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Arcos Dorados Holdings Inc (ARCO)
NYSE:ARCO
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Arcos Dorados Holdings
(NYSE:ARCO)
Rating:67Neutral
Price Target:
$7.50
â–²(7.76% Upside)
Positive Factors
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.
Sales Growth
Solid sales growth in constant currency, up 26.6% driven by 21.5% SSS growth influenced by high inflationary economies like Argentina and Venezuela.
Valuation
The current valuation is seen as attractive below 10xPE26e with an improving EPS growth outlook.
Negative Factors
Currency Devaluation
In USD sales declined 2.7% negatively affected by currencies devaluation.
Gross Margin Pressure
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 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. SPDR S&P 500 ETF (SPY)
Market Cap
$1.46B
Dividend Yield3.45%
Average Volume (3M)1.42M
Price to Earnings (P/E)11.2
Beta (1Y)0.48
Revenue Growth0.09%
EPS Growth-23.74%
CountryUS
Employees100,000
SectorConsumer Cyclical
Sector Strength81
IndustryRestaurants
Share Statistics
EPS (TTM)0.11
Shares Outstanding130,663,060
10 Day Avg. Volume1,886,864
30 Day Avg. Volume1,416,853
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)0.00
Price to Sales (P/S)0.00
P/FCF Ratio0.00
Enterprise Value/Market Cap2.36
Enterprise Value/Revenue0.77
Enterprise Value/Gross Profit5.88
Enterprise Value/Ebitda7.18
Forecast
1Y Price Target
$9.65Price Target Upside38.65% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering2
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 generates revenue primarily through the operation of its McDonald's franchises, which includes sales from food and beverages in its restaurants. The company earns income through both company-operated restaurants and franchised locations, with a significant portion of revenue derived from franchise fees and royalties. Additional revenue streams include partnerships with suppliers for promotional items and branded merchandise, as well as co-branding initiatives that enhance customer engagement. The company's focus on digital transformation, including mobile ordering and delivery services, has also contributed to increased sales and customer loyalty, further solidifying its financial performance.
Arcos Dorados Holdings Earnings Call Summary
Earnings Call Date:Aug 13, 2025
(Q2-2025)
| % Change Since: |
Next Earnings Date:Nov 12, 2025
Earnings Call Sentiment Positive
The earnings call conveyed a generally positive outlook with strong revenue growth, notably in digital sales and market expansion. However, challenges in Brazil due to high beef costs and a tough consumer environment were highlighted. Despite these challenges, the company demonstrated resilience with effective marketing strategies and market share gains.Q2-2025 Updates
Positive Updates
Strong Revenue Growth
Total revenue reached $1.1 billion with system-wide comparable sales up by 12.1%, exceeding blended inflation.
EBITDA and Margin Improvement
Adjusted EBITDA grew by more than 7%, and margin expanded by about 40 basis points, excluding last year's labor contingency reduction in Brazil.
Successful Marketing and Digital Initiatives
Marketing and digital initiatives, including loyalty programs and campaigns like Big Fest and Minecraft Happy Meal, helped drive sales and brand preference.
Expansion in Saint Martin
Added a 21st market with the acquisition of 3 restaurants and exclusive franchise rights in Saint Martin.
Positive Market Share Trends
Market share gains in several markets, including Argentina and Chile, with brand attributes improving significantly.
Strong NOLAD Performance
NOLAD's total revenue rose 6.9% in constant currency, with Mexico showing 12.4% comparable sales growth, much higher than competitors.
Digital Sales Penetration
Digital sales accounted for about 60% of total sales, with strong contributions from loyalty programs.
Negative Updates
Challenging Consumer Environment in Brazil
Brazil's total revenue in constant currency grew only by 2% due to negative industry volumes and high beef prices.
Beef Cost Pressures
Higher beef prices in Brazil caused margin contraction, with a 30% increase in prices over the last 12 months.
Currency Headwinds
U.S. dollar revenue growth was impacted by the depreciation of the Mexican peso and Brazilian real.
Company Guidance
In the call, Arcos Dorados provided a comprehensive update on their financial performance and strategic outlook for the second quarter of 2025. The company reported total revenue of $1.1 billion, with a 12.1% increase in system-wide comparable sales that outpaced blended inflation. Notably, adjusted EBITDA reached $110.1 million, marking a growth of over 7% excluding the previous year's labor contingency reduction in Brazil, and the margin expanded by approximately 40 basis points. The company opened 20 new Experience of the Future restaurants in the quarter, bringing the first half total to 32, and maintained their target of opening 90 to 100 new sites for the year. Digital channels accounted for about 60% of sales, with loyalty program members representing almost 23% of total sales in six markets. Despite challenging macroeconomic conditions, particularly in Brazil, the company achieved strong market share gains, driven by effective marketing and digital initiatives. Arcos Dorados also highlighted their ongoing commitment to ESG initiatives through their Recipe for the Future framework. The balance sheet remains strong with a net debt to adjusted EBITDA ratio of 1.4x, and the company continues to focus on prudent capital investments to drive long-term growth.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
6.96
Price Trends
7.28
Negative
7.37
Negative
7.59
Negative
Market Momentum
-0.05
Positive
45.39
Neutral
5.45
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 6.96 is below the 20-day moving average (MA) of 7.00, below the 50-day MA of 7.28, and below the 200-day MA of 7.59, indicating a bearish trend. The MACD of -0.05 indicates Positive momentum. The RSI at 45.39 is Neutral, neither overbought nor oversold. The STOCH value of 5.45 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 (61)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
73 Outperform | $15.32B | 26.20 | -14.74% | 1.44% | 3.65% | 5.71% | |
70 Outperform | $223.32B | 26.85 | -216.57% | 2.24% | 1.17% | 2.09% | |
67 Neutral | $1.46B | 11.22 | 24.80% | 3.45% | 0.09% | -23.74% | |
64 Neutral | $40.81B | 29.01 | -19.43% | 1.90% | 11.30% | -7.82% | |
62 Neutral | $1.96B | 10.98 | 99.35% | 8.51% | 1.31% | -1.46% | |
61 Neutral | $17.75B | 12.56 | -5.49% | 3.02% | 1.43% | -14.12% | |
60 Neutral | $1.59B | 21.45 | -20.16% | 3.79% | -1.46% | 8.10% |
* Consumer Cyclical Sector Average
Performance Comparison
ARCO
Arcos Dorados Holdings
6.96
-1.64
-19.07%
DPZ
Domino's Pizza
452.55
45.70
11.23%
MCD
McDonald's
312.22
30.96
11.01%
PZZA
Papa John's International
48.56
3.46
7.67%
WEN
Wendy's
10.46
-5.26
-33.46%
YUM
Yum! Brands
145.33
12.02
9.02%
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.