McDonald’s Soars as Inflation Persists: Impressive Sales and Profit Estimates showcased

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McDonald‘s, the world’s largest fast food chain, has definitely been making the rounds recently. The company’s stock price has been steadily increasing despite persisting inflationary pressures in the global economy. In their latest earnings report, McDonald’s has showcased impressive sales and profit estimates, indicating its strong financial health.

The growth of McDonald’s is remarkable, given the unprecedented economic climate that has put other companies on a shaky footing. But the company’s resilience has allowed it to not only keep its head above water but also to gain traction in an otherwise tumultuous market. McDonald’s has already seen a 26.4% appreciation in its stock price over the past year and has recently raised its profit estimates for the upcoming quarter. The company’s success story is proof that, regardless of the economic state, with strategic business strategies and a strong customer base, a business can still be successful.

McDonald’s Corp quarterly profit and sales above Wall Street estimates on Tuesday increased due to higher menu prices and consumer visits, but shares plunged when the burger chain cautioned inflation will balance on margins in 2023.

Shares of the burger chain plunged about 2.6% to $263.84 in the U.S. trading, after gaining about 6% in the previous 12 months.

Investors are looking to harbingers like McDonald’s for any indications its customers are paring back expenditure. Consumer demand is key to establishing whether the Federal Reserve’s monetary tightening will improve and cool the U.S. economy without triggering a recession.

In general, the consumers, whether it’s in the U.S. or Europe are essentially holding up better than what the company would have anticipated a year ago or 6 months ago, Chief Executive Officer, Chris Kempczinski said in a call with investors.

Nevertheless, he added the Big Mac maker still anticipates a mild to moderate U.S. recession this year, with a greater, extended recession in Europe.

Profit margins at company-operated restaurants were about 15% in the quarter as of higher energy, labor, and commodity costs. The company said that for the full year of 2023, company-operated margins will come in marginally lower than that.

McDonald’s is also the first major global restaurant brand to show up quarterly earnings so far this year.

Investors are expecting that as costs for dairy, butter and other ingredients start to drop, some chains could estimate more profitable restaurant operations this year.

McDonald’s profits will also be compelled this year by its plans to invest up to $2.4 billion in capital expenditures, about half of which will go to construct 1,900 new restaurants across the globe.

Some of those will fund a massive U.S. expansion, the food chain’s first in 8 years.

But investors can ‘digest that and then start looking to 2024, and the prospective to really leverage McDonald’s earnings growth, said Gretchen Novak, senior portfolio manager at Charles Schwab, which holds around 0.71% of McDonald’s shares.

Prices and traffic

Like other fast-food chains, Chicago-based McDonald’s lifted the prices of its burgers and fries the previous year to keep up with surging labor and commodity costs.

The price hikes did not deter consumers. Customer footfalls increased by 5% for the full year 2022, McDonald’s disclosed on Tuesday, as its meals remained less expensive than many competitors, illustrating low-income consumers.

Low-income consumers are spending less with every McDonald’s visit, but eating there more frequently, Kempczinski said.

By the third quarter, McDonald’s menu prices were 10% higher than the previous year. It did not offer a revise on higher menu prices on Tuesday.

The chain launched Cactus Plant Flea Market Box – an adult version of its Happy Meal for kids – with menu items including its Big Mac and Chicken McNuggets, aiding its post-better-than-expected U.S. sales.

‘‘McDonald’s is in the right place at the right time for being a market share gainer in this environment,’’ said Kevin McCarthy, Senior Vice President at Neuberger Berman.

According to data from Refinitiv, McDonald’s fourth-quarter global same-store sales also struck estimates with a 12.6% rise, compared with the average analyst estimate of an 8.6% rise.

The company described a profit of $2.59 per share, a rise of 16%. Analysts on average anticipated a profit of $2.45.

McDonald’s U.S. comparable sales soared 10.3% in the quarter that ended Dec. 31. Global revenue declined 1% to $5.93 billion due to the impact of the greater U.S. dollar against foreign currencies while in constant currencies, revenue increased 5%.

McDonald’s Q4 earnings top estimates; anticipate inflationary demands to persist in 2023.

McDonald’s Corp reported a fourth-quarter FY22 sales decline of 1.4% year-on-year to $5.93 billion, defeating the consensus of $5.69 billion.

Is McDonald’s stock outpacing its retail-wholesale peers this year?

McDonald’s is one of 226 businesses in the Retail-Wholesale group. The Retail-Wholesale group at present rests at #13 within the Zacks Sector Rank. The Zacks Sector Rank comprises 16 different groups and is recorded in order from best to worst in terms of the average Zacks Rank of the companies within each of these sectors.

The Zacks Rank is a proven system that emphasizes earnings estimates and estimates amendments, emphasizing a range of stocks that are demonstrating the correct attributes to defeat the market over the following one to three months. McDonald’s is at present displaying a Zacks Rank of No.2 (Buy).

One more Retail-Wholesale stock, which has outpaced the sector this year, is Wayfair (W). The stock has restored 78.4% year-to-date.

In the previous three months, Wayfair’s consensus EPS estimate for the current year has soared by 7.9%. The stock currently has a Zacks Rank #2 (Buy).

To draw a clearer picture, McDonald’s has its place in the Retail – Restaurants industry, a group that contains 41 individual companies and at present lies at No.152 in the Zacks Industry Rank. This group has missed an average of 2.7% so far this year, so MCD is working well in this area.

Though, Wayfair belongs to the Internet – Commerce industry. At present, this 42-stock industry is ranked #40. The industry has shifted -31.7% so far this year.