McDonald’s Misses Top and Bottom Line Estimates

Dow component McDonald’s Corp. (MCD) fell more than 2% to a two-month low in Thursday’s pre-market after missing Q4 2021 top and bottom line estimates. The fast food giant posted a profit of $2.23 per-share, $0.11 lower than expectations, while revenue rose 13.1% to $6.01 billion, $20 million less than consensus. Global comps rose 12.3% while US comps fell to 7.5%, lower than Q3’s 9.6%, highlighting the negative impact of promotions and “strategic menu price increases”.

The Elephant in the Room

The release failed to address the ‘elephant in the room’, i.e. the impact of sharply rising wages and supply costs, A conference call is scheduled prior to the open, giving executives another opportunity to discuss these headwinds. Covid probably took a bite out of earnings as well, with Omicron exploding in Europe and the USA in the last three weeks of December. Regardless of the reasons, the metrics will undermine investor confidence because Mickey D. routinely beats expectations.

Oppenheimer analyst Brian Bittner hit the nail on the head when he posted an ‘Outperform’ rating just ahead of the news. As he notes “we trim 2022 EPS estimates slightly below consensus to properly account for industry-wide challenges to begin the year. Importantly: 1) the dynamics behind our tweaked forecasts appear widely understood (global COVID resurgences, domestic staffing issues, etc.); and 2) there is NO impact to our above-consensus ’23 EPS estimates.”

Wall Street and Technical Outlook

Wall Street consensus stands at a’ Moderate Buy’ rating, based upon 15 ‘Buy’, 2 ‘Overweight’, 10 ‘Hold’, 0 ‘Underweight’, and 0 ‘Sell’ recommendations. Price targets currently range from a low of $246 to a Street-high $306 while the stock is set to open Thursday’s session more than $1 below the low target. This dismal placement highlights the failure of analysts to measure the impact of rising inflation and the pandemic on quarterly performance.

McDonald’s broke out above 2019 resistance at 220 in April 2021, entering a strong uptrend that posted an all-time high at 271.14 earlier this month. It fell nearly 9% into Wednesday’s intraday low and is now trading at the lowest low since Dec. 1. This price level is close to major support at the 200-day and 200-week moving averages, indicating that short-term downside is limited.  However, it will take just a small violation of those levels to set off larger-scale sell signals.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.