McDonald's earnings beat Wall Street estimates, helped by price hikes as US foot traffic declined

Key Points
  • McDonald's board fired CEO Steve Easterbrook in November.
  • Chris Kempczinski, who formerly led the U.S. division, has replaced Easterbrook as chief executive.
  • McDonald's fourth-quarter earnings topped Wall Street analysts' estimates.
  • The global fast-food chain expects that the impact of the Wuhan coronavirus on its business will be "fairly small."
McDonald's Q4 earnings: $1.97 per share vs. $1.96 EPS expected

McDonald's on Wednesday reported quarterly earnings that topped analysts' expectations as price hikes offset declining foot traffic in its U.S. restaurants.

Shares of the company, which has a market value of $161 billion, rose less than 1% in morning trading. The stock is up 15% over the last 12 months, as of Tuesday's close.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.97, adjusted, vs. $1.96 expected
  • Revenue: $5.3 billion vs. $5.3 billion expected
  • Global same-store sales: 5.9% vs. 5.2% expected

McDonald's fourth quarter was marked by an executive shakeup after its board fired CEO Steve Easterbrook in November for having a consensual relationship with an employee. Chris Kempczinski, who formerly led the company's U.S. division, was tapped to replace him.

The burger chain has struggled to reverse declining foot traffic to its U.S. restaurants as consumers lose their taste for fast food. It is also facing more competition from other chains, particularly in breakfast, the only time of day that is growing customer traffic across the fast-food industry. For example, rival Wendy's will launch breakfast nationwide this year.

McDonald's is leaning into chicken to entice consumers. On Tuesday, the company announced it would add two chicken sandwiches to its breakfast menu. It is also testing a Southern-style chicken sandwich to rival those from Chick-fil-A and Restaurant Brands International's Popeyes Louisiana Kitchen.

"We're committed to really updating and competing in an aggressive way in the chicken segment," Kempczsinki said but declined to share more on future plans.

In the United States, its home market, same-store sales climbed 5.1% during the quarter, despite traffic to restaurants falling by 1.9% in 2019.

"Getting U.S. guest count to positive is our number one priority," Kempczinski told analysts on the conference call, adding that the focus will be winning over breakfast customers.

McDonald's attributed its U.S. sames-store sales growth to price hikes, strong sales of core menu items like the Big Mac and positive impacts from high-tech store renovations that include self-order kiosks. The company expects to spend about $1.3 billion on capital expenditures in the U.S. in fiscal 2020, more than half of which will be spent on those renovations.

McDonald's reported fiscal fourth-quarter net income of $1.57 billion, or $2.08 per share, up from $1.41 billion, or $1.82 per share, a year earlier.

Excluding a tax benefit related to new regulations, the global fast-food giant earned $1.97 per share, topping the $1.96 per share expected by analysts surveyed by Refinitiv.

Net sales rose 4% to $5.3 billion, meeting expectations. The company reported global same-store sales growth of 5.9%.

The company's international operated segment, which includes top markets like Germany and France, reported same-store sales growth of 6.2% during the quarter. Restaurants in its smaller international developmental licensed segment, which includes China and Brazil, saw same-store sales growth of 6.6%.

As a result of the outbreak of the Wuhan coronavirus, McDonald's has closed all of its restaurants in the Hubei province of China, where the virus originated. The global fast-food chain still has about 3,000 restaurants open in China.

"It's actual impact on our business will be fairly small, assuming that it remains contained in China," Kempczinski said.

Its total business in China accounts for 4% to 5% of its global systemwide sales and 3% of its operating income. McDonald's sold the majority of its China stake in 2017.  

During fiscal 2019, global systemwide sales surpassed $100 billion.

McDonald's maintained its long-term forecast for earnings per share growth in the high-single digits and systemwide sales growth in a range of 3% to 5%. It said it will add about 1,000 net new restaurants globally in 2020 and expects global capital expenditures of about $2.4 billion.

Read the full press release here.

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