Key Takeaways from the Start of Earnings Season

As earnings season kicked off last week, what did we learn from the week’s quarterly earnings releases that will provide clues about what transpires over the next few weeks (AAPL, CAKE, CMG, MCD, and YUM)?

MCD provided the bread crumbs as to how many U.S. based global retailers will generate EPS upside versus consensus expectations… via a much weaker U.S. Dollar. The company expects a $0.15 to $0.17 boost in FY 2011 via FX.

CMG and MCD both professed an inability to effectively pass along price increases in the short-run that will effectively offset this year’s commodity price pressures.

MCD management was asked on their quarterly earnings conference call as to why they could not forecast this year’s impact of commodity inflation in January 2011. But, the reality is that MCD management has consistently altered their forecast of commodity deflation/inflation (click here for link to the company’s guidance history). Their crystal ball is no better than the next guy.

MCD management suggested that they had not seen a negative top-line impact thus far from austerity measures in Europe.

CAKE repurchased 1.7 million shares in Q1 2011. Yet, the company’s basic share count remained flat in Q1 2011 versus Q4 2010. Were the shares repurchased late in the quarter, or were there option exercises that may have offset the positive impact of the share repurchase?

YUM management suggested that its U.S. Division’s results in Q2 2011 would be ugly, largely via a hangover from the Taco Bell lawsuit. But, it’s more likely that the U.S. Division’s biggest headwind in Q2 2011 is a materially more difficult 2-year profitability comparison. The U.S. Division will lap a +369 Bps company-operated Restaurant Margin improvement over the past 2 years. This compares to the -19 Bps 2-year run rate that the division lapped in Q1 2011.