McDonald's earnings beat estimates as U.S. traffic grows despite price hikes
- McDonald's first-quarter earnings and revenue topped Wall Street's estimates.
- The fast-food chain's U.S. traffic rose for the third consecutive quarter, bucking the industry trend of slipping traffic.
- All three of McDonald's divisions reported same-store sales growth of 12.6%.
- Executives again warned that a recession could hit the U.S. and Europe later this year.
McDonald's on Tuesday reported quarterly earnings and revenue that topped analysts' expectations as U.S. consumers keep buying Big Macs and Shamrock Shakes.
But executives offered a conservative view of the economy, reiterating last quarter's warning that recessions could hit the U.S. and Europe later this year. Customers in some of McDonald's markets have pushed back more than expected against price increases, and diners have slightly decreased how many menu items they include in an order.
Still, executives stressed they are confident that the fast-food giant can handle any challenges.
"At McDonald's, we perform well in good times and in bad, so that gives us optimism as we go through the rest of the year," CEO Chris Kempczinski said on the company's conference call.
Shares of the company were down 1% in morning trading.
Here's what the company reported compared with Wall Street expectations, based on a survey of analysts by Refinitiv:
- Earnings per share: $2.63 adjusted vs. $2.33 expected
- Revenue: $5.9 billion vs. $5.59 billion expected
The fast-food giant reported first-quarter net income of $1.8 billion, or $2.45 per share, up from $1.1 billion, or $1.48 per share, a year earlier.
Excluding restructuring charges and other items, McDonald's earned $2.63 per share.
The company reported a $180 million charge, which CFO Ian Borden said was related to terminating leases and employee severance as part of a corporate reorganization. Earlier this month, McDonald's laid off hundreds of office workers as it moves to become more efficient and eliminate silos across the company.
Net sales rose 4% to $5.9 billion. All three of its divisions reported same-store sales growth of 12.6%.
In its home market, higher menu prices and increased traffic fueled same-store sales growth, which topped StreetAccount estimates of 7.9%.
McDonald's U.S. traffic rose for the third consecutive quarter, bucking the industry trend of slipping traffic as menu prices rise. Historically, fast-food chains like McDonald's have fared well during times of economic uncertainty as consumers trade down to its cheaper meals.
The company is also working to improve the taste of its burgers through small touches, like adding more Big Mac sauce and using softer hamburger buns. It has already rolled out the new burgers in many West Coast cities. Kempczinski said consumers' initial reactions have been positive.
While domestic restaurants have performed well in recent quarters, U.S. franchisees have been pushing back against policy changes made by the company's management. For example, the chain in January started implementing its Performance and Customer Excellence system in the U.S. to evaluate franchisees' restaurants.
"After three years of no grading in the restaurants and then you start grading, there inevitably is questions and, in some cases, feedback that we get, and we work our way through them," Kempczinski said, responding to an analyst question about franchisee resistance.
The Wall Street Journal reported Thursday that some franchisees are backing state legislation that would give them more say over their businesses in retaliation for such changes.
Outside the United States, McDonald's also saw better-than-expected sales. Its international operated markets, which include the United Kingdom, France, Germany and Australia, beat StreetAccount estimates of 8.5% same-store sales growth.
Its international developmental licensed markets segment, which includes China and Japan, topped same-store sales expectations of 10.5%. McDonald's executives said sales are improving in China, which ended its zero-Covid policy in December.
"We saw steady recovery in [China], with China posting positive comp sales growth for the quarter," Borden said.