McDonald's ( NYSE: MCD ) fell in early trading on Tuesday after the fast-food giant's update on margins offset enthusiasm over the strong comparable sales tallies in Q4 across all segments.
During the earnings call, McDonald's ( MCD ) execs warned commodity, utility, and labo inflation will continue to drag on margins this year. The chain is also seeing the first signs of trade down with menu selections.
The key pullout may be that even as sales stay strong, McDonald's ( MCD ) expects 2023 operating margin to be about 45% of sales vs. the consensus mark of 46.5%.
On Wall Street, Cowen noted McDonald's ( MCD ) defensive appeal shined bright in Q4, with better-than-expected sales globally that accelerated meaningfully from Q3 across all three segments. "Within 2023 guidance, the biggest surprise is modestly higher net restaurant growth that is a contributor to higher-than-anticipated CapEx, as well as higher interest expense driven by higher rates," updated analyst Andrew Charles.
UBS highighted the strong performance of the fast-food chain in the U.S. and globally. Analyst Dennis Geiger expects MCD is well positioned if consumer spending power is pressured in the near term due to its favorable trade down characteristics from a strong everyday value focus. The firm kept its Buy rating in place.
Bank of America is more cautious on the upside for McDonald's. Analyst Sara Senatore and team continue to expect fairly modest consensus estimate revisions ahead, noting franchising reduces operating leverage both to the downside and upside. BofA also sees valuation at a historical peak. The firm has a Neutral rating on MCD.
Dig into the McDonalds' Q4 earnings report.
Shares of McDonald's ( MCD ) dipped 2.15% in early trading to $265.13. However, the McDonald's report is being viewed favorably across the restaurant sector with BurgerFi International ( BFI ) +2.75% , Shake Shack ( SHAK ) +2.69% , Denny's ( DENN ) +1.55% , and Wingstop ( WING ) +1.27% all in positive territory following the solid read on comparable sales.
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McDonald's swings lower with inflation worries in the mix