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Wall Street cuts McDonald’s earnings estimates on costs to Russia

FILE PHOTO: A view shows a McDonald's restaurant in Saint Petersburg
FILE PHOTO: A view shows a McDonald’s restaurant in Saint Petersburg, Russia March 8, 2022. REUTERS/Anton Vaganov/File Photo

March 18, 2022

By Hilary Russ

NEW YORK (Reuters) – Wall Street analysts have lowered their forecasts for McDonald’s Corp earnings for 2022 and 2023, the latest sign some Western companies will take a financial hit as the cost of Russia’s invasion of Ukraine mounts .

Morgan Stanley said on Thursday it now expects the fast-food company’s net income to be $9.25 per share for this year and $10.62 for 2023, down 8% and 3%, respectively, from its previous estimate is equivalent to.

Previously, research firm Gordon Haskett lowered its estimate by 5% for 2022 to $9.75 per share and 3% for 2023 to $10.66 per share.

McDonald’s declined to comment on the measures.

The American burger chain — one of the first to open in Moscow in the post-Soviet era — pays rent and wages for its 62,000 employees in Russia, even though it has begun to close 847 restaurants there, most of which it owns they operate. It also pays wages to its employees in Ukraine.

The cost is expected to be $50 million per month or at least $450 million by the end of this year.

Stores in Russia and Ukraine — which are now closed — would typically generate around $310 million a year in operating profit, according to Gordon Haskett.

The Chicago-based company also faces potential declines in the value of its assets in Russia, whether through a downgrade, sale to a local owner or government confiscation, according to Morgan Stanley, which didn’t include them in its lowered earnings estimates.

The bank still finds McDonald’s stock attractive because of its ability to hold its own in an uncertain consumer environment.

McDonald’s has more exposure to Russia than other global fast food chains. It entered the country in 1990 and owns 84% ​​of its restaurants there.

Other brands such as Starbucks Corp and Burger King are less well represented in Russia. Their restaurants are largely owned by independent operators through joint ventures and master franchisee agreements.

After McDonald’s, Yum Brands Inc, the parent company of KFC and Pizza Hut, is the most exposed. Russia and Ukraine make up about 3% of consolidated operating income, analysts at Gordon Haskett said. That’s about $64 million based on 2021 numbers, according to a Reuters analysis of Refinitiv data.

Morningstar analysts haven’t changed their forecasts for either McDonald’s or Yum. But on March 8 they said they were concerned about higher fuel prices related to the war and the impact on consumer spending and restaurant margins.

McDonald’s global operating income hit $10.4 billion in 2021, data from Refinitiv showed.

While McDonald’s said the closures in Russia are temporary, analysts at Gordon Haskett said they believe stores in Russia, which sport the iconic golden arches, will remain closed until 2023.

(Reporting by Hilary Russ in New York; Editing by Bill Berkrot)

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DUSTIN JONES

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