Thursday, October 28, 2021

Investors Are Lovin It with McDonald’s Strong Q3


News shaping
the markets today


What’s happening: Shares of McDonald’s Corp gained on Wednesday, after the company reported third-quarter results that exceeded market expectations.

What happened: The fast-food chain reported sales growth for the quarter on the back of higher menu prices and celebrity-themed meals.

However, the company’s overall sales were impacted by the resurgence of covid-19 cases in some of its major markets.

How were the results: The Chicago, Illinois-based company reported double-digit growth in revenues for the third quarter, surpassing market views.

  • Sales grew by 14% year-over-year to $6.2 billion, exceeding market expectations of $6.03 billion.
  • Net income surged 22% to $2.15 billion, while adjusted earnings came in at $2.76 per share, beating the consensus estimate of $2.46 per share.

Why it matters: Pandemic-related restrictions continued to ease during the quarter, resulting in higher footfall in restaurants around the world. However, seating areas remained closed in around 20% of McDonald’s American locations.

McDonald's also hiked prices in the US by about 6% due to rising labour and commodity costs, which provided a boost to the quarterly sales figure.

The fast-food chain announced the launch of a new loyalty program in the US in a bid to increase its digital sales. The company’s loyalty program has more than 21 million members enrolled.

Sales by company-operated restaurants surged 14% year-over-year to $2.6 billion during the third quarter, while sales from franchised restaurants jumped 15% to $3.5 billion.

Most of the company's international markets rebounded during the quarter, with countries like the UK, Canada, and Japan recording revenue growth amid easing restrictions. However, sales in China and Australia remained under pressure due to the resurgence of cases with the spread of the Delta variant.

Global comparable sales surged 12.7%, versus expectations of 10.31% growth. US comparable sales rose 9.6%, while comp sales of the International Operated Markets segment grew 13.9%.

McDonald's recently boosted its quarterly cash dividend by 7% to $1.38 per share and announced the resumption of its share buyback program.

McDonald’s also announced a deal with IBM to accelerate the development of its Automated Order Taking technology. IBM will be acquiring McD Tech Labs as part of the transaction.

How shares responded: McDonald's shares gained 2.7% to close at $242.73 on Wednesday after the release of quarterly results. The stock rose another 0.13% in after-hours trading.

What to watch: Investors will keep an eye on the closing of the deal with IBM, which is expected to provide a boost to the company’s overall results ahead. Markets will also focus on the company’s new restaurant openings, with some of its planned openings being pushed into early 2022 due to the global supply chain issues.

The Markets Today


European stocks will be in focus today ahead of the ECB’s interest rate decision.

Context: European stocks fell on Wednesday with investors monitoring recent earnings reports and economic data.

Details: European stocks jumped to a more than two-month high on Tuesday, driven by upbeat corporate earnings.

On Wednesday, traders digested several earnings reports from major companies like Deutsche Bank, Schneider Electric, and Heineken.

Although Deutsche Bank exceeded market estimates for the latest quarter, the bank reported a decline in its investment banking revenues. Santander reported a 24% surge in its third-quarter net profits.

On the economic data front, Germany’s GfK consumer sentiment unexpectedly surged to a 19-month high heading into November. Import prices in Germany also climbed 17.7% year-over-year in September, representing the steepest rise since August 1981.

Markets in Asia closed lower on Wednesday, with China’s tech stocks in Hong Kong recording significant losses. China’s industrial profits jumped 16.3% year-over-year in September.

The pan-European Euro Stoxx 600 index fell by 0.36% to close at 474.04 on Wednesday, with mining stocks being among the top losers. Germany’s DAX 40 declined by 0.33%, while French CAC 50 lost 0.19%.

UK’s Finance Minister Rishi Sunak announced his budget statement, issuing a half-yearly update on the country’s public finances. London’s FTSE 100 fell 0.33% in response.

What to watch: Traders await the European Central Bank’s interest rate decision. Although the central bank is widely expected to keep interest rates unchanged during its latest meeting, markets will keep an eye on stimulus tapering, with reports of policymakers considering a bigger reduction in asset purchases. Investors also await the release of consumer confidence data from the bloc.

Other Markets: US indices closed mixed on Wednesday, with Dow Jones index and S&P 500 down by 0.74% and 0.51%, respectively, and the Nasdaq 100 higher by 0.25%.

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Futures at 0400 (GMT)

What else to watch today


Spain's unemployment rate, inflation rate and industrial confidence indicator, Turkey’s tourism revenues, tourist arrivals, foreign exchange reserves and Central Bank of Turkey’s meeting summary, Germany’s unemployment rate, unemployment change and inflation rate, Italy’s consumer confidence, manufacturing confidence and producer prices, UK’s car production, Eurozone’s economic sentiment indicator, industry confidence indicator, services confidence indicator and consumer confidence price trends, South Africa’s producer prices, Canada’s CFIB's business barometer long-term index and average weekly earnings, America’s GDP growth rate, initial jobless claims, real consumer spending, pending home sales, natural gas stocks change and Kansas City Fed's manufacturing production index, Argentina’s consumer confidence indicator, as well as Saudi Arabia’s money supply M3 and bank lending growth.