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Arcos Dorados Holdings Inc (ARCO)
NYSE:ARCO

Arcos Dorados Holdings (ARCO) AI Stock Analysis

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Arcos Dorados Holdings

(NYSE:ARCO)

71Outperform
Arcos Dorados Holdings demonstrates robust financial performance with strong market position and growth in digital sales. However, high debt levels and currency-related challenges pose potential risks. The company is attractively valued with a low P/E ratio and decent dividend yield, which supports the overall positive outlook.
Positive Factors
Business Strategy
Strong ever brand equity and differentiated successful Digital, Delivery and Drive-thru strategy continues reinforce leadership position.
Financial Performance
Resilient results and above expectation despite challenging macro conditions of weaker currencies, higher inflation and F&P pressure in Brazil.
Negative Factors
Currency Impact
In USD sales declined 2.7% negatively affected by currencies devaluation.
Earnings
Net income of $29.7 million missed analyst and consensus expectations due to higher taxes.

Arcos Dorados Holdings (ARCO) vs. S&P 500 (SPY)

Arcos Dorados Holdings Business Overview & Revenue Model

Company DescriptionArcos Dorados Holdings Inc. operates as a franchisee of McDonald's restaurants. The company has the exclusive right to own, operate, and grant franchises of McDonald's restaurants in 20 countries and territories in Latin America and the Caribbean, including Argentina, Aruba, Brazil, Chile, Colombia, Costa Rica, Curacao, Ecuador, French Guiana, Guadeloupe, Martinique, Mexico, Panama, Peru, Puerto Rico, Trinidad and Tobago, Uruguay, the U.S. Virgin Islands of St. Croix and St. Thomas, and Venezuela. As of December 31, 2021, it operated or franchised 2,261 restaurants. The company was founded in 2007 and is based in Montevideo, Uruguay.
How the Company Makes MoneyArcos Dorados Holdings makes money primarily through the operation of McDonald's-branded restaurants across Latin America and the Caribbean. The company's revenue streams include sales from food and beverages, which constitute the bulk of its income. Arcos Dorados benefits from its franchising agreement with McDonald's, which allows it to leverage the global brand's marketing, menu offerings, and operational expertise. The company also generates revenue through delivery services, drive-thru sales, and digital ordering platforms, which have become increasingly significant in recent years. Key factors contributing to its earnings include strategic locations, menu innovation, and a focus on customer experience, as well as partnerships with delivery service providers to expand its reach.

Arcos Dorados Holdings Financial Statement Overview

Summary
Arcos Dorados Holdings shows stable revenue growth and healthy profit margins. However, high debt levels and negative free cash flow present potential risks. Effective use of equity is noted, but cash flow challenges could impact liquidity.
Income Statement
70
Positive
Arcos Dorados Holdings shows a stable revenue growth trend, with a 3.19% increase from the previous year. The company maintains a healthy gross profit margin of 13.12% and a net profit margin of 3.33%, though the latter has decreased compared to the prior year. EBIT and EBITDA margins are at 7.26% and 11.25%, respectively, indicating operational efficiency. The consistent revenue increase and profitability margins suggest a positive trajectory, albeit with a slight decline in profitability.
Balance Sheet
65
Positive
The balance sheet reflects a moderate financial structure with a debt-to-equity ratio of 3.39, suggesting a higher reliance on debt financing. Return on Equity (ROE) is 29.27%, showing effective use of equity to generate profit, though it has decreased from the previous year. The equity ratio stands at 17.57%, indicating a lower proportion of assets financed by equity. While the company shows strong ROE, the high debt levels could pose a risk if not managed carefully.
Cash Flow
60
Neutral
Arcos Dorados Holdings experienced a decline in operating cash flow and free cash flow, resulting in a negative free cash flow of -60.79 million. The operating cash flow to net income ratio is 1.79, indicating adequate cash generation from operations relative to net income. However, the free cash flow to net income ratio is negative, highlighting challenges in cash retention. These cash flow challenges could impact liquidity if not addressed.
Breakdown
TTMDec 2024Dec 2023Dec 2022Dec 2021Dec 2020
Income StatementTotal Revenue
4.50B4.47B4.33B3.62B2.66B1.98B
Gross Profit
651.91M586.42M597.14M2.59B324.06M115.44M
EBIT
302.87M324.51M312.14M144.65M139.52M-66.75M
EBITDA
446.21M502.88M459.66M386.25M244.69M51.51M
Net Income Common Stockholders
146.13M148.76M181.27M140.34M45.49M-149.39M
Balance SheetCash, Cash Equivalents and Short-Term Investments
141.23M138.59M246.77M304.40M278.83M165.99M
Total Assets
1.66B2.89B3.02B2.64B2.36B2.29B
Total Debt
569.98M1.72B1.69B1.56B1.53B1.61B
Net Debt
428.75M1.59B1.49B1.29B1.25B1.44B
Total Liabilities
1.12B2.38B2.50B2.31B2.14B2.10B
Stockholders Equity
537.31M508.08M515.28M323.62M220.43M197.55M
Cash FlowFree Cash Flow
-59.59M-60.79M21.87M128.32M143.04M-70.34M
Operating Cash Flow
307.66M266.85M381.96M345.44M258.04M15.97M
Investing Cash Flow
-296.65M-280.33M-380.35M-259.65M-108.28M-88.71M
Financing Cash Flow
-22.16M-37.16M-11.82M-59.98M-17.93M126.01M

Arcos Dorados Holdings Technical Analysis

Technical Analysis Sentiment
Negative
Last Price7.99
Price Trends
50DMA
7.97
Positive
100DMA
7.88
Positive
200DMA
8.43
Negative
Market Momentum
MACD
0.06
Positive
RSI
50.53
Neutral
STOCH
37.14
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARCO, the sentiment is Negative. The current price of 7.99 is below the 20-day moving average (MA) of 8.10, above the 50-day MA of 7.97, and below the 200-day MA of 8.43, indicating a neutral trend. The MACD of 0.06 indicates Positive momentum. The RSI at 50.53 is Neutral, neither overbought nor oversold. The STOCH value of 37.14 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ARCO.

Arcos Dorados Holdings Risk Analysis

Arcos Dorados Holdings disclosed 50 risk factors in its most recent earnings report. Arcos Dorados Holdings reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks

Arcos Dorados Holdings Peers Comparison

Overall Rating
UnderperformOutperform
Sector (59)
Financial Indicators
Name
Overall Rating
Market Cap
P/E Ratio
ROE
Dividend Yield
Revenue Growth
EPS Growth
MCMCD
76
Outperform
$227.39B27.94-216.57%2.16%1.67%-1.61%
YUYUM
73
Outperform
$44.35B30.48-19.43%1.68%6.68%-7.09%
71
Outperform
$1.73B11.6529.07%3.00%3.19%-17.95%
DPDPZ
68
Neutral
$15.91B27.78-14.74%1.35%5.07%13.74%
WEWEN
64
Neutral
$2.82B14.8968.30%7.11%2.98%-2.58%
59
Neutral
$12.18B11.09-1.08%3.77%1.26%-19.82%
* Consumer Cyclical Sector Average
Performance Comparison
Ticker
Company Name
Price
Change
% Change
ARCO
Arcos Dorados Holdings
7.99
-2.33
-22.58%
DPZ
Domino's Pizza
463.78
-22.61
-4.65%
MCD
McDonald's
318.27
57.91
22.24%
WEN
Wendy's
14.07
-3.31
-19.04%
YUM
Yum! Brands
161.45
27.97
20.95%
QSR
Restaurant Brands International
67.82
-4.19
-5.82%

Arcos Dorados Holdings Earnings Call Summary

Earnings Call Date: Mar 12, 2025 | % Change Since: 3.23% | Next Earnings Date: May 14, 2025
Earnings Call Sentiment Positive
The earnings call highlighted strong digital and delivery growth, record-high EBITDA, and market share gains. However, currency depreciation and economic challenges in Argentina and Brazil's food cost pressures presented notable challenges.
Highlights
Record Full-Year EBITDA
Adjusted EBITDA for the full-year reached $500 million for the first time in Arcos Dorados history. Full-year EBITDA margin also reached an all-time high in 2024.
Strong Digital and Delivery Growth
Full-year digital sales grew 18% in U.S. dollars versus 2023. Mobile App sales were up 25%, and delivery sales rose 17% in U.S. dollars.
Expansion of EOTF Restaurant Penetration
85 Experience of the Future (EOTF) restaurant openings were completed in 2024, bringing EOTF penetration to 67% of the total footprint.
Market Share Gains
Arcos Dorados added the most market share of the top three QSR operators on average across the region in 2024.
Improved Debt Structure
Moody’s upgraded Arcos Dorados’ debt rating to Ba1 with a stable outlook, and Fitch upgraded it to BBB-. The company issued $600 million in new debt due in 2032.
Lowlights
Currency Depreciation Impact
U.S. dollar revenue declined in the quarter due to the depreciation of the Brazilian real and Mexican peso, impacting dollar-denominated EBITDA.
Challenges in Argentina
Significant economic correction in Argentina resulted in reduced U.S. dollar EBITDA, although there was improvement in local performance.
Pressure from Food Costs
Pressure from beef costs in Brazil impacted margins, although offset by improvements in other divisions.
Company Guidance
In the fourth quarter and full-year 2024 earnings webcast, Arcos Dorados highlighted its strong financial performance despite challenging macroeconomic conditions. The company reported a significant milestone, achieving an all-time high adjusted EBITDA of $500 million for the full year, with a corresponding record full-year EBITDA margin of 11.2%. Systemwide comparable sales grew by 1.7 times the blended inflation rate, excluding Argentina, driven by increases in average check and guest volumes across all three divisions. Notably, digital sales rose by 18% in U.S. dollars compared to 2023. In Brazil, total revenue grew by 9.2% in constant currency during the fourth quarter, although U.S. dollar revenue declined due to currency depreciation. Digital channels accounted for 70% of sales in Brazil, with loyalty program contributions growing steadily. The company's net debt-to-adjusted EBITDA ratio remained stable at 1.1x, and it received upgrades from Moody's and Fitch on its debt rating. Arcos Dorados plans to open between 90 and 100 Experience of the Future (EOTF) restaurants in 2025, with capital expenditures ranging from $300 million to $350 million. The company also aims to increase its EOTF restaurant penetration to 90% by the end of 2027, building on the 67% achieved by the end of 2024.
Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.