Why McDonald’s 3Q14 earnings were disappointing

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Dec. 4 2020, Updated 10:50 a.m. ET

Earnings per share (or EPS)

McDonald’s third quarter earnings were released on October 21, 2014. It reported a diluted EPS of $1.09. It declined by 28%—compared to an EPS of $1.52 in the same quarter last year.

During the earnings call, management stated that the EPS declined due the issue with the Chinese supplier, higher tax rates, and store closures in the markets in Ukraine and Russia. We’ll discuss these specific events in more detail later in this series.

The company reported an operating income of $2.1 billion—a 14% decline from $2.4 billion in the same quarter last year. Operating profit margins also declined to 29.7%, from 33%, as a percentage of sales. We’ll discuss the financial performance in more detail later in this series.

Company overview

McDonald’s (MCD) is a fast food, limited service restaurant. It has more than 35,000 restaurants in over 100 countries. It employs more than four million people. McDonald’s serves 70 million customers per day. This is greater than France’s population.

According to IBISWorld, McDonald’s had the largest share in the fast food restaurant industry in 2014. Its share was 17% in the U.S.

Competition

In the U.S., McDonald’s competes with fast food chains like Kentucky Fried Chicken (or KFC)—under the umbrella of Yum! Brands (YUM), Burger King (BKW), and Wendy’s (WEN).

If you want to invest in a diversified restaurant portfolio, you could consider an exchange-traded fund (or ETF) like the Vanguard Total Stock Market (VTI).

Quarterly overview

In this quarterly overview, we’ll take a look at the earnings and strategic changes or tactics that McDonald’s management discussed during the earnings call.

We’ll also discuss key value metrics—like same-store sales and unit growth. We’ll analyze the company’s financial performance, how the market reacted to the earnings, and McDonald’s year-to-date (or YTD) stock performance.

This will help you understand the company. It will also help you make investment decisions. In the next part of the series, we’ll discuss the most important revenue driver—same-store sales.

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