McDonalds (MCD) Q1 Earnings Beat, Despite Heavy Russia Impact

Global fast-food favorite McDonalds (NYSE: MCD) edged past earnings expectations this morning as the company posted solid Q1 financials. Akin to the global inflationary environment, the fast food chain benefitted from widespread price hikes across the U.S, with growth fueled by consistent international sales. MCD shares reached premarket gains of 2% before retracing, we might see this bounce further with the opening market bells as retail traders take aim. 

The company reported adjusted EPS of $2.28 against the analyst consensus of $2.17. Quarterly revenue came in at $5.67B, again edging nicely past the Street expectation of $5.59B. As far as costs were concerned, it was a heavy quarter for McDonalds as it felt the brute costs of suspending operations in Russia. Leases, employee wages and supplier costs amounted to around $27M, with an additional $100M charge for inventory that will likely spoil given the closure of restaurants in Russia and Ukraine. Including these costs, earnings were dragged down by $0.13 per share. 

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Briefly touching on a $500M reservation for a potential tax settlement, the company’s earnings of $2.28 per share exclude the tax settlement and costs related to its restaurants in Russia and Ukraine. 

Net sales also beat expectations, rising 11% to $5.67, slightly ahead of the $5.59B predicted. Strong demand in France and the UK fueled global same-store sales growth, and digital system-wide sales surpassed $5B for the quarter. Domestic same-store sales also increased 3.5%, edging past analyst expectations of 3.3%. A key driver of domestic sales growth is price hikes across its products, as well as ongoing marketing promotions. 

Companies are starting to feel the true extent of the Russian embargo, resulting in unforeseen overheads, revenue dips and a tighter consumer sphere. Investors should be looking forward to the rest of the year; various stocks are appearing discounted after taking heavy hits surrounding Russia, hence a return to normal global operations is likely to re-energise tired stocks.