McDonald's: Should Investors Be Worried

| About: McDonald's Corporation (MCD)
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U.S. Sales have failed to recover during the initial spring and summer months, with a 1% decline y/y in May.

However, International Sales have been strong in Asia, Europe and Africa.

Investors should continue to look for McDonald's to diversify its U.S. stores impact through innovation and international expansion.

Year-on-Year Sales Still Do Not Present a Pretty Picture

With the year's second quarter over, companies look set to announce their stats for the three months within the month of July. McDonald's (NYSE:MCD), for one, will be announcing its quarterly earnings on July 22, 2014 - and things don't look too good for them.

Figure From

Figure 1 shows the percentage year-on-year change in McDonald's earnings from US stores each month since January last year. It's interesting to note that McDonald's has been posting drops in comparable sales percentages in consecutive winters; yet unlike last year, the corporation has so far failed to recover in the summer months, posting consecutive falls, with a 1% decline in May.

However, despite the fall in US comparable sales, year-on-year sales in Europe as well as Asia and Africa rose by 0.4% and 2.5%, respectively. The Wall Street Journal credits the rise in sales in Europe and Africa to McDonald's' improved markets in the UK, France and China. The boom in Asia, particularly, resulted in the global comparable sales to increase by 0.9%. Yet the corporation, along with its sales, seems to be descending to all-time lows in its native, US.

So, keeping all of this in view, what are we to expect from McDonald's quarterly earnings announcement? Is it going to bring good or bad news for MCD shareholders?

Stock Analysts Stay Positive Despite Continued Slump in US Sales

Despite the drop in US comparable sales, analysts remain positive of MCD's quarterly earnings report. The EPS forecast for the quarter by 15 analysts was $1.44, and the mean rating of the stock by 23 analysts is overweight, with 10 of them rating it an outright "buy". Clearly, most analysts are not putting much "stock" - pun intended - in US same-store sales reports - and they don't seem to be bothering shareholders, either. The second quarter saw a $3 rise in stock price, and hit its 52-week high of $103.78 in the middle of May. With rises in sales elsewhere, shareholders as well as analysts expect the corporation to do well in the coming months, despite a seven-month patch without reporting positive comparable sales in the US. Have they finally realized that the US is but one country and there is no need to fret over the sales in one country when a corporation is spread over 116 countries? If they do think so, they can't be more wrong.

The International Chain Still Has Its Heart in America

Out of a reported 34,492 McDonald's outlets, as of 2012, worldwide, as much as 14,157 were in the US. That's a remarkable 41% of stores in the US, alone - in just one country. Although the corporation has looked to spread its base elsewhere, especially in China and Germany, yet the overwhelming majority of McDonald's stores still exist in the States. So, simple math would dictate, that in order to improve their fortunes drastically, McDonald's would have to take radical measures at home. And with increasing competition from new fast food companies, like it's former subsidiary Chipotle, McDonald's needs to think up ways to attract customers - by offering them something more than just a breakfast and coffee.

It's good for the company that the drop in US comparable sales does not affect its investors, possibly because they are lured by its dividends policy. Yet McDonald's should be looking for more substantial ways to improve its profits and satisfy its investors - as well as itself - better. And the change should start at home.

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