McDonald's Q2 Revenue Surges 5% on Strong International Sales

McDonald's (MCD.US) has released its second-quarter earnings, revealing a 5% year-over-year increase in revenue to 68.4 billion dollars, surpassing analyst expectations of approximately 67 billion dollars. The company's earnings per share (EPS), excluding certain special items, stood at 3.19 dollars, exceeding the average analyst estimate of 3.14 dollars. Global same-store sales, which measure sales from restaurants open for at least 13 months, grew by 3.8% year-over-year, outpacing the average analyst forecast. The international market led this growth, while the U.S. market showed modest improvement, with same-store sales increasing by 2.5% compared to a 0.7% decline in the same period last year.

Morgan Stanley, in response to these earnings, maintained its "hold" rating for McDonald's, setting a new target price of 326 dollars. The firm noted that McDonald's performance for the quarter was largely in line with expectations, with most metrics exceeding market consensus. The international market, in particular, showed strong performance. However, Morgan Stanley highlighted that resolving price disputes remains a critical factor for the company's future prospects. The firm believes that addressing these issues will be key to sustaining McDonald's growth and maintaining its competitive edge in the market.

Despite the positive quarterly results, Morgan Stanley's decision to maintain a "hold" rating suggests a cautious outlook, emphasizing the need for McDonald's to navigate pricing challenges effectively. The firm's target price of 326 dollars reflects a balanced view of the company's current valuation and future potential, taking into account both its strengths and the challenges it faces. The firm noted that the current stock price already reflects many of these positive factors, and the valuation is higher than that of many peers.

During the earnings call, it was clear that the U.S. market still has room for improvement. Notably, core menu pricing remains a pain point for some consumers, particularly those who do not use the loyalty system or have not purchased the new value menu. This issue is exacerbated by the fact that meal prices have generally exceeded 10 dollars. While it was previously unclear whether McDonald's was prepared to address this issue head-on, recent indications suggest that the company may take more proactive measures to enhance the perception of value or enter a new phase. The exact form of these measures is yet to be determined, but they will need to demonstrate to franchisees that potential price adjustments will yield long-term benefits. In the current macroeconomic environment, this aspect is considered more critical than updates at the product or marketing level.