McDonald's has 'righted the ship': Analyst on Q3 earnings
McDonald's (MCD) topped third quarter profit and revenue expectations despite missing sales estimates due to weakness in its international business. This earnings report comes after the fast food giant announced it will bring Quarter Pounders back to its menu without slivered onions to restaurants impacted by the E. coli outbreak. Morningstar analyst Sean Dunlop joins Morning Brief to discuss the latest earnings report and how the E. coli outbreak could impact McDonald's fourth quarter results. Dunlop calls it an overall "positive quarter" for McDonald's, as earnings came roughly in line with expectations and US sales increased by about 30 basis points. He notes that the company also saw improvement among low-income consumers for the first time in about a year. "I think that's the point that shouldn't be lost as investors consider the forest in the trees. They are trading margin for that. That has a little bit of a downside. If you look at company-owned stores, margins are collecting a little bit below 13%. For the full year, we project store-level margins down about 120 basis points. Looking forward, though, guest-led growth is a lot more sustainable. It looks to me like McDonald's has righted the ship here," Dunlop tells Yahoo Finance. As McDonald's navigates the fallout from the E. coli outbreak, he believes that the company "handled it as well as you could possibly ask." He continues, "These happen periodically. It is the first time it's happened for them in the United States in 40 years. The good news is that this was a supplier issue, an ingredient issue, and not a process issue. So we don't think that it's likely to repeat." Dunlop argues that the outbreak won't weigh too heavily on the fourth quarter results, expecting a "low single-digit traffic impact" as McDonald's was able to "very quickly isolate the source." Read more about McDonald's E. coli outbreak: McDonald's reports higher Q3 sales after recent E. coli outbreak shakes investor confidence McDonald's, Eli Lilly, Apple: 3 stocks in focus To watch more expert insights and analysis on the latest market action, check out more Morning Brief here. This post was written by Melanie Riehl
