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McDonald's Q4 2023 earnings: anticipated growth amidst Middle East challenges

Get the latest insights on McDonald's Q4 2023 earnings report. Discover how the fast-food giant navigates Middle Eastern boycotts, operational challenges, and market opportunities leading to an anticipated growth in revenue.

McDonalds Source: Bloomberg

When will McDonald's report its latest earnings?

McDonald's is set to release its fourth quarter (Q4) 2023 results on 5 February at 11.00pm AEDT. The results are for the quarter ending December 2023.

Key financial highlights for Q4 2023

Key financial highlights for the upcoming results are as follows:

  • Revenue of $6.452 billion: +8.86% year-on-year (YoY)
  • Earnings per Share (EPS): $2.82: +8.88% YoY
  • Price-to-earnings (P/E) ratio: 25.75
  • Restaurant margin: 15.48% (versus 5.00% in Q4 2022)
  • Dividend yield: 2.29%

McDonald's amidst Middle East boycott

McDonald's is currently facing challenges from a boycott in the Middle East due to false accusations of supporting Israel. This boycott has had a meaningful impact on the company's business, and analysts will be interested in learning more about the sales impact and how long it is expected to last.

Earnings call focus: China and sustainability

During the earnings call on 5 February, analysts will also be looking for updates on the sustainability of operating margins in light of last year’s cost inflation. McDonald's has maintained stable margins in recent years through menu price increases and technology initiatives, and investors will want to see evidence that this can continue. Furthermore, there will be interest in an update on McDonald's business in China, which is its third largest market globally. Restoring operations in China to full capacity is crucial for the company's momentum.

McDonald's pricing strategy under scrutiny

McDonald's has strong business fundamentals and a strong brand, which should help it navigate through the difficulties, especially if inflation in the US continues to subside and the country’s economy manages the soft landing analysts currently forecast.

If inflation were to flare up again due to an escalation in the Middle East and the Suez Canal being de facto closed to non-Russian containerships, and perhaps soon oil tankers as well, McDonald's has in the past been successful in passing on price increases without significantly affecting demand and may well do so again. There are limits to its pricing power, though, especially in a potential recession which would negatively affect consumer spending while input and labour costs may increase once more. If market conditions were to worsen, McDonald's could implement discounting strategies to capture market share through value offerings and leveraging its size advantage.

Resilience in adversity: McDonald's strong brand and business fundamentals

Despite the challenging environment in the Middle East, McDonald's has maintained a strong appetite for its food and beverages. The company is expected to benefit from increased US same-store sales and a larger share of the quick-service market in 2023, driven by the growth of digital orders and value offerings. McDonald's loyalty program, with approximately 25 million active members, has the potential to drive digital sales and increase customer frequency, contributing to the growth of US comparable sales.

The company planned to expand its global franchise in 2023 with 400 openings in the US and 1,500 globally, including 900 in China. These new restaurants were expected to contribute around 1.5% to sales growth in 2023. The upcoming results should shed more light on these expansion plans.

​How to trade McDonald’s

Refinitiv data shows a consensus analyst rating of ‘buy’ for McDonald’s – 11 strong buy, 21 buy, and 8 hold - with the median of estimates suggesting a long-term price target of $323.20 for the share, roughly 10.68% higher than the current price (as of 29 January 2024).

Refinitiv consensus data

McDonald's analysts Source: Refinitiv
McDonald's analysts Source: Refinitiv

McDonald’s technical analysis

The McDonald’s 23% share price gain from its October $245.73 low to last week’s $302.39 all-time record high has given way to some profit-taking ahead of its Q4 results. The fall through the October-to-January uptrend line at $295.36 puts the mid-December to current January lows at $287.20 to $285.72 back on the plate. As long as this support zone holds, the medium-term uptrend remains intact.

A fall through and daily chart close below the $285.72 mid-December low would most likely lead to the 200-day simple moving average (SMA) at $283.66 being revisited. Provided that the next lower late-November low at $278.06 isn’t being fallen through, though, the overall technical picture for the McDonald’s share price remains long-term bullish.

A rise above the current January all-time high at $302.39 would bring the minor psychological $350 region to the fore.

McDonald’s daily chart

McDonald's daily chart Source: Tradingview
McDonald's daily chart Source: Tradingview

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