings outlook for the fiscal year 2010. The company said it now expects fiscal 2010 non-GAAP EPS to grow in the range of 15% to 20%, compared to its previous guidance of 13% to 18% growth. The 15% to 20% growth implies fiscal 2010 non-GAAP EPS in the range of $0.92 to $0.96 per share. The company said it expects fiscal 2010 revenue to grow in the low-to-mid single digits, driven by modestly positive same-store sales, an extra week and about 300 planned net new stores. Starbucks expects cash flow from operations to again reach approximately $1.4 billion in fiscal 2010. For fiscal 2010, Starbucks targets about 100 net new stores in the U.S. and about 200 net new stores in International markets. Both the U.S. and International net new additions are expected to be mainly licensed stores.

In order to lure consumers and counter heightened competition from rivals such as McDonald's (NYSE: MCD) and Dunkin' Donuts Coffee, Starbucks has taken a number of initiatives and has unveiled new instant coffee - called Via -the biggest product launch ever for Starbucks. New Yorkers were more inclined to buy coffee from Starbucks Corp., especially from stores near a Dunkin’ Donuts outlet, after restaurant chains were required to display calorie counts on products, Stanford University researchers found. Drink revenue increased 5 percent at the city’s Starbucks stores located within 100 meters (109 yards) of a Dunkin’ Donuts after health officials made it compulsory in mid-2008 for nutritional information to be posted on menus, they said.

The company recently announced that on the 12th of January it will introduce new beverage and food options in participating U.S. stores as part of the company's continued commitment to meeting the needs of its customers looking for options.

The company's stock currently trades at a forward P/E (fye 27-Sep-11) of 20.07 and PEG ratio (5 yr expected) of 1.39. In terms of stock performance, Intel shares have gained 131% percent over the past year.

Full Disclosure: None.