McDonald’s (MCD) stock soured in mid-trading today as it warned that sales and margins were taking a hit in the early days of its second quarter because of the Iran war.
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Positive Momentum Fades
Despite reporting positive Q1 results earlier today with sales and earnings beating expectations, the later earnings call with MCD management delivered a more downbeat tone.
Chief executive Chris Kempczinski said on the call that the fast-food burger chain is well set to navigate near-term volatility from the Iran war, but warned that prolonged global supply-chain squeezes could push costs higher and further weaken demand.
The group’s chief financial officer Ian Borden said that April sales had turned slightly negative as higher gas prices were hurting low-income diners. He also noted margin pressure at U.S. franchisees from inflation across food, paper and energy inputs, as well as higher operating costs that franchisees cannot fully offset through pricing.
Franchisee Cost Pressure
Cost pressures are affecting franchisee cash flow, even where sales remain positive, and are also weighing on margins at U.S. company‑operated restaurants, the company said, adding it would review its franchisee network.
“Elevated gas prices are the core issue we’re seeing right now,” Kempczinski said on the call, adding that inflation at the pump “is going to disproportionately impact low‑income consumers, and we expect the pressures there are going to continue.”
He added: “I think probably it’s fair to say that the macro environment is certainly not improving and it may be getting a little bit worse.”
The stock, which has slipped 7% this year, had risen strongly in pre-market trading off the back of its Q1 results.
The company said that despite a ‘challenging economic backdrop’ it posted a rise in U.S. same-store sales for the fourth quarter in a row. The 3.9% sales rise was in line with Wall Street expectations and was helped by customers looking for value meals in the cost of living crisis.
It also reported a 3.8% increase in global same-store sales with the U.K., Germany and Australia all performing well. Adjusted earnings per share of $2.83 beat Wall Street’s forecasts for $2.75. Revenue grew 9% year over year to $6.52 billion, slightly above forecasts of $6.46 billion.
Is MCD a Good Stock to Buy Now?
On TipRanks, MCD has a Moderate Buy consensus based on 14 Buy and 12 Hold ratings. Its highest price target is $385. MCD stock’s consensus price target is $347.13, implying a 22.37% upside.
