McDonald’s Beats Earnings Estimate… Or Did It?

While the company acknowledged a decline in revenue that made it miss revenue estimates, McDonald’s (NYSE: MCD) seemingly has the adjusted earnings per share estimate beat.

The restaurant giant recorded US$5.72 billion in revenue for Q2 2022, down from Q2 2021’s US$5.89 billion and missing the consensus estimate of US$5.82 billion. The firm is attributing the decline to its halted Russian operations.

“Our company-operated margin dollars for the quarter were also negatively impacted by our exit from Russia, which was a heavily company-owned market,” said CFO Kevin Ozan in the earnings call. He added that Russian operations, “represented roughly 2% of system-wide sales, about 7% of revenue and about 2% of operating income.”

Meanwhile, the company said that its adjusted earnings per share ended at US$2.55, up from last year’s US$2.37. This also beats the estimate of US$2.47.

However, a Twitter user questioned the company’s valuation, comparing it to a less diluted time in 2017 when the company recorded higher revenue but lesser adjusted earnings per share.

But simply put, the company is attributing this to the charges it incurred from its Russian exit.

“This adjusted EPS excludes $1.2 billion of charges related to our exit from Russia and a gain of $270 million from the sale of Dynamic Yield,” added Ozan. On a GAAP basis, the firm’s earnings ended at US$1.60 per diluted share compared to last year’s US$2.95.

Ozan added that “adjusted EPS was hurt by US$0.16 of currency as the dollar strengthened significantly in the second quarter,” which was double the amount the firm estimated back in Q1 earnings call.

Further down, the operating income also slide down year-on-year by US$979.3 million, leading the firm to end the quarter with a 35.4% operating margin from last year’s 45.2%. The company expects this to push back to the 40% range for the full-year earnings.

Net income also fell down to US$1.19 billion for the quarter from the US$2.22 billion it recorded in the comparable period last year.

The quarterly performance is still sustaining the effects of the COVID-19 pandemic, but the firm is optimistic about the resumption of consumer activity.

“What we’re now seeing in the US but also around the world is a little bit back to some normal channels as restaurants open up. So delivery is still a little bit elevated versus where it was pre-COVID, but drive-through percentages are pretty much back to where they were pre-COVID,” Ozan added.

The firm also said it continues to see a trade down among its consumers as they prefer “value offerings and fewer combo meals.”

“One of the most important things that we keep an eye on is, obviously, there are cost pressures, both on the commodity and labor side, but we have to balance that with continuing to provide value for our customers,” said Ozan.

McDonald’s last traded at US$257.09 on the NYSE.

Information for this briefing was found via McDonald’s and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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