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McDonald’s Is Still Concerned about the Strengthening Dollar

Ralph Nathan

McDonald’s Is Ready to Post 4Q15: Will the Chicken Sandwich Help?

(Continued from Prior Part)

Revenue from business segments

In 3Q15, McDonald’s (MCD) earned 66.9% from international markets and 33.1% of its revenue from US markets. The fluctuation of the dollar against other currencies will most likely affect the company’s revenue.

Effects of a strong dollar

In 3Q15, McDonald’s overall revenue decreased by 5% compared to its 4Q14 revenue. However, compared with constant currencies, overall revenue increased by 7%.

Comparing individual segments, we see that the revenue generated from international lead markets declined by 11%. When compared to constant currencies, revenue increased 4%. Similarly, strengthening of the dollar has decreased the value of revenue generated from high-growth markets and foundation markets and corporate. The strength of the dollar negatively impacted EPS (earnings per share) by $0.17.

4Q15 and 2016 expectations

The strengthening of the dollar in 4Q15 could negatively affect revenues generated by McDonald’s from international markets. Analysts at Goldman Sachs stated that monetary easing methods adopted by the European Central Bank and the Bank of Japan to battle deflation have strengthened the dollar. The increase in interest rates by the Federal Reserve has also contributed to the strengthening of the dollar. Goldman Sachs expects the dollar to rise by 20% in the next three years.

In the next part of this series, we’ll look at factors that are driving McDonald’s (MCD) revenue.

You can gain exposure to McDonald’s by investing in ETFs such as the iShares Global Consumer Discretionary ETF (RXI). RXI has invested more than 3% of its portfolio in McDonald’s and also has holdings in Starbucks (SBUX), YUM! Brands (YUM), and Chipotle Mexican Grill (CMG).

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