McDonald’s (NYSE: MCD) stock is gaining ground in Monday’s trading. The fast-food giant’s share price was up 4.5% as of noon ET, amid the backdrop of a 0.5% gain for the S&P 500 (SNPINDEX: ^GSPC) and a 1.1% gain for the Nasdaq Composite (NASDAQINDEX: ^IXIC).
McDonald’s reported its fourth-quarter results before the market opened this morning, and sales and earnings performance for the period actually came in below expectations. But despite missing Wall Street’s top-line and bottom-line targets, the business showed signs of improvement in key areas — and management outlined strategies that have investors feeling bullish.
In last year’s fourth quarter, McDonald’s posted non-GAAP (generally accepted accounting principles) adjusted earnings per share of $2.83 on sales of $6.39 billion. For comparison, the average analyst estimate had called for the business to post adjusted earnings per share of $2.86 on revenue of $6.48 billion. Overall revenue was down 0.3% year over year in the period, and adjusted earnings per share were down 4%.
Despite the sales decline, investors are finding some bright spots in the revenue composition. While same-store sales in the U.S. declined 1.4% compared to the prior-year period due to a decline in spending per check, sales for the international operated markets segment actually increased 0.1% — coming in far better than the roughly 1.1% decline forecasted by Wall Street. Meanwhile, revenue for the international developmental licensed markets segment increased 4.1% year over year — far better than the roughly 0.4% decline called for by the average Wall Street estimate.
While McDonald’s has seen some persistent challenges related to an E. coli outbreak last year, management expects that these issues will be in the rearview mirror by the second quarter. As a result, profitability is expected to see a significant improvement.
McDonald’s says that it will continue to focus on building out its digital ordering platform and prioritizing value-oriented menu offerings. On the other hand, the company says that it’s already seeing improvements for average check amounts and customer traffic in the U.S. and other markets.
The company anticipates that the impact of menu and digital ordering initiatives and improving trends for check size and customer traffic will deliver results improvements that really start to show up in the second quarter. With McDonald’s stock up just 6% over the last year despite a 21% rally for the S&P 500 index, the company’s share price could have room to run if trends shape up in line with management’s expectations.
