McDonald’s Growth Momentum Continues, Reports Strong Q3 2017 Results

by Trefis Team
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McDonald’s (NYSE:MCD) reported its Q3 2017 results on October 24th and the company registered a 6% increase in global comparable sales driven by positive guest counts indicating that its growth momentum is continuing. The company met analyst expectations for both revenues and EPS (earnings per share) despite concerns around the recent hurricanes impacting the company’s sales.

Despite a slow industry environment, McDonald’s has achieved strong comparable sales growth, much higher compared to competitors. According to the company’s analysis it has achieved a 440 basis points comp sales gap compared to other quick service restaurant sandwich competitors.  This is the company’s second consecutive quarter of positive guest count and it has been able to successfully attract this increased traffic towards its premium, high margin products. Further, targeted mobile offers via the company’s app have been successful since these are personalized based on the customer’s unique buying preference. McDonald’s strategy of offering a combination of value products and premium products and personalized service appears to be working, resulting in strong comparable sales growth.

As the company moves towards its goal of a nearly 95% franchised entity it is witnessing a significant improvement in profitability. After the successful completion of the sale of their business in China and Hong Kong, the company now has 91% franchised restaurants and franchise margins comprise more than 80% of its total restaurant margins.

Below is a summary of McDonald’s financial performance for Q3 2017:

 

The significant increase in net income and EPS during Q3 2017 is due to a special gain of $0.56 in EPS due to sale of the company’s business in China and Hong Kong.  The company has been able to significantly improve its operating income as it moves towards a predominantly franchised model.

Hurricanes Harvey and Irma don’t appear to have any significant impact on the company’s financials in Q3 2017.

McDonald’s future outlook looks positive as the company’s “velocity drivers” are delivering results.  Focus on “gourmet” products which encourage customers to shift towards high margin products, value offerings, and personalized promotions using technology are driving sales. McDonald’s is on track to launch its mobile ordering system in 20,000 restaurants by the end of this year and its Experience of the Future stores are likely to drive traffic going forward.

We will be updating our model for McDonald’s based on these results which might lead to a change in our price estimate for the company.

 

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