Restaurants

McDonald's earnings top Wall Street views as global same-store sales strengthen

McDonald's beats Street on top and bottom line
VIDEO1:5601:56
McDonald's beats Street on top and bottom line

McDonald's on Monday reported earnings and revenue that outpaced analysts' estimates, but a drop in U.S. comparable restaurant sales — the first in six quarters — sparked some concerns.

McDonald's has been working hard to revamp its menu and improve its customer experience, but comparable sales declines in the U.S. — although smaller than expected — have some worried about how McDonald's will perform in the coming year when it faces tougher comparisons.

The company's stock was recently trading down about 1 percent.

In the fourth quarter, the fast-food giant posted earnings excluding items of $1.44 per share, up from the $1.31 a share the company earned last year.

Revenue fell 5 percent to $6.03 billion, down from $6.34 billion a year ago. However, revenue was down only 3 percent on a constant currency basis, and the decline in the latest period was narrower than some analysts expected.

Analysts polled by Reuters had expected the company to report adjusted earnings of about $1.41 per share on $5.99 billion in revenue.

McDonald's did not provide a forecast for the first quarter or full year 2017. However, it noted that the coming quarter would have one less day due to last year's leap day.

"Throughout 2016, we worked diligently to lay the groundwork for our long-term future," President and Chief Executive Officer Steve Easterbrook said in a press release. "Our efforts yielded a more streamlined and focused organization that generated solid fourth quarter and full year results, including our strongest annual global comparable sales growth since 2011 along with record franchisee cash flows in many of our major markets. I am confident that we're on the right path."

Global same-store sales rose 2.7 percent, driven by stronger sales in the U.K., China, Japan and some Latin American markets.

In the U.S., however, the company's performance wasn't as strong. Fourth-quarter comparable sales fell 1.3 percent, hurt by the comparison against last year's strong performance led by the start of its All-Day Breakfast program. Operating income fell 11 percent.

Analysts had been expecting a U.S. same-store sales decline of 1.4 percent, according to FactSet.

Conlumino analyst Neil Saunders said the latest results are testing the early optimism around its turnaround program, citing the slip in U.S. same-store sales.

"McDonald's is now lapping some tougher comparatives, especially in the U.S. where, this time last year, it was reaping the rewards of menu reconfiguration and the introduction of the All Day Breakfast," Saunders said. "These changes were supposed to drive a steady and sustainable uplift in spending rather than a one-off spike in sales, but it is increasingly clear that this strategy is not delivering through."

As a result, Saunders said he sees McDonald's facing higher costs due to a more complex menu, which aren't being offset by an increase in customer traffic.

"Widening the audience in a sustainable way is the key issue for McDonald's as it enters is new fiscal year," he said. "This has to be more than about menu change. ... Indeed, it is clear that the menu changes made so far have not completely reinvigorated the brand with younger and more discerning consumer segments, many of whom still shun the chain in favor of what they see as more premium offerings from other players."

McDonald's recently launched two new versions of its Big Mac, the Grand Mac and Mac Jr., and advertising is expected to begin on Jan. 26.

Outside the U.S., things were more positive. Comparable sales in McDonald's international lead markets rose 2.8 percent in the latest period, led by the U.K. Operating income in the segment rose 1 percent.

A strong performance in China and positive results across other areas in McDonald's high growth segment led to a 4.7 percent jump in comparable sales.

In foundational markets, comparable sales surged 11.1 percent, led by a strong performance in Japan and certain Latin American markets.

Overall, the results were "pretty encouraging and the McDonald's story is still on track," R.J. Hottovy, an analyst at Morningstar, said on CNBC's "Squawk Box."

—CNBC's Sarah Whitten contributed to this report.