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What to Expect from McDonald’s in 2019

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Updated

Analysts’ estimates

Analysts expect McDonald’s (MCD) to report revenues of $20.95 billion in 2019—a fall of 0.4% from $21.03 billion in 2018. The revenues fell 0.9%, which marks a significant improvement from a decline of 7.9% in 2018.

By the end of the first quarter, the franchise ownership was ~93%. The company’s management stated that there has been refranchising of company-owned restaurants, but significant refranchising efforts have been completed. Refranchising company-owned restaurants will likely lower the company’s revenues in 2019. However, some of the declines are expected to be offset by opening new franchised restaurants and positive SSSG (same-store sales growth).

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McDonald’s is focusing on deploying its EOTF (Experience of the Future) initiative, improving the convenience for customers through delivery and digital initiatives, and menu innovations to drive its SSSG. McDonald’s implemented EOTF in 8,000 restaurants or 60% of the restaurants in the United States by the end of the first quarter. The company plans to implement EOTF in 2,000 restaurants during this year.

McDonald’s offers a delivery service from ~20,000 restaurants across 75 counties, which generates ~$3 billion of business. Implementing the delivery service in more restaurants is expected to drive the company’s sales.

In March, the company signed an agreement to acquire Dynamic Yield, a decision logic technology company, for $300 million. McDonald’s will utilize Dynamic’s decision technology to provide a more personalized experience to its customers.

Analysts’ EPS expectations

For 2019, analysts expect McDonald’s to post an EPS of $8.11—2.7% growth from $7.90 in 2018. The improved EBIT margin and share repurchases are expected to drive the company’s EPS. However, lower revenues, higher interest expenses, and a higher effective tax rate will likely offset some of the increase in McDonald’s EPS.

Peer comparisons

During the comparable period, analysts expect Starbucks (SBUX), Wendy’s (WEN), and Jack in the Box (JACK) to post EPS growth 14.3%, 4.3%, and 12.0%, respectively.

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