McDonald’s fights increasing input prices

McDonald’s (MCD) reports its Q1 results today. Similar to others in the industry, the company is being hurt by volatile commodity prices, forcing it to increase its prices to offset costs. Furthermore, economic factors in Europe (counting for roughly 40 percent of revenues) and China are likely to affect the company results as well as increased competition from fast growing chains like Chipotle Mexican Grill, Buffalo Wild Wings and others.

Increased commodity costs will affect MCD’s margins, as its gross margin is expected to be 36.8 percent this quarter, slightly below from last year’s margin. However, analysts expect MCD’s revenues to grow by 6.9 percent, to 6.53bn USD, and earnings by 2.7 percent, to 1.23 per share. The variation in analysts’ sales and net income estimates is only minor, as net profit margin is expected to be close to 20 percent for this quarter.

With a decent track record of delivering results above estimates, it is likely that MCD will outperform once again as same store sales in January and February showed an impressive growth rate of 6.7 and 7.5 percent respectively. MCD’s shares rose to a 52-week high early this quarter with analysts’ holding an average buy recommendation on the stock with a target price of 107.48, giving a 12.8 percent upside from yesterday’s closing.