In the last three months, McDonald’s (NYSE:MCD) stock price has increased by more than 10% as the market sentiment turned positive towards the company. The burger giant is slated to declare its Q1 2017 earnings on April 25th and the consensus expectation is a decline in the top line compared to last year. However, the consensus EPS estimate is around 8% higher than the actual EPS of $1.23 reported by the company for Q1 2016. The EPS growth is expected due to the share repurchase program of the company.
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The consensus estimate is in line with our revenue estimates and we expect this decline to continue for the next few years (until 2020).
While McDonald’s is taking several steps to drive revenues especially moving towards healthier menu items, the overall weakness in the restaurant industry is likely to impact its revenue growth negatively.
According to insights from Black Box intelligence, which are based on weekly sales data from over 145 restaurant brands, the first quarter of 2017 has not been very encouraging for the restaurant industry. Comparable sales and traffic have declined year on year in both February and March, with January being the only exception, reporting flat comp growth year on year. Weakest restaurant segments in Q1 2017 are family dining and fast casual and this industry trend is likely to impact McDonald’s revenue growth.
McDonald’s is taking several steps to stay ahead of the competition and grow revenue in the crowded quick service restaurant space. Some of the key steps include:
- Rolling out its mobile-order and pay initiative in all 14,000 U.S. restaurants in the fourth quarter of this year.
- Introducing fresh patties in its quarter pounder burgers by the middle of 2018. (Read A Closer Look At McDonald’s Next Big Change)
- Tracking customer data to provide more personalized service. (Read Here’s Why McDonald’s Is Looking To Track Customer Data)
However, the benefits of these initiatives should be visible starting the end of 2017 and more in the next few years. For Q1 2017 we do not expect the company to spring any surprises in terms of revenues and EPS. Below is a summary of McDonald’s key performance metrics for the past four quarters:
For more details on the company refer to our complete analysis of McDonald’s.