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McDonalds Stock (MCD) Rallies Despite Miserable Q1 Earnings

An as-yet-unspecified turnaround plan will be unveiled on May 4. Hold the applause.

McDonald’s Corporation (NYSE:MCD) stock popped in early trading on Wednesday, rising about 2%, even after reporting a largely disappointing quarter in which earnings and same-store sales whiffed on expectations.

McDonalds Stock MCD Rallies Despite Miserable 1Q EarningsIt’s a welcome reprieve for investors, who have watched in agony as McDonalds stock miserably underperformed the S&P 500 over the last one- and five-year periods.

The systemic troubles facing MCD stock — slumping same-store sales, currency headwinds and increasing competitive pressures being the most prominent — raised their ugly head again Wednesday, but Wall Street chose to turn a blind eye.


Don’t Worry Folks, There’s a Turnaround Plan

In late January, former MCD CEO Don Thompson announced his retirement, a move that sparked an immediate 4% rally in McDonalds stock. New CEO Steve Easterbrook took the helm on March 1, bringing his experience as chief brand officer to a struggling chain in dire need of … well, some re-branding.

In other words, McDonald’s earnings don’t really reflect Easterbrook’s touch, as he was only running things for a month in the most recent quarter.

That’s good for investors in McDonalds stock, because in a world where fast-casual restaurants like Chipotle Mexican Grill, Inc. (NYSE:CMG) are mopping up — and fast-food peers like Wendys Co (NASDAQ:WEN) and Yum! Brands, Inc. (NYSE:YUM) are launching increasingly effective assaults on its business — no one in their right mind would want to take responsibility for this last quarter.

While revenues were in line at $5.96 billion, EPS numbers missed conclusively, coming in at an adjusted $1.01 vs. consensus expectations of $1.06 per share. But what’s far more troubling for McDonalds stock price going forward is the woeful slump in same-store sales, or comps. As recently as 2012, SSS were growing at an annualized pace above 10%.

They’ve fallen sharply since then, showing no sign of recovery. Global comps were off by 2.3% globally and 2.6% in the U.S., against consensus expectations for a mere 2% fall in both categories.

To make things worse, there seems to be no reprieve in sight for McDonalds stock, which saw global comps decline at an accelerated 3.3% pace in March; needless to say, they’re expected to fall again in April.

Oh, and revenues also fell 11% year-over-year.

So why exactly is McDonalds stock rallying in the face of this overwhelmingly negative quarter?

Well, branding wunderkind and fresh-faced CEO Steve Easterbrook waxed philosophical about a turnaround plan, of course. From McDonald’s earnings release:

“McDonald’s founder, Ray Kroc, made a statement about our business that is as relevant today as it was 60 years ago: ‘Take calculated risks. Act boldly and thoughtfully. Be an agile company.’ McDonald’s is employing these timeless business philosophies as we embark on a turnaround to drive momentum in our business. We are committed to making McDonald’s a modern, progressive burger company delivering a contemporary customer experience.”

Whatever that means.

The details of the plan to revive McDonalds stock will be unveiled on the morning of May 4.

But unless the announcement outlines a plan to sell Chipotle burritos, color me skeptical that these newfangled plans can achieve anything more than outgoing CEO Don Thompson could do during his tenure.

As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/mcdonalds-stock-mcd-rallies-despite-miserable-q1-earnings/.

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