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McDonald’s Q2 Results Preview: An Insight into Consumer Trends Amid Inflationary Pressures

McDonald’s Corporation (NYSE:MCD) is set to announce its Q2 results tomorrow morning, which will be followed by an earnings call at 8:30am ET. The last time the fast food giant released its results was at 7:00am ET, which has been the norm in recent quarters. This earnings release is particularly awaited, given the company’s strong Q1 performance, with a large EPS beat accompanied by solid revenue growth.

According to FactSet, consensus estimates predict a year-over-year growth of 9% in Q2 adjusted EPS, translating to $2.78. Revenue is projected to show an increase of 10% to reach a total of $6.30 billion compared to the previous year. If the corporation meets these expectations, it would mark yet another strong quarter for the fast-food titan.

Prior Performance and Standout Trends

In Q1, McDonald’s exhibited an impressive global same-store sales growth (comps) of +12.6%, outperforming analysts’ expectations for the fifth consecutive quarter. This was particularly remarkable as it was on the back of already robust +11.8% comps in the prior year. US comps echoed this positive trend with a figure of +12.6%, demonstrating a promising acceleration from +10.3% in Q4 and +6.1% in Q3.

As McDonald’s moves into Q2, the firm will be lapping global comps of +9.7% and US comps of +3.7%, both challenging figures to surpass. However, given the encouraging trend, the company could well continue to surprise on the upside. It’s worth noting that the consistent uptick in US comps has been driven by menu price increases and positive comparable guest count growth. Moreover, effective marketing campaigns showcasing their core menu have given a significant boost to comps in Q1.

Potential Headwinds and Areas of Focus

Despite the robust top-line growth and impressive comps, the company noted that the operating margin was slightly below its internal forecasts. McDonald’s attributed this to inflationary pressures that surpassed its expectations, specifically concerning food, paper, and labor costs. Hence, investors will eagerly anticipate an update on the company’s inflation outlook for the second half of 2023 during the earnings call.

McDonald’s has a consistent track record of outperforming EPS estimates, with upside surprises in 8 of the last 9 quarters. The first quarter of this year saw an especially strong beat, which marked the third consecutive quarter of double-digit EPS beats.

Insight into Consumer Trends and Comparative Performance

Given its status as one of the first major fast-food chains to report earnings, McDonald’s earnings release is likely to offer a valuable snapshot into consumer behavior and industry trends. Other fast food players, including Domino’s Pizza (DPZ), Chipotle Mexican Grill (CMG), Wingstop (WING), Yum! Brands (YUM), Papa John’s (PZZA), Wendy’s (WEN), and Jack in the Box (JACK), are all slated to announce their earnings results soon, which should provide a more comprehensive picture of the sector’s performance.

Stock Performance and Future Outlook

Since the company’s shares rallied in April, they have traded sideways. While the stock price frequently flirts with the $300 level, it hasn’t quite managed to breach this threshold. The outcome of this earnings release could either provide the momentum needed to push through this level or continue the ongoing range-bound movement.

In conclusion, investors and industry analysts are keenly looking forward to McDonald’s Q2 results, which will serve as a litmus test for how well the fast food industry is coping amid inflationary pressures and changing consumer behavior. Not only will this report offer insights into the corporation’s financial health, but it will also provide a broader understanding of the fast food sector and consumer trends. This is especially relevant as the economy continues to recover from the unprecedented disruptions caused by the pandemic.




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