- McDonald's sees revenues and reported EPS increased 1%.
- However, same-store sales came in flat, with higher prices offsetting lower guest traffic.
- A food scandal in China also is hurting McDonald's and a few of its peers.
- I remain long McDonald's, though the company needs to improve its performance.
On July 22, McDonald's (NYSE:MCD) reported its Q2 2014 results. Not too much good can be said about the quarter. The company posted anemic EPS growth of 1% to $1.40. In addition, revenues came up soft, up only 1% to $7.18 billion. Both these numbers missed estimates, sending shares lower about 3% over the past few days. However, as I noted back in March, McDonald's remains committed to returning large amounts of capital to shareholders, targeting $18 billion to $20 billion in dividends and share repurchases through 2016.
McDonald's seems to be struggling most in mature markets, especially in the US and Western Europe. Consumers in these regions have been shifting to healthier options, a long-term trend the company has failed to reverse. However, thanks to large amounts of promotional spending, McDonald's has yet to see a large drop in guest traffic, and remains dominant in certain emerging markets and during breakfast.
Adding to the company's woes is another major food safety scandal in China. According to reports, Chinese regulators have shut a local meat supplier after a TV report showed workers picking up meat from a factory floor and mixing rotten meat with fresh meat. The supplier, Shanghai Husi Food Co, is a unit of US based OSI Group, and was a source of chicken for McDonald's and Yum Brands' (NYSE:YUM) KFC. Both McDonald's and Yum have apologized. However, this scandal may have a longer term impact given that Chinese consumers are already wary, especially after the 2008 milk scandal.
Disclaimer: The opinions in this article are for informational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned. Please do your own due diligence before making any investment decision.