Ahead of the Tape: McDonald's Growth Is Too Rare -- WSJ
October 21 2016 - 3:02AM
Dow Jones News
By Steven Russolillo
Judging from the share price of McDonald's Corp., all-day
breakfast can only do so much.
After a strong start to the year, shares of the world's largest
fast-food chain have fizzled since May along with those of many
competitors. Third-quarter results out Friday probably won't change
the trend.
Analysts polled by FactSet estimate earnings of $1.48 a share,
up 6% from a year ago. Revenue is anticipated to have slipped by
5.1% to $6.28 billion. And global same-store sales are expected to
have risen by just 1.3%.
While that would mark the fifth consecutive quarter in positive
territory after four quarters in the red, it also would be the
slowest pace of growth during its recent renaissance. Analysts at
Nomura are even more pessimistic based on their franchisee surveys,
saying same-store sales growth might struggle to stay positive.
McDonald's has implemented a number of changes under chief Steve
Easterbrook, who took the helm in March 2015. The move to all-day
breakfast, which began a year ago, was the biggest. It had an
immediate impact, fueling stronger growth and higher traffic in the
months that followed.
But even the most important meal of the day won't save
McDonald's from its bigger problems. Many consumers are gravitating
toward rivals offering fresher ingredients and custom-made meals.
As The Wall Street Journal reported earlier this month, only one in
five millennials has even tried a Big Mac. Many prefer gourmet
burgers.
More broadly, many dining chains are hurting from what some call
the "restaurant recession." Sales growth at food and drinking
establishments, including restaurants, has slowed markedly since
the beginning of 2015, according to the Commerce Department.
Average growth over a three-month period through September slowed
to 5.6% from a year ago, the lowest since spring 2014.
McDonald's shares have slumped 16% since May and currently trade
near their lowest level of the year. That could present a
short-term opportunity if results clear low expectations.
But gains might prove fleeting. Analysts expect same-store sales
growth to slow further in the coming quarters. Meanwhile, a
projected earnings multiple of 18 times is no bargain.
These arches aren't as golden as the used to be.
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
October 21, 2016 02:47 ET (06:47 GMT)
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