McDonald’s announced on Tuesday (October 29) that its quarterly earnings and revenue exceeded analysts’ expectations, successfully reversing the previous quarter’s decline in same-store sales in the United States.
The fast-food giant noted a decrease in sales and customer traffic in the days following federal officials’ announcement of an E. coli outbreak. The company reiterated most of its financial expectations for the year, based on the assumption that the E. coli outbreak would not significantly impact business.
For the three months ending on September 30, McDonald’s reported a 3% increase in overall revenue compared to the same period last year, reaching $6.87 billion. However, net income decreased. Sales and revenue, adjusted for one-time items, surpassed analysts’ expectations.
According to LSEG’s survey of analysts, here is a comparison of the company’s report as of September 30 and Wall Street’s expectations:
– Earnings per share: Adjusted to $3.23, expected $3.20;
– Revenue: $6.87 billion, expected $6.82 billion.
McDonald’s reported third-quarter net income of $2.26 billion, or $3.13 per share, lower than the $2.32 billion, or $3.17 per share, in the same period last year.
The company’s stock price rose about 1% on Tuesday morning to $299.39. Since the announcement of the E. coli outbreak investigation by health authorities, McDonald’s stock had already dropped nearly 6% before the market closed on Monday (October 28).
McDonald’s CEO Chris Kempczinski apologized to customers during an investor conference call on Tuesday and stated that the company believes food safety concerns have been addressed. The company plans to reintroduce the Quarter Pounder in the affected areas related to the outbreak.
According to Gordon Haskett Research Advisors, within three days of the Centers for Disease Control and Prevention (CDC) announcement regarding the E. coli outbreak associated with McDonald’s last Tuesday, foot traffic at U.S. stores dropped about 10%.
However, same-store sales in the U.S. grew by 0.3%, reversing the decline trend from the previous quarter, albeit slightly below StreetAccount’s predicted 0.5% growth. The slight decline in customer traffic at U.S. restaurants was attributed to the company’s marketing efforts and the $5 value meal introduced at the end of June.
Kempczinski expressed encouragement over the progress in the U.S. but noted that the company’s overall performance fell short of expectations. He pointed out that foot traffic in fast-food restaurants still faces pressures across the industry.
According to StreetAccount estimates, global same-store sales for the chain decreased by 1.5%, surpassing Wall Street’s expected 0.6% decline, primarily due to drag from the company’s international markets.
Both of the company’s international segments saw declines in same-store sales exceeding the previous quarter. The International Operated Markets division (including France, Germany, and Australia) reported a 2.1% decrease in same-store sales. The International Developmental Licensed Markets division reported a 3.5% decline in same-store sales, attributed to soft demand in the Middle East and China.
McDonald’s executives earlier stated that after raising menu prices to offset higher costs, the company needed to take more measures to provide affordable options to consumers.
Following the introduction of the $5 meal promotion this summer, business gradually improved, according to franchisees and industry data. McDonald’s has extended this offer until December and introduced a new chicken Big Mac this month. The product is reportedly selling well and boosting sales of the traditional beef Big Mac.
Amid ongoing inflation, consumers have reduced spending at restaurants, forcing McDonald’s and its competitors to rely on discounts and other marketing tactics to lure customers back to their establishments. The dining sector has had a poor performance this year.
McDonald’s plans to launch a more comprehensive value menu early next year and collaborate with international franchisees to offer more economical choices.
(This article referenced reports from CNBC and The Wall Street Journal)