We're in the heart of earnings season, and this week will include some iconic U.S. names in fast food, beverages, as well motorcycles. These are the three stocks I'll be watching.
Drink Up Starbucks Results
Starbucks (SBUX) -- which is reporting Tuesday -- has had quite a rally through the last 12 months. Looking into fiscal 2020, the coffee king provided guidance in their fiscal Q4 results of 3% to 4% comparable store sales growth, with an addition of 2,000 new stores. Consolidated unadjusted revenues are forecast at 6%-8%, while operating margins are expected to improve "modestly."
I made a mistake in the past not jumping in on Starbucks during its struggles last year. As a whole, I was too bearish on the holding, as the coffee giant became a little more reliant on increasing ticket, rather than traffic, gains. For the full fiscal year 2019, the company did see a 20.3% decline in net earnings. What has put new light into the stock was the strong finish to the year in the fiscal fourth quarter, with 6.2% improvements in net earnings, as well as a 19.6% increase in diluted earnings per share.
It will be interesting to see where the company's domestic sales are at. Asia has been a growth market for the company, but some stagnation at home ate into things last year. Renewed comp sales of 6% in the fiscal fourth quarter helped to change that story.
Harley Davidson Stalls
To say that Harley Davidson (HOG) -- which also reports Tuesday -- has been through some challenging times lately would be an understatement. The nostalgic centerpiece of American motorcycles has been suffering consistent sales declines, as consumer preferences appear to be shifting away from the traditional Harley designs.
We've watched the bikemaker work hard to maintain profitability and earnings value for shareholders. Through the last few years, the company has reduced its share count significantly in an effort to increase the shareholder value of its net income. Nevertheless, we've seen stagnation.
The tough risk/reward about the company is the strength of assets. The balance sheet carries $1.84 billion in total equity, with over $900 million in cash. Considering the company remains profitable, there aren't any near-term concerns. There just haven't been any signals yet that the company is pulling it together on the growth side.
Can McDonald's Beef Up?
Looking to see the fourth quarter results for McDonald's (MCD) on Wednesday, one has to take stock of what the company has done in recent years. Through a concerted effort to refranchise its stores base, the fast food king has drastically decreased its expenses. In turn, we've seen value unlocked for shareholders.
The question that I've always had about this, was what would McDonald's do after it finished the refranchising? Through the first nine months of 2019, revenues have been stagnant with a 1% decline. Through the same time frame, operating income was down 1%, and net income was flat at a decline of 1%. Investors have been appeased with a slight increase in diluted earnings per share to $5.80, but that was due to a decrease in shares outstanding, rather than income growth.
McDonald's reported global comp sales growth of 5.9% in the fiscal third quarter. Diluted unadjusted earnings were flat. This ties into my concerns about refranchising. While it certainly did shift costs to franchisees, it also limited McDonald's revenue potential from its locations. Growth in store sales will get split up between corporate and franchise owners. Looking to the fourth quarter, I'll be looking to see whether same store sales can really find enough momentum to drive revenues post refranchising.