- McDonald's fourth-quarter earnings and revenue topped Wall Street's estimates.
- Consumers have been trading down from full-service restaurants to Big Macs and McNuggets as they pull back on spending.
- The fast-food giant is expecting that short-term inflation will continue in 2023.
McDonald's on Tuesday reported that U.S. customers are visiting its restaurants more, helping the fast-food giant top Wall Street's estimates for its fourth-quarter earnings and revenue.
It's the second consecutive quarter that the company noted increasing traffic domestically, bucking the industry trend. Many consumers have cut back restaurant spending in response to inflation. But McDonald's has largely benefitted from the change in consumer behavior since many have traded down from full-service restaurants to its Big Macs and McNuggets.
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"Overall, the consumer, whether it's in Europe or in the U.S., is actually holding up better than what we would have probably expected a year ago or six months ago," CEO Chris Kempczinski said on the company's conference call Tuesday morning.
The fast-food giant is expecting that short-term inflation will continue in 2023, although executives said inflation in the U.S. has likely peaked. Kempczinski said the company is predicting a "mild to moderate" recession in the U.S. and a "deeper and longer" downturn in Europe.
Kempczinski's cautious tone comes after a pair of positive economic announcements. The euro zone surprised economists by reporting its GDP grew in the fourth quarter, and the International Monetary Fund raised its global growth projections for 2023, although its outlook is still relatively weak.
McDonald's shares fell more than 2% in morning trading Tuesday.
Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: $2.59 vs. $2.45 expected
- Revenue: $5.93 billion vs. $5.68 billion expected
The company reported fourth-quarter net income of $1.9 billion, or $2.59 per share, up from $1.64 billion, or $2.18 per share, a year earlier.
Net sales fell 1% to $5.93 billion but rose 5% when stripping out foreign currency changes. Globally, same-store sales climbed 12.6% in the quarter, fueled by strong demand in the U.S. and its largest European markets.
In McDonald's home market, higher menu prices and increased demand drove same-store sales growth of 10.3%, topping StreetAccount estimates of 8.1%. Executives said that low-income consumers are still ordering less but have started returning more frequently compared to the prior two quarters. The company also noted the success of its McRib promotion, which labeled the limited-time item's annual return as its "farewell tour."
Outside of the United States, the company also saw stronger-than-expected growth. Its international operated markets segment reported a same-store sales increase of 12.6%, fueled by strong performance in the United Kingdom, Germany and France.
Its international developmental licensed markets division saw same-store sales climb 16.5%, driven by Japan and Brazil. Sales in China, however, disappointed due to Covid-related government restrictions.
Looking to 2023, McDonald's is forecasting that it will open 1,900 new restaurants. More than 400 of those will be in the U.S. and international operated markets, while the rest will be opened by developmental licensees.
Earlier in January, the company said it would be accelerating new restaurant development as part of a broader strategy shift. McDonald's is planning to add 100 more new net restaurants this year than it expected for 2022.
The company is planning to use between $2.2 billion and $2.4 billion on capital expenditures this year. About half of those funds will be earmarked for new restaurant development in the U.S. and its international operated markets.
Additionally, McDonald's is planning on giving European franchisees who need financial help $100 million to $150 million in 2023. CFO Kevin Ozan said higher food and energy costs have put pressure on operators' margins and cash flow.
Read the full McDonald's earnings report.