McDonald’s Corporation (MCD) is poised to end a terrible 2014 with its worst performance in 30 years when it reports fourth-quarter earnings at the end of the week. Hopefully, MCD stock has already discounted the news.
McDonald’s earnings are forecast to include the first decline in domestic systemwide sales in at least three decades, according to an analysis by Nation’s Restaurant News.
The trade journal says MCD will report a decline in systemwide sales of between 1.5% and 1.9% if the pace it set in November holds up. Systemwide sales in the U.S. dropped 3.7% in November. For the year-to-date through the end of November, domestic systemwide sales slipped 1.1%.
McDonald’s stock is off about 4% for the last 52-weeks, which is remarkably resilient given the fast-food chain’s ongoing struggles. Weak consumer spending and increased competition from the likes of Chipotle Mexican Grill (CMG), Burger King (BKW) and Sonic (SNC), among others, have put McDonald’s sales into a deep funk.
If McDonald’s stock is to have a better year ahead, it won’t be because of anything that happened in the final quarter of 2014.
MCD to Post Declining Profit, Sales
Analysts, on average, expect McDonald’s earnings to fall to $1.23 per share from $1.40 per share in last year’s fourth quarter, according to a survey by Thomson Reuters. Revenue is projected to fall a painful 5.5%.
MCD has attacked the problem of falling sales and market-share loss on a number of fronts. Indeed, it’s impossible to miss MCD’s new primetime TV advertising campaign. MCD also made multiple changes to the menu, cutting eight items and reducing the number of extra value meals from 16 to 11 in order to boost speed an efficiency. The hamburger chain is even experimenting with self-serve touchscreen ordering and build-your-own customized burgers.
The problem with all these initiatives is that, even if they’re successful in arresting sliding sales at McDonald’s, they’ll take time.
Furthermore, it’s not clear they can work at all. American consumers are increasingly health conscious, which pulls traffic from MCD and sends it to places perceived as being fresher and healthier, like Chipotle. Meanwhile, the primetime TV ads have backfired to some extent, as consumers have taken to social media to voice their discontent with the campaign and MCD’s food.
Getting back to the most recent quarter, there is hope that McDonald’s stock could get a boost from McDonald’s earnings if only because its missed Street forecasts for three consecutive quarters. If McDonald’s earnings can beat analysts’ estimates, then shares should get a short-term pop.
But that’s a trade, not an investment, and as far a being a long-term holding, the world just might be leaving McDonald’s stock behind. The massive chain generates tremendous profits and cash, but consumer sentiment — such as it is now — makes growth impossible.
Until McDonald’s gets sales growing again, MCD stock will continue to tread water.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
