McDonald's awful November results set stock up for worst day of 2014
McDonald's (MCD) had a horrible month in November, with sales down in all three of its major regions including a stunning decline in the U.S. Shares were slumping as those results combined with details on how the strong dollar will dent its profits to send traders to the door.
Overall global same-store sales fell 2.2% in November, worse than the 1.7% decrease analysts had estimated, Consensus Metrix said prior to the news. Especially notable was the U.S., where monthly comparable sales slid 4.6%, more than double the 1.9% downward reading that was projected and the worst single month in years for the Oak Brook, Ill., burger seller. Europe's 2% retreat was slightly worse than the 1.9% drop that had been forecast there, while the Asia-Pacific, Middle East and Africa market continued to be hurt by a China supplier investigation that took place over the summer, falling 4% vs. the 3.8% that was anticipated.
But those regions were a side note to the difficult-to-grasp U.S. results, which McDonald's blamed on "strong competitive activity." In response to the sales, McDonald's reiterated a summary of what it's been saying for months about its plans to win with customers, including new marketing, a simpler menu and a greater focus on local operators. Thus far, it would appear this isn't working.
At the same time, lower gas prices, seen as benefiting many restaurants of late, either isn't helping McDonald's or hasn't helped it enough to offset diners going elsewhere. McDonald's American operations, home to more than 14,000 of its 35,000 total stores, had its seventh straight negative same-store sales number and 12th in the last 13 months. Guest traffic at the world's biggest public restaurant operator has been in decline. A new effort to use social media to connect with the public, via a video series and question-and-answer campaign, also doesn't seem to be producing measurable results yet.
Recently, the stock was losing 3.2% to $93.22, meaning it has a chance to record its most pronounced daily loss of the year by far. To this point, that was a 1.7% off day in October, according to FactSet.
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The question is whether this will have any lasting impact on how traders perceive McDonald's. It remains a giant business with millions of daily customers, and Wall Street has been reluctant to avoid it for long despite ongoing concerns about the business. It peaked above $103 this year, an all-time high, then fell to a 52-week low after the China setback. However, only recently it had risen back to trade even on the year at around $97.
Still, yet another problem for McDonald's is the stronger dollar. For the fourth quarter, results of which should be available in January, the increase in the dollar is probably going to reduce earnings by 7 cents to 9 cents a share. Currency conversion is always an issue for McDonald's and any global enterprise, though that's not an insignificant deduction. Meanwhile, the ongoing issues in China will probably be another 7 cents to 10 cents taken from earnings per share. Analysts currently have a consensus estimate of $1.27, FactSet shows.
Europe was held back last month by two of McDonald's largest countries on the continent, with weakness in France and Germany. It also saw weak results in Russia, where dozens of stores were closed this year. The U.K. was positive, but that wasn't enough.
As for the Asia-Pacific, although at large it was down, Australia was positive. Other bright spots in the dreary month were Latin America and Canada.
