Despite reporting disappointing earnings, McDonald’s stock price rose.
McDonald’s released its earnings report on Monday before the market opened, revealing revenues of $6.49 billion and earnings per share (EPS) of $2.97. These figures missed Wall Street’s expectations of $6.62 billion in revenue and an EPS of $3.07.
The company also reported a 1% decline in global sales for the second quarter, marking its first revenue drop in nearly three years since the pandemic began. Sales in the U.S. fell by 0.7%, while international markets saw a 1.1% decrease.
Despite these results, McDonald’s stock rose by 3.76% to $261.42 compared to the previous day. During intraday trading, the stock price peaked at $263.93, reflecting a gain of over 4%.
Analysts attribute the stock’s increase to the management’s optimistic outlook during the earnings call. Management expressed confidence that the $5 Combo Meal promotion, which launched at the end of the previous month, would attract more customers in the latter half of the year. Joe Erlinger, President of McDonald’s USA, noted, “Sales of the $5 Combo Meal have exceeded our expectations.”
The boost in sales among low-income customers due to the $5 combo meal is seen as a positive sign for McDonald’s, which has struggled with declining sales as prices increased.
McDonald’s also announced plans to open 10,000 new restaurants over the next four years, aiming to reach a total of 50,000 locations by the end of 2027.
Some believe that the stock has fallen enough to make further declines unlikely. The stock has shown a steady downward trend after peaking at $302.39 on January 22. On July 9, it fell to $243.53, marking a 19.46% decline from its peak. This has led some to speculate that “it’s time for the stock price to rise regardless of their performance.”
However, following the revenue drop, brokerage firms have lowered their target prices for McDonald’s. Jefferies reduced its target from $320 to $310, while Truist Securities lowered theirs from $300 to $295. Stifel cut its target from $265 to $257 but maintained a “hold” rating. Stifel remarked, “Despite better-than-expected results in the U.S. from promotions like the $5 meal deal, same-store sales (SRS) in July still showed a negative figure.” They cautioned, “McDonald’s must demonstrate its ability to adapt to the changing consumer environment in the coming quarters. Failure to effectively respond to these changes could jeopardize the profits gained over the past few years.”
