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What Drove McDonald’s Earnings per Share in 4Q17

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4Q17 performance

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.

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Peer comparisons and outlook

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.

Dividends

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.

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