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Arcos Dorados Holdings Inc (ARCO)
NYSE:ARCO
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Arcos Dorados Holdings
(NYSE:ARCO)
66Neutral
Positive Factors
Business Expansion
The opening plan for 2025 shows an acceleration from the previous year's openings.
Financial Performance
Free cash flow was stronger than estimated, and net debt decreased significantly.
Negative Factors
Earnings
Net income of $29.7 million missed analyst and consensus expectations due to higher taxes.
Arcos Dorados Holdings (ARCO) vs. S&P 500 (SPY)
Market Cap
$1.64B
Dividend Yield3.03%
Average Volume (3M)1.20M
Price to Earnings (P/E)11.4
Beta (1Y)0.50
Revenue Growth7.82%
EPS Growth-18.83%
CountryUS
Employees100,795
SectorConsumer Cyclical
Sector Strength49
IndustryRestaurants & Bars
Share Statistics
EPS (TTM)0.69
Shares Outstanding130,663,060
10 Day Avg. Volume1,336,158
30 Day Avg. Volume1,198,692
Financial Highlights & Ratios
PEG RatioN/A
Price to Book (P/B)N/A
Price to Sales (P/S)0.38
Price to Cash Flow (P/CF)N/A
P/FCF Ratio0.00
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
$10.83Price Target Upside38.85% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering2
Arcos Dorados Holdings Business Overview & Revenue Model
Company DescriptionArcos Dorados Holdings, Inc. engages in the operation of restaurants. The firm operates and franchises McDonald's restaurants in the food services industry through its subsidiaries. It operates through the following geographical segments: Brazil, Caribbean Division, North Latin America division (NOLAD), and South Latin America division (SLAD). The Caribbean Division geographical segment composes Aruba, Curacao, Colombia, French Guyana, Guadeloupe, Martinique, Puerto Rico, Trinidad and Tobago, the U.S. Virgin Islands of St. Croix, and St. Thomas and Venezuela. The SLAD geographical segment comprises Argentina, Chile, Ecuador, Peru, and Uruguay. The NOLAD geographical segment consists Costa Rica, Mexico, and Panama. The company was founded on August 3, 2007 and is headquartered in Montevideo, Uruguay.
How the Company Makes MoneyArcos Dorados makes money primarily through the operation of McDonald's restaurants, generating revenue from the sale of food and beverages. The company's revenue streams include direct sales from company-operated restaurants and royalties from franchised locations. Arcos Dorados benefits from economies of scale, allowing it to optimize costs and enhance profitability. Significant partnerships with McDonald's Corporation provide access to global marketing, research, and development resources, further supporting its earnings. The company's performance is influenced by factors such as consumer preferences, economic conditions in its operating regions, and its ability to efficiently manage restaurant operations.
Arcos Dorados Holdings Financial Statement Overview
Summary
Arcos Dorados Holdings shows strong revenue growth with healthy EBIT and EBITDA margins, indicating operational efficiency. However, a high debt-to-equity ratio and recent negative free cash flow pose challenges, requiring improved cash flow management.Income Statement
Arcos Dorados Holdings has shown strong revenue growth over recent years, with a notable increase from 2021 to the TTM period. The gross profit margin stands at 14.48% for TTM, while the net profit margin is 3.25%. EBIT and EBITDA margins are at 6.73% and 9.89% respectively, indicating healthy operational efficiency. Although net income decreased slightly in the TTM compared to the previous year, overall profitability remains solid.78
Positive
Balance Sheet
The company's debt-to-equity ratio is relatively high at 3.35, indicating significant leverage. However, the return on equity (ROE) is 28.53%, which is strong, reflecting efficient use of equity. The equity ratio is 17.30%, suggesting moderate financial stability. The high leverage poses potential risks, but the strong ROE mitigates some concerns.65
Positive
Cash Flow
Free cash flow has turned negative in the TTM period, signaling potential challenges in cash management. The operating cash flow to net income ratio is 2.11, indicating solid cash generation relative to net income. However, the free cash flow to net income ratio is negative, which could affect future liquidity and investment capabilities. The decrease in free cash flow demands attention to improve cash flow sustainability.60
Neutral
| Breakdown | |||||
| TTM | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 | Dec 2019 |
|---|---|---|---|---|---|
| Income Statement | Total Revenue | ||||
| 4.50B | 4.33B | 3.62B | 2.66B | 1.98B | 2.96B | Gross Profit |
| 651.91M | 597.14M | 2.59B | 324.06M | 115.44M | 367.54M | EBIT |
| 302.87M | 312.14M | 144.65M | 139.52M | -66.75M | 159.94M | EBITDA |
| 446.21M | 459.66M | 386.25M | 244.69M | 51.51M | 283.99M | Net Income Common Stockholders |
| 146.13M | 181.27M | 140.34M | 45.49M | -149.39M | 79.90M |
| Balance Sheet | Cash, Cash Equivalents and Short-Term Investments | ||||
| 197.28M | 246.77M | 304.40M | 278.83M | 165.99M | 121.91M | Total Assets |
| 1.58B | 3.02B | 2.64B | 2.36B | 2.29B | 2.56B | Total Debt |
| 630.62M | 1.69B | 1.56B | 1.53B | 1.61B | 1.57B | Net Debt |
| 433.33M | 1.49B | 1.29B | 1.25B | 1.44B | 1.45B | Total Liabilities |
| 1.19B | 2.50B | 2.31B | 2.14B | 2.10B | 2.14B | Stockholders Equity |
| 392.38M | 515.28M | 323.62M | 220.43M | 197.55M | 421.14M |
| Cash Flow | Free Cash Flow | ||||
| -59.59M | 21.87M | 128.32M | 143.04M | -70.34M | -41.75M | Operating Cash Flow |
| 307.66M | 381.96M | 345.44M | 258.04M | 15.97M | 223.48M | Investing Cash Flow |
| -296.65M | -380.35M | -259.65M | -108.28M | -88.71M | -260.99M | Financing Cash Flow |
| -22.16M | -11.82M | -59.98M | -17.93M | 126.01M | -29.63M |
Arcos Dorados Holdings Technical Analysis
Negative
7.80
Price Trends
7.74
Positive
8.07
Negative
8.59
Negative
Market Momentum
-0.01
Positive
46.12
Neutral
63.70
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For ARCO, the sentiment is Negative. The current price of 7.8 is below the 20-day moving average (MA) of 8.09, above the 50-day MA of 7.74, and below the 200-day MA of 8.59, indicating a neutral trend. The MACD of -0.01 indicates Positive momentum. The RSI at 46.12 is Neutral, neither overbought nor oversold. The STOCH value of 63.70 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for ARCO.
Arcos Dorados Holdings Risk Analysis
Arcos Dorados Holdings disclosed 50 risk factors in its most recent earnings report. Arcos Dorados Holdings reported the most risks in the “Finance & Corporate” category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Arcos Dorados Holdings Peers Comparison
Overall Rating
UnderperformOutperform
Sector (60)
Financial Indicators
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
76 Outperform | $219.17B | 27.85 | -216.57% | 2.14% | 1.67% | -1.61% | |
75 Outperform | $44.12B | 31.17 | -19.43% | 1.72% | 6.68% | -7.09% | |
66 Neutral | $1.64B | 11.40 | 30.64% | 3.03% | 7.82% | -18.83% | |
66 Neutral | $3.12B | 16.43 | 68.30% | 6.42% | 2.98% | -2.58% | |
62 Neutral | $15.09B | 28.28 | -14.74% | 1.37% | 5.07% | 13.74% | |
60 Neutral | $12.39B | 10.47 | 1.07% | 3.58% | 1.64% | -18.33% |
* Consumer Cyclical Sector Average
Performance Comparison
ARCO
Arcos Dorados Holdings
7.80
-3.83
-32.93%
DPZ
Domino's Pizza
430.56
-16.09
-3.60%
MCD
McDonald's
306.76
19.44
6.77%
WEN
Wendy's
15.47
-1.86
-10.73%
YUM
Yum! Brands
156.70
18.67
13.53%
QSR
Restaurant Brands International
68.01
-11.22
-14.16%
Arcos Dorados Holdings Earnings Call Summary
Earnings Call Date: Nov 13, 2024 | % Change Since: -6.36% | Next Earnings Date: Mar 12, 2025
Earnings Call Sentiment Positive
The earnings call emphasized strong revenue and digital sales growth, market share gains, and successful loyalty programs. However, challenges such as currency devaluation, margin pressures, and economic instability in Argentina were noted. Despite these challenges, the company's strategic focus and market position indicate resilience and potential for future growth.Highlights
Record Third Quarter Revenue
U.S. dollar revenue set a new high for the third quarter with system-wide comp sales up more than 32%.
Strong Digital Sales Growth
Digital sales grew 16%, contributing to 58% of system-wide sales in the quarter.
Restaurant Openings and Development
Opened 56 Experience of the Future restaurants year-to-date through September, with 32 in Brazil, and on track to meet 2024 openings guidance.
Market Share Gains
Gained 5 points of value share across the company's footprint in the quarter and 3.6 points during the first 9 months of the year.
Positive EBITDA Performance
Consolidated EBITDA was the second highest for a third quarter in company history, despite some margin contractions.
Loyalty Program Success
Loyalty program has reached about 14 million registered members across Brazil, Costa Rica, and Uruguay, boosting guest engagement and sales growth.
Debt Rating Upgrade
Moody's upgraded Arcos Dorados debt rating to Ba1 with a stable outlook, aligning with Fitch's BB+ rating.
Lowlights
Currency Devaluation Impact
Devalued currencies, especially in Brazil and SLAD, impacted revenue results.
Margin Pressures
50 basis point contraction in EBITDA margin due to payroll and occupancy cost increases, especially in NOLAD and SLAD.
Economic Challenges in Argentina
High inflation and currency issues in Argentina, although performance improved sequentially.
Labor Cost Pressures
Ongoing labor cost pressures in NOLAD, especially in Mexico and Puerto Rico.
Company Guidance
During the Q3 2024 earnings call, Arcos Dorados reported a strong financial performance, emphasizing their strategic focus on digital, delivery, drive-thru, and development. Key metrics highlighted were a system-wide comparable sales increase of over 32%, despite challenging economic conditions, and a 16% growth in total digital sales, with digital channels accounting for 43% of system-wide sales. The company opened 56 "Experience of the Future" restaurants year-to-date through September, including 32 in Brazil, and plans to meet its 2024 openings guidance. Additionally, U.S. dollar EBITDA was reported as the second highest for a third quarter, although margins contracted slightly by 50 basis points due to currency devaluation impacts, particularly in SLAD. Arcos Dorados continues to capitalize on market share gains, with McDonald's brand gaining 5 points of value share across its footprint, and it is on track for continued growth driven by a disciplined development strategy and a strong balance sheet.Glossary
OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.
NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.
UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.