McDonald's Earnings Top Expectations; U.S. Growth Slows--3rd Update
October 21 2016 - 2:04PM
Dow Jones News
By Julie Jargon
McDonald's Corp. beat expectations for global sales growth in
the third quarter, but the burger giant's key U.S. market cooled
further, fanning speculating that big menu changes could
follow.
A two-for-$5 menu and a Chicken McNuggets made without
preservatives helped boost U.S. sales. But some analysts predict
same-store sales will turn negative in the fourth quarter when they
will be compared with the figures run up during the all-day
breakfast introduction last year, which fueled sales for much of
the year.
Chief Executive Steve Easterbrook on Friday defended McDonald's
plans to keep sales up. "As to what's to be excited about going
forward, there's plenty," he said.
He suggested beverage deals promoted in some regions could be
made national, and said the company is developing technology to
make it easier for customers to order food. He also said new
products are being tested in some markets.
"We enter this period with our eyes wide open," Mr. Easterbrook
said. "We're not sitting on our hands."
McDonald's has added more items to its all-day breakfast menu
and is testing Happy Meal breakfasts in some markets. Executives
haven't said whether they plan to expand the fresh beef they are
testing in Dallas in an effort to make tastier, hotter burgers.
Mr. Easterbrook said operational changes that aren't as visible
to investors, such as more consistent and friendly service, have
led to increased customer satisfaction scores.
RBC Capital Markets analyst David Palmer said the two-for-$5
menu has increased the average price of meals rather than
generating more customer visits. McDonald's, he said, needs more
innovation, technology and food quality upgrades to attract more
guests.
Global same-store sales rose 3.5% in the quarter, driven by
growth in some of its strongest foreign markets, including Japan
and Brazil. In the U.S., same-store sales increased 1.3%, in line
with expectations. In the fourth quarter of last year, the first
reporting period that reflected the all-day breakfast launch, U.S.
same-store sales rose 5.7%.
Mr. Easterbrook said McDonald's is making changes that will
accelerate long-term growth. That includes shaking up management.
Five high-level executives have recently left or announced plans to
retire, including the head of the company's U.S. business, who is
being replaced by an executive from Kraft Foods Group Inc.
Mr. Easterbrook said he is trying to balance the need to retain
seasoned McDonald's veterans with the need to "bring in innovative
thinking."
McDonald's reported a profit of $1.28 billion, down from $1.31
billion a year earlier. Per-share earnings rose a dime to $1.50,
boosted by a lower share count but hurt by a restructuring charge
of 12 cents and currency headwinds of 3 cents. Analysts had
projected $1.48 in per-share earnings.
Revenue slipped 2.9% to $6.42 billion, due to the company
selling more restaurants to franchisees. Analysts had expected
revenue of $6.28 billion.
--Anne Steele contributed to this article.
Write to Julie Jargon at julie.jargon@wsj.com
(END) Dow Jones Newswires
October 21, 2016 13:49 ET (17:49 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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