Will McDonald’s 2Q16 Earnings Beat Analysts’ Estimates?

So far in this series, we’ve discussed McDonald’s (MCD) estimated revenue, sources of revenue, and estimated EBIT (earnings before interest and tax) margins. Now let’s discuss analysts’ earnings per share estimates and management’s guidance for fiscal 2Q16.

In last five quarters, the company has beaten analysts’ estimates four times. Whenever a company beats analysts’ estimates, the share price tends to rise. In 2Q16, analysts are expecting McDonald’s to post EPS of $1.4, which represents growth of 7.9% from $1.3 in 2Q15.

Although McDonald’s 2Q16 revenue declined, the expansion of its EBIT margins and repurchases in the last 12 months are expected to raise its EPS. Share repurchases reduce the number of shares outstanding, increasing the earnings per share of a company. We’ll talk about share repurchases in the next article in this series. During 1Q16 earnings call, the company management had stated that the strengthening dollar could negatively impact 2Q16 earnings per share by $0.02 to $0.04.

In 2Q16, analysts are expecting Wendy’s Company (WEN), Jack in the Box (JACK), and Restaurant Brands International (QSR) post EPS growth of 28.6%, 8.7%, and 133.3%, respectively.

With EBIT margins expected to expand for the rest of fiscal 2016, and with $9.7 billion available to be returned to shareholders either through dividends or share repurchases within fiscal 2016, analysts are expecting McDonald’s to post EPS of $5.6 in fiscal 2016, which represents year-over-year growth of 11.6%. In 1Q17, analysts are expecting McDonald’s to post EPS of $1.4, which represents growth 10.4% from $1.2 in 1Q16.

Next, we’ll look at McDonald’s dividend payout policy.