Will Covid-19 Take a Big Bite of McDonald's Burgers?

What’s happening: McDonald's Corp is all set to report its first-quarter results before the opening bell on Thursday, April 30.

What happened: Although the Chicago, Illinois-based company joined various other restaurants in shutting down dine-in options due to the social distancing guidelines issued by the government, McDonald's is in a stronger position than other chains, since it already had drive-thru and take-away options in place.

Despite this, the pandemic is expected to eat into a major chunk of the global hamburger giant’s business. The company had already released some disappointing figures earlier this month. In some part of the world, however, McDonald's is witnessing such heavy footfall that its ingredients are running short.

Expectations for the quarter: With Covid-19 hurting its overall business, the fast food giant is expected to report a decline in both revenue and profit figures for the first quarter.

• The consensus revenue estimate stands at $4.66 billion, representing a 6.0% decline versus the same quarter last year.
• The estimate for earnings is $1.55 per share, down a troubling 12.9% from the year-ago quarter.

Why it matters: McDonald's had already issued disappointing figures for March, when the company started closing its dine-in areas. The restaurant chain’s same-store sales plunged 22% in March, after surging 7.2% during the first two months of 2020.

The decline in global sales was expected. What comes as a surprise though is that the company’s US same-store sales were down 13.4% last month, although stores remained open at least till mid-March. The other factors hurting US sales are still unclear.

The drop in store traffic and franchise revenue, with stores operating only pickup and delivery services, is expected to have a severe impact on the first-quarter results. However, on the positive side, initiatives like menu innovation and improved online ordering are projected to support the top line results.

Meanwhile, New Zealand seems to have tamed the beast, as it has “eliminated” coronavirus. After a five-week quarantine period, McDonald's restaurants in the country are facing a shortage of ingredients due to a massive spike in demand. In fact, some roads have a “McDonald’s queue” lane to allow the other lanes to move smoothly! The fast-food chain sold over 300,000 burgers and 30,000 coffees on the first day of restrictions being eased to Level 3 in New Zealand.

While this is great news, New Zealand is a relatively small market. As most larger markets are still under lockdown, McDonald’s has withdrawn its 2020 and long-term guidance. Management has also suspended the share buyback program and raised $6.5 billion via the debt market to preserve liquidity.

How the shares have performed so far: Shares of the company have gained 15% in the past month. Investors have been a tad cautious ahead of the earnings release and McDonald's stock has remained mostly flat over the past five trading days, rising just 0.7%. The company’s stock gained 1% during the regular session yesterday, and rose another 1% in after-hours trading.

US stocks will be in focus today, ahead of earnings reports from some of the biggest corporate giants.

Context: US stocks closed higher on Wednesday, following positive data from Gilead Sciences’s potential coronavirus drug. Comments from the Fed Chairman also boosted market sentiment

Details: Gilead Sciences disclosed that in the government-led clinical trial, its drug remdesivir had met the primary goal in some coronavirus patients. The announcement lifted hopes of progress being made by pharmaceutical companies towards a potential treatment for coronavirus. Gilead is yet to announce additional details from the study.

Meanwhile, Federal Reserve Chairman Jerome Powell said that although the pandemic will severely hurt the US, the central bank is all set to strengthen its stimulus measures to support the economy.

Investors also digested a marked decline in US economic growth figures, with GDP contracting 4.8% in the first quarter. Pending home sales also plunged to its lowest levels since 2011. The Fed kept its interest rates unchanged, as it is already close to zero.

The Dow surged 532.31 points to close at 24,633.86 on Wednesday. The S&P 500 rose 2.7%, while the Nasdaq 100 climbed 3.6%.

In earnings news, Microsoft reported better-than-expected earnings for its latest quarter. Tesla also announced an unexpected profit for the quarter. Shares of Qualcomm gained 3% in extended trading after the company posted upbeat results.

In commodities, WTI (West Texas Intermediate) crude oil for June climbed 22% to close at $15.06 a barrel. Gold for June delivery slipped 0.5% to settle at $1,713.40 an ounce on Wednesday.

Investors continue to assess the daily Covid-19 figures, with the total number of global cases surpassing 3,196,660. In the US, confirmed cases have cross the one million mark, with around 60,990 deaths.

What to watch: Markets will be looking for earnings reports from major companies, including Apple, Kraft Heinz, Twitter, American Airlines and Amazon.

Investors also await a basket of economic reports from the country, including personal income, spending, initial jobless claims, employment cost index and Chicago PMI. US personal income, which rose 0.6% in February, is expected to decline 1.5% in March. Personal spending is projected to fall 5% in March, from February’s reading of 0.2% growth. The employment cost index is likely to rise 0.6% in the first quarter.

US initial jobless claims are expected to drop to 3.5 million, from 4.427 million in the previous week. Analysts expect the Chicago PMI to plunge to 38 in April, from 47.8 in March.

Other Markets: Asian indices closed higher on Thursday, with China’s Shanghai Composite index, Hong Kong’s Hang Seng and Japan’s Nikkei 225 up by 1.3%, 0.3% and 2.1%, respectively.

Mexico’s GDP growth rate, India’s infrastructure output, Brazil’s unemployment rate, net payrolls and government budget value, Canada’s GDP and producer prices as well as US natural gas stocks change.