McDonald’s Q1 revenue and earnings managed to beat estimates. Nevertheless, the stock ran into significant resistance.
Why is it important?
McDonald’s reported earnings of $1.78 per share versus the forecast EPS of $1.73. Revenue of $4.955 billion exceeded the consensus estimate of $4.9 billion. Same-store sales jumped by 5.4%.
The company’s results for Q1 look impressive enough. The chain is now in a good position to show decent results this quarter. Earnings could have been higher if not for the negative currency effects.
The key factor of success was in successful promotions such as “Bacon Hour” that gave away free bacon to customers with any order. Nevertheless, problems remain. The biggest challenge is that McDonald’s keeps struggling with falling traffic in the United States. To deal with the situation, the company is simplifying menus and upgrading equipment. In particular, in Q1 McDonald’s announced deals with tech companies Dynamic Yield and Plexure. According to the chain’s management, the renovation of restaurants is already paying off. In addition, McDonald’s delivery business generates good sales with the bigger average check. There will be potential for further increases in sales if the company abandons its exclusive deal with Uber Eats and makes arrangements with other partners as well.
The management is certainly acting wisely and these actions will bear fruit in the longer run. However, in the medium term, this would certainly mean higher expenses. Earlier, the company said that those expenses would decline by 4% in 2019, but now it expects them to be unchanged from the last year.
The stock rose to a record high above $200 but then slid down to $194 area. The inability of buyers to overcome this level limits the upside potential. The price is vulnerable for the decline to $191 and $188.