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McDonald's: Evaluating The Report Vs. The Trend Of Last Years

|About:McDonald's Corporation (MCD)

McDonald's (NYSE:MCD) announced its Q3 results yesterday. Although the earnings per share (NYSEARCA:EPS) slightly exceeded the analysts' consensus ($1.53 vs. $1.52), the report disappointed the investment community, resulting in the stock declining up to 2%. It is interesting to compare the current trend of the company's numbers to the trend of the last two years in order to evaluate whether this year is normal or rather ominous for the company.

Table 1: Growth of Comparable Sales

 

2010

2011

2012

Q3-2013

US

3.8%

4.8%

3.3%

0.7%

Europe

4.4%

5.9%

2.4%

0.2%

APMEA

6.0%

4.7%

1.4%

-1.4%

Total

5.0%

5.6%

3.1%

0.9%

Unfortunately, the company did not reveal regional figures for the whole 9 months of 2013 in its earnings report so I will have to compare Q3-2013 to the previous years. It is evident from the above table that the growth of McDonald's decelerated in 2012 and, even worse, it almost stalled in Q3-2013. What is even more alarming is the fact that the growth decelerated in all the regions and was even negative in APMEA (Asia/Pacific/Middle East/Africa).

Table 2 compares the growth of the key fundamental figures of the first 9 months of 2013 to the first 9 months of 2012 and the previous years:

 

2008

2009

2010

2011

2012

2013

Revenue

3%

-3%

6%

12%

2%

2%

Operating income

15%

7%

8%

14%

1%

2%

Net income

80%

6%

9%

11%

-1%

3%

EPS

95%

9%

11%

15%

2%

5%

It is evident, again, that the company exhibited great performance in both the top and bottom line until 2011. On the other hand, the growth has been minimal in the last 2 years; in 2012 the EPS rose solely thanks to the share repurchases and in 2013 the share repurchases are responsible for the 3% out of the total 5% EPS growth.

Finally, table 3 shows the distributions of the company (in $B) to its shareholders:

 

2010

2011

2012

2013 (Guidance)

Dividends

2.4

2.6

2.9

3.2

Buybacks

2.7

3.4

2.6

1.3-1.8

Total

5.1

6.0

5.5

4.5-5.0

McDonald's is a well-known dividend aristocrat that has grown its dividend for 38 consecutive years. Nevertheless, the management announced yesterday that it is estimating a total distribution to its shareholders from $4.5 B to $5.0 B this year, which is 9%-18% lower than the total distribution of last year.

Of course the reduction is due to the reduced share buybacks of the company. Nevertheless, the reduction of share repurchases by 30%-50% this year reveals that either the management views its stock as overvalued or the company needs a greater portion of its earnings to support its growth. Either of these two reasons is not comforting to the shareholders.

In total, yesterday's earnings report was disappointing for a premium company like McDonald's and was hardly different from the previous reports of this year. The company has grown so much and the competition has heated so intensely in every region of the globe that the company has hard time maintaining its past rate of growth. However, McDonald's has faced such rough times in the past and has always managed to break through. I believe that the same will occur this time, though no-one can predict how long this almost stagnant period will last. The company has also proved very resistant even in the worst recessions and hence I have included it in the list of the best recession-proof stocks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Stocks: MCD