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How Damaging is Coronavirus for McDonald's (MCD) Q1 Earnings?

Zacks Equity Research

McDonald's Corporation MCD is scheduled to report first-quarter 2020 results on Apr 30, before the opening bell. In the last-reported quarter, the company delivered a positive earnings surprise of 0.5%.

How Are Estimates Placed?

The Zacks Consensus Estimate for first-quarter earnings is pegged at $1.59 per share, indicating a decline from earnings of $1.72 recorded in the year-ago quarter. For revenues, the consensus mark is pegged at $4,725 million, suggesting a decline of 4.6% from the year-ago figure.

Let's take a look at how things have shaped up in the quarter.

McDonald's Corporation Price and EPS Surprise

 

McDonald's Corporation Price and EPS Surprise

Factors at Play

The coronavirus pandemic is expected to have materially affected McDonald's performance in the first quarter. In a recent operational update, the company announced that in first-quarter 2020, U.S. comparable sales inched up 0.1%. However, comps in International Operated Markets and International Developmental Licensed Markets & Corporate fell 6.9% and 4.3%, respectively. The company’s total comparable sales declined 3.4%.

To contain the spread of the virus, the company is operating only through pickup and delivery services, with dine in facilities shut. Notably, decline in store traffic along with high costs associated to brand positioning and labor is likely to reflect on first-quarter results.

Moreover, decline in franchise revenues is likely to have affected first-quarter performance. Notably, the Zacks Consensus Estimate for revenues at franchise-operated restaurants stands at $2,610 million, indicating a decline of 3.9% from the prior-year quarter.

Nonetheless, initiatives like digital enhancement, menu innovation and improvement in delivery services are likely to have boosted the top line in the to-be-reported quarter. 

What Our Model Says

Our proven model does not predict an earnings beat for McDonald’s this time around. A stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates. But that's not the case here.

Earnings ESP: McDonald's has an Earnings ESP of -0.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company has a Zacks Rank #4 (Sell). 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Poised to Beat Earnings Estimates

Here are some stocks from the Zacks Retail-Wholesale sector that investors may consider as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

Papa John's International, Inc. PZZA has a Zacks Rank #3 and an Earnings ESP of +15.44%.

Potbelly Corporation PBPB has a Zacks Rank #3 and an Earnings ESP of +16.18%.

Builders FirstSource, Inc. BLDR has a Zacks Rank #3 and an Earnings ESP of +9.16%.

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Click to get this free report McDonald's Corporation (MCD) : Free Stock Analysis Report Papa John's International, Inc. (PZZA) : Free Stock Analysis Report Builders FirstSource, Inc. (BLDR) : Free Stock Analysis Report Potbelly Corporation (PBPB) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research