McDonald’s Corporation (NYSE: MCD) reported its second quarter 2024 results on July 29, revealing a challenging period for the fast-food giant. The company faced headwinds across all segments, resulting in a decrease in global comparable sales and a dip in earnings per share. Despite these challenges, McDonald’s executives remained cautiously optimistic about the company’s long-term prospects.
Q2 Performance
McDonald’s reported a 1.0% decrease in global comparable sales, with negative results across all segments:
- U.S.: -0.7%
- International Operated Markets: -1.1%
- International Developmental Licensed Markets: -1.3%
Consolidated revenues were flat at $6.49 billion, increasing 1% in constant currencies. Diluted earnings per share decreased 11% to $2.80, or $2.97 excluding special charges, representing a 6% decline in constant currencies.
Opportunities
Despite the challenging quarter, McDonald’s management highlighted several key opportunities:
1. Value Leadership: The company is focusing on reasserting its value proposition, particularly in markets like the U.S. where it has lost some ground.
2. Digital and Loyalty Growth: McDonald’s reported strong growth in its loyalty program, with 166 million members and $26 billion in systemwide sales to loyalty members over the trailing twelve months.
3. Menu Innovation: The company is expanding its chicken offerings and introducing new items like the “Big Arch” burger in select international markets.
4. International Expansion: McDonald’s remains committed to its goal of 50,000 restaurants by 2027, with a particular focus on markets like China.
5. Operational Improvements: Initiatives like “best burger” are enhancing food quality and customer satisfaction.
Challenges
McDonald’s faces several challenges in the current economic environment:
1. Economic Pressures: Low-income consumers and families are reducing restaurant visits due to economic strain.
2. Industry-wide Slowdown: The quick-service restaurant sector is experiencing negative trends in major markets.
3. Competitive Pricing: Markets like France and China are seeing intense price competition.
4. Value Perception: The company needs to improve its value perception while maintaining profitability.
5. Geopolitical Issues: Ongoing conflicts in the Middle East continue to impact certain markets.
Sentiment
Executive Sentiment:
CEO Chris Kempczinski expressed cautious optimism, acknowledging the challenges but emphasizing McDonald’s ability to overcome them. CFO Ian Borden provided a realistic but confident outlook, highlighting the company’s financial strength. U.S. President Joe Erlinger focused on specific initiatives and their early positive results, particularly regarding the $5 meal deal in the U.S.
Analyst Sentiment:
Analysts on the call appeared cautious to mildly concerned, particularly about negative comp sales and the effectiveness of value initiatives. However, they seemed interested in understanding the company’s strategies for improvement.
Recent Analyst Ratings:
Following the earnings release, several analysts adjusted their ratings and price targets:
- TD Cowen downgraded McDonald’s from Buy to Hold, lowering the price target from $285 to $280.
- Deutsche Bank, KeyCorp, Bank of America, and Citigroup all lowered their price targets while maintaining their ratings.
- JPMorgan Chase & Co. lowered its price target from $290 to $270, maintaining an Overweight rating.
The average price target from recent analyst updates is approximately $295, suggesting a potential upside of about 11% from the current share price of $265.85.
