What Drove McDonald’s Earnings per Share in 4Q17

McDonald’s (MCD) posted EPS (earnings per share) of $0.87 in 4Q17. However, removing special items, the company’s adjusted EPS stood at $1.71, which represents growth of 18.8% from $1.44 in 4Q16. Analysts were expecting the company to post EPS of $1.59.

The EPS growth was driven by an expansion of EBIT margins and share repurchases in the last four quarters. The company repurchased 31.4 million shares for approximately $4.6 billion in 2017. Share repurchases reduce the number of shares outstanding, boosting EPS. However, some of the EPS growth was offset by the decline in revenue.

During the same period, McDonald’s peer Starbucks (SBUX) posted EPS growth of 11.5% while Wendy’s (WEN) and Jack in the Box (JACK) are expected to post EPS growth of 39.9% and -9.4%, respectively.

For 2018, analysts are expecting McDonald’s to post EPS of $7.5, which represents growth of 12.4% from $6.67 in 2017. The expansion of EBIT margins, a lower effective tax rate, and share repurchases are expected to drive the company’s EPS.

On January 25, McDonald’s board has declared dividends of $1.01 per share paid on March 15 to shareholders recorded as of March 1. Dividends were paid at a payout ratio of 61.9% and a dividend yield of 2.34%, giving a stock price of $172.48.

Next in this series, we’ll look at valuation multiples.