McDonald's Tops Estimates On Earnings, Revenues, And Same-Store Sales

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The fast-food giant reported earnings of $1.38 per share and $6.95 billion in revenues, both above Wall Street estimates.

The company also reported global comp sales up 0.1 percent in Q4. Analysts were looking for a 0.3 percent decline.

While the main numbers look pretty good, McDonald's also noted that it sees top and bottom line growth remaining pressured going forward and that it expects January same-store sales growth to be negative.

The stock is unchanged from yesterday's close in pre-market trading.

Below is the full text from the release:

OAK BROOK, Ill., Jan. 23, 2013 /PRNewswire/ -- McDonald's Corporation today announced results for the fourth quarter and year ended December 31, 2012, reflecting higher revenues, operating income and earnings per share compared with the prior year.

"Throughout 2012 we concentrated our efforts behind the global priorities that represent our greatest opportunities under the Plan to Win — optimizing our menu, modernizing the customer experience and broadening accessibility to our Brand," said McDonald's Chief Executive Officer Don Thompson. "McDonald's continued to grow by remaining focused on what matters most to our customers, although our results reflect the impact of the challenging global operating, economic and competitive environment. Our overall performance is a testament to the underlying strength of our business and our dedicated System of franchisees, suppliers and employees who continue to drive toward our mission to become our customers' favorite place and way to eat and drink."

Full year 2012 highlights included:

• Global comparable sales increased 3.1%, with the U.S. up 3.3%, Europe up 2.4% and Asia/Pacific, Middle East and Africa (APMEA) up 1.4%
• Consolidated revenues up 2% (5% in constant currencies)
• Consolidated operating income increase of 1% (4% in constant currencies), with the U.S. up 2%, Europe down 1% (up 6% in constant currencies) and APMEA up 3% (3% in constant currencies)
• Diluted earnings per share of $5.36, up 2% (5% in constant currencies)
• Returned $5.5 billion to shareholders through dividends and share repurchases

Fourth Quarter highlights included:

• Global comparable sales increased 0.1%
• Consolidated revenues increased 2% (2% in constant currencies)
• Consolidated operating income increase of 4% (4% in constant currencies)
• Diluted earnings per share of $1.38, up 4% (5% in constant currencies)

McDonald's U.S. generated positive comparable sales and operating income results for the year despite ongoing economic and competitive pressures. Fourth quarter comparable sales increased 0.3% and operating income was relatively flat against strong prior year results. During the quarter, the U.S. focused on enhancing its value leadership position by balancing strong everyday value messaging with affordable and compelling premium menu options.

For the year, Europe delivered comparable sales and constant currency operating income growth despite ongoing economic uncertainty throughout the segment. During the fourth quarter, Europe's operating income rose 5% (up 7% in constant currencies) while comparable sales were down 0.6% due to negative comparable guest counts and strong prior year performance. The U.K. and Russia were key contributors to the segment's operating income performance for both periods. Emphasis on unique promotional food events, expanded value offerings and restaurant reimaging continued to provide an appealing customer experience and supported the segment's results.

For the year, APMEA generated positive comparable sales and operating income growth. APMEA's fourth quarter comparable sales declined 1.7% and operating income was flat (down 1% in constant currencies) against strong prior year results. Positive quarterly sales and operating results in Australia were more than offset by ongoing weakness in Japan and other markets. Throughout APMEA, consumers continued to respond to the segment's compelling value platforms, great tasting premium menu selections and relevant convenience.

Don Thompson continued, "As we begin the new year, our average annual long-term targets in constant currency remain intact: Systemwide sales growth of 3% to 5%, operating income growth of 6% to 7%, and return on incremental invested capital in the high teens. We believe these targets remain realistic and sustainable for a company of our size and maturity. In 2013, we plan to invest about $3.2 billion of capital to open between 1,500 - 1,600 new McDonald's restaurants and to reinvest in our existing locations, including reimaging more than 1,600 locations worldwide. We are confident that now is an opportune time to invest in our restaurant portfolio in ways that will yield value for all stakeholders in the future."

Don Thompson concluded, "Moving forward, we remain focused on seizing the long-term opportunities in the global marketplace by leveraging our competitive advantages. We have a brand advantage in convenience, menu variety and value, a resilient business model, and the experience and alignment throughout the McDonald's System to navigate the current environment. For the near-term we expect top and bottom-line growth to remain pressured, with January's global comparable sales expected to be negative."

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ORIGINAL: Minutes away from the release of the McDonald's fourth quarter earnings report, due out at 7:58 AM ET.

Analysts expect the fast-food giant to report earnings of $1.33 per share, down from $1.43 per share in the previous quarter.

Fourth-quarter sales are expected to come in at $6.898 billion, down from $7.152 billion in Q3.

In an earnings preview, Morgan Stanley analysts John Glass and Sushama Dasari write:

We’re not wild-eyed optimists, but do think we’re edging closer to an inflection point. Much like the last two Qs, the 4Q will have its challenges, including possible neg comps and commensurate margin pressure. However, with this Q and likely Jan comp outlook, we are now closer to the last known bad data points (Feb & Mar facing ~7.5% compares globally); then comparisons progressively ease, setting the stage for potential accelerated sales momentum. MCD still faces material challenges and must prove its new value efforts here and in Europe work, but the risk reward is becoming more positive.

Glass and Dasari have an "Equal-Weight" rating on the stock.

Deutsche Bank analysts Jason West and Justin Marshall raised their price target on McDonald's shares last week ahead of earnings to $101.00 from $91.76.

The analysts, who have a "Buy" rating on the stock, wrote:

We believe MCD’s absolute and relative performance will improve in 2013. Big Mac faced a “perfect storm” of headwinds in 2012, many of which are unlikely to repeat. These included a significant (and planned) step-up in G&A spend, an ~18c f/x headwind, limited new product intros in the US, and a broad-based retrenchment in consumer spending (globally) against difficult SSS compares. While it’s never easy sledding in fast food, we believe MCD’s EPS growth is posted to accelerate starting in 2Q as SSS, G&A, and f/x compares improve simultaneously. Buy.

Oppenheimer analysts Brian Bittner and Michael Tamas are not quite as optimistic. In an earnings preview, they write:

4Q12 results and the "tough" data points we envision through 1Q13 are unlikely to coat MCD with the secret sauce needed for material stock appreciation. The consensus "buy" argument is based on easing comparisons that begin in 2Q13. We agree with the logic, but '13 estimates still lack identifiable catalysts for upside, in our view. Even as sales laps will ease, concerning headwinds such as margin pressures, limited sales slack and lack of major share drivers remain a constraint to earnings growth. We will re-evaluate our thesis if probability and conviction for earnings upside improve in 2H13, but for now we remain confident in our "Perform" rating.

We will have the full release at 7:58 AM ET. Click here to refresh for LIVE updates >

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