McDonald's Tumbles After Missing Earnings, US Comps; Drags Dow In The Red

On one of the busiest days in Q3 earnings season, following some impressive earnings from P&G, Biogen, UTX and UPS, moments ago the Dow Jones was dragged lower as heavyweight component McDonald's reported earnings that missed on the top and bottom line, while US comp sales disappointed lofty expectations.

For Q2, McDonald's reported non-GAAP EPS of $2.11, down 2% from 2.16 a year ago, and also below the $2.21 consensus estimate. Revenue also missed, with the company reporting  $5.431BN in Q2 sales, below the $5.49BN expected, while operating income of $2.41 billion, declined 0.3% Y/Y and was not only below the estimate of $2.51 billion but also below the lowest estimate in the range ($2.45 billion to $2.59 billion).

However, the reason for the market's violent response was not so much earnings, as the company's comp-store sales number, which while beating globally, with a 5.9% increase, up from 4.2% Y/Y, and above the 5.7% expected, it was the US that traders were focused on as US comp sales rose 4.8%, which while double last year's 2.40%, was below the 5.2% consensus estimate.

This is an issue because, as Bloomberg explains, McDonald’s gets more than a third of revenue from the U.S., where it’s been having a hard time luring more diners, especially during the morning hours. And it’s getting more crowded: Burger King is trying to improve its coffee lineup, Dunkin’ is introducing Beyond Meat breakfast sandwiches nationwide and Wendy’s is planning to re-enter the morning market with a big push next year.

As a result, amid rising competition, CEO Steve Easterbrook has been investing heavily in technology (think robots who demand a $0.00 minimum wage everywhere). That includes delivery, making it easier to reorder on the company’s mobile app and adding smart-tech like license-plate scanners to drive-thrus; yet the beneficial effect of these appears to have topped out.

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