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Arcos Dorados (ARCO)
:ARCO
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Arcos Dorados Holdings
(NYSE:ARCO)
66Neutral
Positive Factors
Business Strategy
Strong ever brand equity and differentiated successful Digital, Delivery and Drive-thru strategy continues reinforce leadership position.
Financial Performance
Adjusted EBITDA increased by 30% in local currency; up 1% in USD, 4% ahead of consensus.
Valuation
The stock is trading at an attractive valuation, with low EV/EBITDA and P/E ratios.
Negative Factors
Cost Pressures
Gross margin pressure anticipated due to rising COGS from higher beef prices, notably in Brazil from higher beef prices and changes in royalty rates.
Currency Impact
In USD sales declined 2.7% negatively affected by currencies devaluation.
Macroeconomic Pressures
Growth should be limited as macroeconomic pressures should strain the consumption environment in Brazil and Mexico while recovering in Argentina.
Arcos Dorados Holdings (ARCO) vs. S&P 500 (SPY)
Market Cap
$1.59B
Dividend Yield3.17%
Average Volume (3M)2.06M
Price to Earnings (P/E)10.7
Beta (1Y)0.50
Revenue Growth3.19%
EPS Growth-17.95%
CountryUS
Employees100,000
SectorConsumer Cyclical
Sector Strength63
IndustryRestaurants
Share Statistics
EPS (TTM)0.69
Shares Outstanding130,663,060
10 Day Avg. Volume2,106,452
30 Day Avg. Volume2,059,877
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)0.40
Price to Cash Flow (P/CF)N/A
P/FCF Ratio0.00
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$10.79Price Target Upside42.54% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering4
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
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.70
Positive
Balance Sheet
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.65
Positive
Cash Flow
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.60
Neutral
| Breakdown | |||||
| TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|
| Income Statement | Total Revenue | ||||
| 4.50B | 4.47B | 4.33B | 3.62B | 2.66B | 1.98B | Gross Profit |
| 651.91M | 586.42M | 597.14M | 2.59B | 324.06M | 115.44M | EBIT |
| 302.87M | 324.51M | 312.14M | 144.65M | 139.52M | -66.75M | EBITDA |
| 446.21M | 502.88M | 459.66M | 386.25M | 244.69M | 51.51M | Net Income Common Stockholders |
| 146.13M | 148.76M | 181.27M | 140.34M | 45.49M | -149.39M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | ||||
| 141.23M | 138.59M | 246.77M | 304.40M | 278.83M | 165.99M | Total Assets |
| 1.66B | 2.89B | 3.02B | 2.64B | 2.36B | 2.29B | Total Debt |
| 569.98M | 1.72B | 1.69B | 1.56B | 1.53B | 1.61B | Net Debt |
| 428.75M | 1.59B | 1.49B | 1.29B | 1.25B | 1.44B | Total Liabilities |
| 1.12B | 2.38B | 2.50B | 2.31B | 2.14B | 2.10B | Stockholders Equity |
| 537.31M | 508.08M | 515.28M | 323.62M | 220.43M | 197.55M |
| Cash Flow | Free Cash Flow | ||||
| -59.59M | -60.79M | 21.87M | 128.32M | 143.04M | -70.34M | Operating Cash Flow |
| 307.66M | 266.85M | 381.96M | 345.44M | 258.04M | 15.97M | 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 | -17.93M | 126.01M |
Arcos Dorados Holdings Technical Analysis
Neutral
7.57
Price Trends
7.83
Negative
7.71
Negative
8.31
Negative
Market Momentum
-0.11
Negative
50.09
Neutral
73.48
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARCO, the sentiment is Neutral. The current price of 7.57 is above the 20-day moving average (MA) of 7.48, below the 50-day MA of 7.83, and below the 200-day MA of 8.31, indicating a neutral trend. The MACD of -0.11 indicates Negative momentum. The RSI at 50.09 is Neutral, neither overbought nor oversold. The STOCH value of 73.48 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Neutral 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 (60)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
76 Outperform | $226.49B | 27.76 | -216.57% | 2.17% | 1.67% | -1.61% | |
68 Neutral | $16.72B | 29.23 | -14.74% | 1.28% | 5.07% | 13.74% | |
66 Neutral | $1.59B | 10.72 | 29.07% | 3.17% | 3.19% | -17.95% | |
64 Neutral | $40.38B | 27.81 | -19.43% | 1.85% | 6.68% | -7.09% | |
60 Neutral | $1.10B | 13.07 | -20.16% | 5.50% | -3.57% | 2.31% | |
60 Neutral | $2.51B | 13.53 | 68.30% | 7.82% | 2.98% | -2.58% | |
60 Neutral | $6.86B | 11.61 | 3.16% | 4.15% | 2.41% | -21.45% |
* Consumer Cyclical Sector Average
Performance Comparison
ARCO
Arcos Dorados Holdings
7.57
-3.00
-28.38%
DPZ
Domino's Pizza
487.58
-32.27
-6.21%
MCD
McDonald's
316.74
49.68
18.60%
PZZA
Papa John's International
33.48
-26.67
-44.34%
WEN
Wendy's
12.78
-6.13
-32.42%
YUM
Yum! Brands
147.30
6.86
4.88%
Arcos Dorados Holdings Earnings Call Summary
Earnings Call Date: Mar 12, 2025 | % Change Since: -2.20% | 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.