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Key Factors that Drove McDonald’s Earnings in 2018

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Apr. 6 2018, Updated 10:30 a.m. ET

2017 EPS

In 2017, McDonald’s (MCD) posted adjusted earning per share (or EPS) of $6.66, which represents a rise of 16.6% from $5.71 in 2016. The company’s EPS growth was driven by the expansion of EBIT (earnings before interest and tax) margins and share repurchases.

In 2017, McDonald’s repurchased 31.4 million shares for ~$4.6 billion. Share repurchases reduce the number of shares outstanding, boosting the company’s EPS. 

However, some of the growth in EPS was offset by a decline in revenues and a higher effective tax rate. The company’s effective tax rate stood at 39.4% in 2017 compared to 31.7% in 2016.

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Peer comparisons and outlook

In 2017, Wendy’s (WEN), Jack in the Box (JACK), and Restaurant Brands International (QSR) posted EPS growth of 7.5%, -4.8%, and 32.9%, respectively.

In 2018, analysts expect McDonald’s to post EPS of $7.58, which represents growth of 13.9% from $6.66 in 2017. This EPS growth is expected to be driven by the expansion of its EBIT margin, a lower effective tax rate, and share repurchases. The company’s management expects its effective tax rate to be 25.0%–27.0%. 

From 2017 to 2017, the company’s management expects to return $24.0 billion to shareholders through share repurchases and dividends. In the long run, the management expects its EPS growth to be in the high single digits.

Next, we’ll look at McDonald’s valuation multiple.

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