McDonald's is set to report tomorrow morning before the bell with a conference call scheduled shortly thereafter.

Capital IQ EPS consensus: 1.16 Capital IQ Rev consensus: 5.82 bln

  • MCD last quarter showed -3.5% YoY Rev growth which was better than the previous quarters. This improvement is necessary to maintain this high multiple investors are giving the stock. 
  • They also guided to 0.71 EPS guidance so it will be interesting to see if they still honor this.
  • Results last quarter gave an 0.08 upside surprise. The bar is set high for this Big Mac.

Few companies are as well-known the world over as McDonald's. The Dow component has been a standout stock, with its management team orchestrating an encouraging turnaround effort that has featured the introduction of All Day Breakfast. Come Friday morning market participants will be anxious to hear how that turnaround effort is progressing when McDonald's reports its first quarter results. 

McDonald's First Quarter Earnings Report (before the open)

  • Company's stock is widely held by retail and institutional investors and is a Dow 30 component
  • Company, including franchisees, is one of the largest employers in the U.S., so what it says about wage trends will carry some influence in terms of affecting inflation expectations and profit margins for industry peers and other services-providing companies
  • McDonald's is a multinational company, deriving close to 70% of its 2015 revenue outside the U.S., so it provides telling insight on global consumer spending activity and the impact of foreign exchange
  • Shares of MCD are up 8.3% year-to-date, outperforming the Dow Jones Industrial Average and S&P 500 by a wide margin.  The outperformance reflects heightened expectations for encouraging results and guidance out of McDonald's. Failure to deliver on those expectations could prompt a material drop in its stock price.
  • What McDonald's said when it reported fourth quarter earnings in January
    • Fourth quarter comparable sales increased 5.7%, benefiting from the October launch of All Day Breakfast and, to a lesser extent, unseasonably mild weather
    • As we enter 2016, we expect continued positive top-line momentum across all segments
    • Expects FY 2016 G&A to decrease 2% in constant currencies
    • Anticipates limited pricing power in several of its markets due to a relatively benign commodity outlook and low inflation outlook that could impact its ability to increase menu board
    • For 2016, expects capital expenditures of approximately $2 billion

Comp Trends from Last Quarter

  • Q4 comps of +5%
  • Largest contributor to comps performance was the 4.2% increase from its International Lead Markets segment
  • The High Growth markets reported comps of 3% 
  • U.S. reported a comps increase of 5.7%
    • First full quarter of All Day Breakfast and unseasonably mild weather were drivers of increase

Other restaurant companies impacted:  YUM, WEN, JACK, QSR, PNRA, SHAK, BOJA, CMG

Related specialty restaurant companies: SBUX, DNKN

Consumer Discretionary Select Sector SPDR (XLY)... MCD is fifth largest holding at 4.89% of assets