Two major U.S.-based companies with two different stories are in line to open their Q4 books on Monday before the market opens. McDonald's (NYSE:MCD) may offer some insight as to how consumers are eating while on the run, and Halliburton (NYSE:HAL) is on tap to shed some light into the recovering-maybe-oilfield services business.
McDonald's-Food and Franchisees
Under the golden arches, executives have been scrambling to cook up new menu items and recast old-time favorites to fit changing consumer tastes toward healthier foods. It's been two years into a turnaround plan that was prompted by the deepest sales slump in a decade. That, the company conceded, was caused in part by competition from a growing number of fast-food competitors serving up healthy choices. Another issue has been an overall slowdown in customer traffic in the fast-food segment.
MCD has taken steps to overhaul its menu to be, in its words, "viewed by its customers as a modern and progressive burger company delivering a contemporary customer experience." That hasn't been easy for a nearly 62-year-old giant that operates over 36,000 restaurants in 120 countries, some analysts note.
Some analysts will be looking at the progress of a company initiative that plans to turn over some 4,000 corporate-owned stores to franchisees by the end of 2018. MCD says it wants to up its franchisee-held stores to 95% of the total from the current 83%.
Also on some analysts' minds could be the future of the all-day breakfast menu, a successful initiative when launched in 2015. MCD also now sells a kids' version of the menu. Other possible analyst questions might include whether any new menu nuggets are in the offing, and the status of MCD's plan to cut $500 million from operating expenses by the end of 2017.
MCD has had five straight quarters of same-store sales gains, an important industry measure of sales at restaurants open longer than a year, and some analysts have indicated they expect to see another bump in Q4. Also of interest, other analysts say, is what might be the impact of a stronger dollar for a multinational like MCD that is operating in some 120 countries?
Consensus estimates, according to Earningswhispers.com, are for MCD earnings to come in at $1.41 a share, up from $1.28 a year ago. Revenue is expected to slip slightly to $5.99 billion from $6.34 billion a year ago.
The options market has priced in a potential share price move of just under 2.5% in either direction around the earnings release, according to the Market Maker Move™ indicator on the thinkorswim platform from TD Ameritrade.
Call activity has been higher at the in-the-money 121 strike, with puts active at the 120 strike. The implied volatility sits in the lower half at the 30th percentile. (Please remember past performance is no guarantee of future results.)
Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.
Figure 1: RIDING THE ARCHES. After hitting an all-time high in May of last year, shares drifted lower and now sit roughly in the middle of the 52-week range. Chart source: thinkorswim by TD Ameritrade. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Halliburton and Oil Prices
On HAL's Q3 conference call, Chief Executive Dave Lesar, on announcing that the oilfield services behemoth inched its way into a surprise profit, said, "I never thought I would be so satisfied by barely making a profit," according to the transcript. "I certainly am."
At the time, the No. 2 player in the oil patch was still reeling from the $0.14 per share loss in the previous quarter, as the steep descent in oil prices continued to pressure the sector. But after making fresh lows below $30 a barrel in early 2016, oil has trended higher, cracking through the $50 level in October and holding above that mark since.
Earlier this month, West Texas Intermediate (WTI) touched a 52-week high at $54.01 a barrel, helped in part by the agreement by the Organization of Petroleum Exporting Countries (OPEC) and 11 non-OPEC producers, including Russia, to cut oil production.
Higher commodity prices may give HAL an opportunity to get back to the business of stimulating rig count growth, the company said in Q3, but the company still cushioned its Q4 outlook. "We remain cautious around fourth-quarter customer activity (because of) holiday and seasonal weather-related downtimes," Lesar said in the Q3 earnings release. "However, it does not change our view that things are getting better for us and our customers."
Not surprisingly, some analysts say they are anxious to hear HAL's forecast on oil prices, and the outlook for OPEC's production cuts, on the quarterly conference call.
For the quarter, the EarningsWhispers consensus earnings forecast is $0.02 a share, double that of prior quarter but still well below the $0.31 per share from a year ago. Revenue is projected to be down as well, $4.07 billion, compared with $5.1 billion a year ago. In Q3, top-line revenue rang up at $3.8 billion.
The options market has priced in a potential share price move of a tad under 3% in either direction around the earnings release, according to the Market Maker Move indicator.
Call activity has been seen at the weekly 57 strike, while put buyers have focused on the 52.5 strike. The implied volatility lies at the relatively low 9th percentile. (Please remember past performance is no guarantee of future results.)
Figure 2: RELIEF RALLY. Over the past year, as go oil prices, so go HAL shares. After hitting a near 3.5-year bottom in January (concurrent with the bottom in crude oil), HAL shares have climbed steadily upward. Chart source: thinkorswim by TD Ameritrade. Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
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