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Arcos Dorados Holdings Inc (ARCO)
NYSE:ARCO
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Arcos Dorados Holdings
(NYSE:ARCO)
Rating:69Neutral
Price Target:
$8.50
â–²(17.57%Upside)
Positive Factors
Brand Strategy
Strong ever brand equity and differentiated successful Digital, Delivery and Drive-thru strategy continues reinforce leadership position.
Investor Interest
Increasing interest from investors in Arcos Dorados is attracted by its inexpensive valuation and resilient business model equipped to face regional economic challenges.
Valuation
The current valuation is seen as attractive below 10xPE26e with an improving EPS growth outlook.
Negative Factors
Currency Impact
In USD sales declined 2.7% negatively affected by currencies devaluation.
Gross Margin
Gross margin pressure anticipated due to rising COGS from higher beef prices, notably in Brazil from higher beef prices and changes in royalty rates.
Macroeconomic Pressure
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. SPDR S&P 500 ETF (SPY)
Market Cap
$1.51B
Dividend Yield3.32%
Average Volume (3M)1.41M
Price to Earnings (P/E)11.2
Beta (1Y)0.48
Revenue Growth0.97%
EPS Growth-22.17%
CountryUS
Employees100,000
SectorConsumer Cyclical
Sector Strength65
IndustryRestaurants
Share Statistics
EPS (TTM)0.07
Shares Outstanding130,663,060
10 Day Avg. Volume1,537,658
30 Day Avg. Volume1,409,021
Financial Highlights & Ratios
PEG Ratio-1.19
Price to Book (P/B)3.01
Price to Sales (P/S)0.00
P/FCF Ratio-30.10
Enterprise Value/Market Cap2.22
Enterprise Value/Revenue0.19
Enterprise Value/Gross Profit5.69
Enterprise Value/Ebitda1.81
Forecast
1Y Price Target
$9.40Price Target Upside30.01% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering2
Arcos Dorados Holdings Business Overview & Revenue Model
Company DescriptionArcos Dorados Holdings Inc. (ARCO) is the world's largest independent McDonald's franchisee, operating over 2,200 McDonald's restaurants across Latin America and the Caribbean. The company holds exclusive rights to own, operate, and manage McDonald's restaurants in 20 countries and territories in the region. Arcos Dorados focuses on providing high-quality fast food products, including burgers, chicken, salads, and beverages, while maintaining strong adherence to the brand's global standards for quality and customer service.
How the Company Makes MoneyArcos Dorados generates revenue primarily through the operation of its McDonald's restaurants. The company's key revenue streams include sales of food and beverages at its restaurants, which are supported by a mix of dine-in, drive-thru, and delivery services. In addition to direct sales, Arcos Dorados benefits from strategic marketing and promotional activities that boost customer traffic and sales. The company also engages in partnerships with delivery platforms to expand its reach and convenience for customers, thus contributing to its revenue. Additionally, Arcos Dorados works on enhancing its profitability through operational efficiencies and cost management strategies across its restaurant network.
Arcos Dorados Holdings Earnings Call Summary
Earnings Call Date:May 14, 2025
(Q1-2025)
| % Change Since: -10.74%|
Next Earnings Date:Aug 13, 2025
Earnings Call Sentiment Neutral
The earnings call highlighted strong digital sales growth, positive performance in SLAD, and a robust market position in Brazil. However, these positives were offset by flat revenue, declining EBITDA, and margin pressures in Brazil due to rising costs and currency depreciation.Q1-2025 Updates
Positive Updates
Strong Market Position
Arcos Dorados maintained a strong market position, with increased brand preference and market share in Brazil, reaching a record 47% of the country's QSR industry sales.
Digital Sales Growth
Digital sales rose 6.3%, with 60% of system-wide sales coming from digital channels. The Loyalty Program had 18.8 million registered members.
Positive Performance in SLAD
SLAD's comp sales rose 38.7%, driven by a strong rebound in Argentina and solid performance in Uruguay, Venezuela, Aruba, and Curacao.
Investment in Growth
Arcos Dorados added 12 new restaurants in the first quarter and invested $48.8 billion in capital expenditures, focusing on long-term growth.
Negative Updates
Revenue and EBITDA Decline
Total revenue was flat at $1.1 billion, and consolidated adjusted EBITDA was $91.3 million, down due to weaker local currencies and margin pressure in Brazil.
Margin Pressure in Brazil
Brazil faced margin contraction due to higher food and paper costs, driven by rising beef prices, and reduced QSR visits.
Currency Depreciation Impact
The strong depreciation of the three main currencies negatively impacted revenue and profitability.
Company Guidance
In the first quarter of 2025, Arcos Dorados reported total revenue of $1.1 billion, maintaining the same level as the previous year despite facing challenges such as lower QSR industry guest volumes, negative calendar comparisons, and currency depreciation. The company managed to achieve 11.1% higher system-wide compatible sales, in line with blended inflation, and reported a consolidated adjusted EBITDA of $91.3 million, which was down from the previous year due to weaker local currencies and margin pressure in Brazil. Digital sales contributed significantly, with a 6.3% increase, driven by almost 19 million monthly average mobile app users, and digital channels accounted for nearly 60% of system-wide sales. The Loyalty Program boasted 18.8 million registered members across five markets. Arcos Dorados remained focused on providing an omnichannel experience, with off-premise channels generating about 43% of total system-wide sales. Looking forward, the company aims to leverage its diverse sales channels, modernized restaurant base, and strong brand to navigate market challenges and improve profitability, expecting margins to stabilize and potentially improve as the year progresses.Arcos Dorados Holdings Financial Statement Overview
Summary
Arcos Dorados Holdings shows consistent revenue growth and solid profit margins but faces risks from high debt levels and negative free cash flow. The company effectively uses equity to generate returns, suggesting a generally positive financial performance, albeit with potential liquidity challenges.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 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 4.47B | 4.33B | 3.62B | 2.66B | 1.98B |
| Gross Profit | 586.42M | 597.14M | 2.59B | 324.06M | 115.44M |
| EBITDA | 502.88M | 459.66M | 386.25M | 244.69M | 51.51M |
| Net Income | 148.76M | 181.27M | 140.34M | 45.49M | -149.39M |
Balance Sheet | |||||
| Total Assets | 2.89B | 3.02B | 2.64B | 2.36B | 2.29B |
| Cash, Cash Equivalents and Short-Term Investments | 138.59M | 246.77M | 304.40M | 278.83M | 165.99M |
| Total Debt | 1.72B | 1.69B | 1.56B | 1.53B | 1.61B |
| Total Liabilities | 2.38B | 2.50B | 2.31B | 2.14B | 2.10B |
| Stockholders Equity | 508.08M | 515.28M | 323.62M | 220.43M | 197.55M |
Cash Flow | |||||
| Free Cash Flow | -60.79M | 21.87M | 128.32M | 143.04M | -70.34M |
| Operating Cash Flow | 266.85M | 381.96M | 345.44M | 258.04M | 15.97M |
| Investing Cash Flow | -280.33M | -380.35M | -259.65M | -108.28M | -88.71M |
| Financing Cash Flow | -37.16M | -11.82M | -59.98M | -17.93M | 126.01M |
Arcos Dorados Holdings Technical Analysis
Negative
7.23
Price Trends
7.58
Negative
7.64
Negative
7.88
Negative
Market Momentum
-0.05
Positive
37.28
Neutral
6.99
Positive
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 7.23 is below the 20-day moving average (MA) of 7.62, below the 50-day MA of 7.58, and below the 200-day MA of 7.88, indicating a bearish trend. The MACD of -0.05 indicates Positive momentum. The RSI at 37.28 is Neutral, neither overbought nor oversold. The STOCH value of 6.99 is Positive, 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 (56)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
70 Outperform | $15.94B | 26.68 | -14.74% | 1.50% | 4.28% | 13.76% | |
69 Neutral | $1.51B | 11.24 | 26.84% | 3.32% | 0.97% | -22.17% | |
66 Neutral | $214.24B | 26.43 | -216.57% | 2.36% | -0.22% | -3.83% | |
65 Neutral | $40.30B | 28.91 | -19.43% | 1.96% | 10.09% | -11.50% | |
63 Neutral | $2.02B | 11.22 | 90.40% | 5.36% | 2.18% | -5.15% | |
56 Neutral | HK$25.30B | 3.94 | -2.03% | 6.16% | -0.31% | -67.70% | |
55 Neutral | $1.44B | 18.65 | -20.16% | 4.18% | -2.77% | 4.01% |
* Consumer Cyclical Sector Average
Performance Comparison
ARCO
Arcos Dorados Holdings
7.23
-1.80
-19.93%
DPZ
Domino's Pizza
468.70
65.72
16.31%
MCD
McDonald's
300.37
46.81
18.46%
PZZA
Papa John's International
44.06
3.21
7.86%
WEN
Wendy's
10.57
-6.49
-38.04%
YUM
Yum! Brands
148.08
22.24
17.67%
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
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.