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Since the new earnings season is approaching we thought it would be helpful to give a quick forward look for McDonald's (MCD) using detailed operational expectations that you can compare against your own assumptions or apply to individual calls with sell side and company management.

Based on twenty five estimates of sell side analysts, Company-Owned Restaurant Revenue is expected to increase by 1.87% (YoY) in the second quarter 2012 and by 7.96% sequentially over Q1 of 2012. Most of this increase is associated with high revenue expectations in the Asian, Pacific Middle East and African (APMEA) markets (about 3.54% increase (YoY)).

However, despite this revenue increase, we believe there will be some pressure on margins. Second quarter's COGS is projected to be 34.06% (a slight positive change compared to the previous quarter's 34.3%). Labor Cost is expected to stay relatively the same increasing by only 0.19% (YoY). As a result, Individual Restaurant Level Margins will decline by -0.34% in the United States, -0.07% in Europe, -0.18% in APMEA, decreasing total company's Pre-Tax Margin by -0.03%. Net Income Margin is projected to be around 20.49%.

We believe that changes in revenue on different markets will be mostly driven by changes in same store sales and unit count in the second quarter of 2012. Total System-Wide same store sales are expected to be up about 3.95% (4.12% being the estimate for United States). The rest of SSS estimates are presented in the table below:

Same store Sales

Q2 '11A

Q3 '11A

Q4 '11A

Q1 '12A

Q2 '12E

Quarterly - System-Wide

6.90%

5.00%

7.50%

7.30%

3.95%

United States

5.60%

4.40%

7.10%

8.90%

4.12%

Europe

4.50%

4.90%

7.30%

5.00%

3.51%

APMEA

5.90%

3.40%

6.90%

5.00%

2.9%

Other Countries & Corporate

5.20%

11.40%

10.50%

11.60%

7.94%

According to the company's guidance announced during the Q1 2012 earnings call on April 20th, the company should add a total of 1300 restaurants in 2012. We expect 212 of them to open during Q2 of 2012, increasing total unit count by 0.63%. Total Company-Owned restaurants are estimated to be 19.2% of Total System-Wide Stores.

Unit Count

Q2 '11A

Q3 '11A

Q4 '11A

Q1 '12A

Q2 '12E

United States

14034

14067

14098

14049

14076

Europe

7018

7069

7156

7184

7234

APMEA

8560

8667

8865

8902

9007

Other Countries & Corporate

3331

3341

3391

3382

3416

As a result we believe that if MCD meets operational estimates for net addition to existing unit count and increase in same store sales, its second quarter EPS will be around $1.42/share in Q2 of 2012, which is a 5% increase (YoY) and 15% increase over Q1 of 2012.

Estimates were derived from consensusanalytics.com.


Source: A Forward Look At McDonald's' Performance