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What to expect from McDonald's earnings

Heidi Chung
This Feb. 14, 2018, file photo shows a McDonald’s restaurant in Ridgeland, Miss. McDonald’s shares are declining on signs that its value menu may be falling flat with customers. (AP Photo/Rogelio V. Solis, File)

McDonald’s (MCD) will report third-quarter financial results before the market open on Tuesday. Wall Street analysts and investors will be paying close attention to same-store sales growth and performance of operational and technological initiatives.

Analysts polled by Bloomberg are expecting the burger giant to report 3.7% same-store sales growth globally, driven by 4.4% growth in international markets. US same-store sales expected to grow 2.5%. Revenue is expected to come in at $5.29 billion and earnings are expected to come in at $1.99 per share.

Shares of the fast-food chain have been struggling this year and have been underperformed the broader market. McDonald’s stock has fallen about 4% so far in 2018 versus the S&P 500 (^GSPC), which has risen about 2.5% in the same time period.

McDonald’s beat earnings expectations in the second quarter, but revenue was soft as the company continued to push its strategic refranchising initiatives, according to the company.

Same-store sales or comp sales, a key metric for restaurant companies, will be in focus as McDonald’s looks to continue its 12 consecutive quarters of positive same-store sales growth. Some analysts on Wall Street are expecting positive international growth but weaker US growth.

“We expect the upcoming Q3 report to be largely supportive of our constructive thesis on MCD, given prospects for solid global comps (led by international) and for management to provide greater visibility on the transitory headwinds to U.S. comps from remodeling activity, allowing investors to better understand the underlying trajectory of the business,” Baird analyst David Tarantino said in a note to clients.

Baird currently has an Outperform rating on McDonald’s and a price target of $195 per share, which is about a 16% move higher from Monday’s opening price.

Furthermore, Evercore ISI echoed Baird’s expectation of continued strength overseas and weakness in US comp sales.

“We expect continued comp strength in the Int’l Lead segment, although labor and expense growth could limit margin upside, with FX now a headwind to profit. We expect a 2.25% US comp (consensus is 2.5%, and buy-side likely closer to 2%) and $1.93 in EPS ($(0.07) lower than consensus on lower comp and the exclusion of refranchising gains.),” Matt McGinley of Evercore ISI said in a research note.

Additionally, performance of operational initiatives such as breakfast and fresh beef, and technological initiatives such as mobile order and pay will also be on analysts’ radars.

“Based on geolocation data, we believe McDonalds’ breakfast share losses accelerated through the summer…while the chain was able to course-correct somewhat in March, with a national 2 for $4 breakfast sandwich promotion, the Company acknowledged that its struggles continued into 2Q. With this as a backdrop, we see further deterioration in our data in 3Q,” KeyBanc analyst Eric Gonzalez explained.

McGinley was also constructive on McDonald’s more recent initiatives. “Given the size of the US system, we are reluctant to echo some of the arguments made late last year on how remodels, delivery, mobile order, value, fresh beef, and other initiatives will all neatly stack up in unison to create something like a 5% comp for a number of years.”

Heidi Chung is a reporter for Yahoo Finance. Follower her on Twitter: @heidi_chung.

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