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Analysts Expect McDonald’s EPS Growth to Fall in 2019

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Analysts’ estimates

For 2019, analysts project McDonald’s (MCD) to post adjusted EPS of $8.04, which represents an increase of 1.8% from $7.90 in 2018. MCD’s EPS growth represents a fall from growth of 18.6% in 2018.

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Year-over-year EPS growth

The expansion in EBIT margin and share repurchases are likely to drive the company’s EPS this year. However, some of the increases are likely to be offset by a decline in revenue, an increase in interest expenses, and a higher effective tax rate.

For 2019, analysts expect McDonald’s EBIT margin to improve from 43.1% to 43.9%. The growth in the higher margin franchise business due to refranchising and addition of new franchised restaurants and sales leverage are likely to drive the company’s EBIT margin. However, commodity and labor inflation, higher investments in growth initiatives, and implementation of a new accounting standard are likely to offset some of the expansion in EBIT margins.

For 2019, analysts expect the company’s effective tax rate to be at 24.8% compared to 24.2% in 2018. Analysts are also expecting McDonald’s interest expenses to rise from $981.2 million in 2018 to $1.11 billion.

In the first quarter, McDonald’s had repurchased 5.4 million shares for $963.6 million. By the end of the first quarter, the company had ~$6.05 billion still available under its share repurchase program. Share repurchases would lower the company’s number of shares outstanding, thus driving the company’s EPS.

Peer comparison

During the comparable period, analysts expect Starbucks (SBUX), Wendy’s (WEN), and Jack in the Box (JACK) to post EPS growth of 14.5%, 6.3%, and 12.3%, respectively.

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