McDonald’s (NYSE:MCD) will announce its Q1 earnings on April 20, 2012. Revenues are likely to see healthy growth buoyed by strong comparable restaurant sales growth in the U.S. in 2012 and a growing presence internationally, especially in China. Margins should witness a slight improvement helped by a greater mix of franchised restaurants. McDonald’s competes with Yum! Brands (NYSE:YUM), Subway, Starbucks (NASDAQ:SBUX), Wendy’s (NYSE:WEN), Chipotle Mexican Grill (NYSE:CMG), among many others.

We have a Trefis price estimate of $99 for McDonald’s, which is slightly above the current market price.

See our complete analysis for MCD stock here

McDonald’s global comparable restaurant sales figures rose 6.7% and 7.5% in January and February, respectively. A regional break-up shows that the U.S. leads the pack with comp sales growth of 7.8% and 11.1% in January and February, respectively. McDonald’s was able to defy the popular notion that the company’s presence in the U.S. has saturated and only the international markets offer growth potential.^[1] Domestically, McDonald’s has been refurbishing its existing restaurants to make them appear more upscale and offer customers better overall dining experience. With new menu items added periodically, customers have a wider choice of premium products. For example, McDonald’s is experimenting with bakery products like muffins and cheese danishes at select outlets.

McDonald’s has also been able to increase footfalls in its restaurants by extending the restaurant timings. More than 89% of its restaurants in the U.S. open by 5 a.m. and 40% of its restaurants in the U.S. are open 24/7.

Internationally, APEMA (Asia Pacific, Middle East and Africa) continue to do well with the January comp sales growth figure standing at 7%, but the February number disappointed at 2.8%. Europe is beginning to see weakness as the European economy continues to struggle. For January as well as February, European comp sales could only manage a 4% growth in spite of a modest price increase in 2011.^[1]

Margins Could Rise

Restaurant margins depend on the mix of company-operated and franchised restaurants. Company-operated restaurants have margins one-fourth those of franchised restaurants; so a higher proportion of franchised restaurants can lead to higher overall margins, which can actually be misleading.

In 2012, the company plans to open 1,300 new restaurants, out of which 200-250 will be opened in China alone with a greater proportion being franchised. Currently, only 36 out of its 1,400 restaurants in China are franchised. McDonald’s has stated that it will ramp up franchising in the country, so we could see an overall increase in its profitability in 2012.^[2] However, comparing the margins on an individual basis – such as franchised EBITDA margins for 2012 vs. franchised EBITDA margins for 2011 and company-operated margins for 2012 vs. company-operated margins for 2011 – we do not expect any significant change.

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