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Arcos Dorados Is A Buy Despite Weak Earnings

May 26, 2015 | About:

Arcos Dorados Holdings (NYSE:ARCO) is McDonald’s (NYSE:MCD) largest franchisee in the world in terms of systemwide sales and number of restaurants. The company has struggled despite its exposure to McDonald’s and the stock has lost close to 50% of its value in the last 12 months. Investors can use this drop to buy the stock as it currently offers great value. Although the stock was hammered after it missed its quarterly estimates, investors should look at the long-term prospects of the company and buy the stock.

In Q1 FY15, Arcos Dorados reported revenue of $775.1 million versus the consensus estimate of $907 million. The company’s first quarter consolidated adjusted declined 16.8% but rose 35.5% on an organic basis year-over-year. Excluding Venezuela, adjusted EBITDA decreased to 20.8% and dropped 5.2% in organic terms.

Net expense was broadly stable year-over-year at $16.3 million. The adjusted EBITDA margin increased by around 10 basis points to 3% as efficiencies in payroll and other operating expenses more than compensated for the higher food and paper costs.

The company put efforts to become leaner and well-organized, as they maintain their tremendous customer understanding levels to certify their sustainable growth in their business.

Arcos Dorados Offering McDonald’s Customer Instant Win Billetazos

Arcos Dorados is offering customers at its McDonald’s restaurants in Argentina, Chile, Uruguay and Peru a total of more than 10 million in promotional “Billetazo” currency notes. Every customer buying a McCombo will be given an instant win Billetazo note, which can be redeemed for a discount on further buying at McDonald’s.

Billetazos currency notes can be used independently or can be combined for higher value at McDonald’s restaurants and AutoMac drive-thrus. The Billetazo currency notes can be redeemed moreover as partial or full payment through June 30, 2015.

The Billetazos promotion is now ongoing, with Arcos Dorados proposing an overall of 8 million Billetazos in Argentina, 2 million in Chile, 1 million in Uruguay and 450,000 in Peru. This is the first time Arcos Dorados is proposing the Billetazo promotion in Latin America, giving a huge number of customers the pleasure of an instant win.

Coffee sales

Arcos Dorados introduced a new coffee marketing plan in January, intended to drive sales at its more than 800 McDonald’s restaurants in Brazil. The program involved superior 100% Rainforest certified coffee, reliable inducements, social media advertising, and the introduction of extraordinary cups, which uphold temperature longer and ease intake on the go.

Dropped temperatures in major Brazilian cities aided drive adoption of the innovative thermal-resistant cups, offered in 240ml and 300ml sizes, with customers responding well to this new innovative idea.

The company offers McCafe coffee at all its restaurants in Brazil, including the traditional Brazilian Café, as well as its popular Cappuccino.

All McDonald’s coffee in Brazil is made from high quality grains sourced from Café do Centro, a dealer known for its sustainable practices and Rainforest Alliance certification.

Conclusion

Both McDonald’s and Arcos have struggled in the past 12 months, however the company is now attractively priced and calls for a buy rating. Arco has many positive factors that can drive the stock higher, and investors should consider adding it to their portfolios.


Rating: 4.0/5 (1 vote)

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