No. 10: Arcos Dorados
Q2 Return: -18%
YTD Return: -28%
Investor: Josh Brown
¡Ay, caramba! Arcos Dorados (NYSE:ARCO) is the largest McDonald’s (NYSE:MCD) franchisee in the world, operating primarily in Latin America. It translates, unsurprisingly, to “Golden Arches,” but the stock has been far from golden this year.
Josh Brown still stands by the four key themes he mentioned in his ARCO stock recommendation: expanding consumer spending in Latin America; the ferocity of McDonald’s as a global brand; growth within a defensive sector; and the comeback potential for emerging-market equities in 2012.
What he didn’t foresee, though, was the fact that ARCO’s management is unable to communicate with shareholders and control expectations, so doubt for the company — which has only been public for a short time — was quick to grow when earnings reports weren’t up to par.
Arcos Dorados’s first-quarter earnings dropped 28% to just 12 cents per share — 6 cents less than analysts expected. That killed the stock and overshadowed the company’s 11.5% year-over-year (or 16.6% on a constant currency basis) increase in revenues.
Part of a reason for the recent struggles, though, is the fact the company has been forced to increase spending on restaurant openings until 2013 as part of its master franchise agreement with McDonald’s. Things could turn around at the end of that period, but for now, ARCO is the worst pick at nearly 30% YTD losses.