McDonald's (MCD) Loses 17% Earnings, Withdraws Full-Year Guidance

You would think that McDonald's (NYSE: MCD) would be comparatively well-insulated from the impact of a pandemic. After all, are that many people really going to McDonald's for the ambiance in the dining room? Well, apparently, they are, because McDonald's just posted its first quarter results...and pulled its full-year guidance. That's how bad things are over at the Golden Arches.

McCatastrophe on Dismal Earnings

The bad news is pretty bad out of McDonald's. Its first-quarter earnings dropped 17% over the same time last year, going from $1.33 billion in 2019 to $1.11 billion in 2020. That also delivered a blow to earnings per share (EPS) figures, coming in at $1.47 per share as compared to $1.72 per share back in 2019.

Net sales for the fast-food giant dropped 6%, falling to $4.71 billion overall, and same-store sales were down a hefty 3.4%. Though this is indeed a big hit, it's actually still somewhat a winner in terms of Wall Street projections. The Refinitiv projections expected earnings of $1.57 per share—higher than what McDonald's posted—but expected it on $4.65 billion in revenue, which McDonald's beat.

The stock price, meanwhile, made some recovery over the course of trading this morning. As of this writing, it's still well off its close yesterday of $187.82. It's currently trading at $183.04, though it was seen trading as low as $182.49.

McDonald's Pushes for McRecovery

The biggest problem, however, is that the chain isn't very much impacted by coronavirus closures. The bulk of its restaurants are still open—around 99%, at last report—and the company is already exquisitely well-positioned for such a thing. Drive-thru and delivery operations are all up and running; the company actually does about 66% of its business in the US through a little window on the side of each restaurant. Thus, its losses directly attributable to coronavirus restrictions aren't all that great.

But McDonald's isn't taking this lying down. It knows that same-store sales were a bona fide disaster following the coronavirus and shutdowns, but it also knows that same-store sales for the quarter were actually doing fairly well until the shutdowns kicked in. In fact, reports suggested that it was the March figures that put same-store sales fairly flat for the quarter. So, it stands to reason that if it can survive the coronavirus slump, it can recover well on the other side.

To that end, the company shut down its stock buyback plans back in the middle of March, and shut down plans for $1 billion in capital expenses. New global location openings are being cut back, and fewer US restaurants will get renovated this year.

The company is even offering up some help for its franchisees; anyone who's currently being charged rent is getting it deferred for three months. However, franchisees question if the efforts are sufficient given the size of the problem, and while McDonald's insists franchisees do more to help their workers, franchisees note that the help isn't going both ways.

A McTroubling Picture Ahead

The immediate good news here is that, minus the coronavirus, there doesn't seem to be a whole lot standing in McDonald's way. After all, the company had solid results before the government-required shutdowns hit, and this is a company well-suited to such shutdowns anyway, particularly in the US.

The problem, however, comes in trying to project future earnings. After all, once the coronavirus does finally settle down sufficiently to let people out of the house again, how many of them will be hankering for McDonald's? No, it's more likely that more sit-down focused restaurants, some of which have been closed outright for weeks, will benefit from post-shutdown dollars.

On the other side of that coin, meanwhile, is people who can suddenly no longer afford dining out of any sort, including even McDonald's, the nadir of cheap food. We've already seen consumer confidence take a series of gut punches over the last few weeks; the notion that that confidence will suddenly recover and take that recovery to McDonald's might be a bridge too far.

The only way to find out, though, is to start the recovery process, to let people out of the house and back to spending. In some places, however, that may take much longer than others, and that too will weigh on McDonald's fortunes going forward...along with a lot of other places.