McDonald's beat earnings estimates, boosted by higher menu prices
McDonald's shares are down nearly 3% year to date.
McDonald's (MCD) beat earnings estimates for the third quarter as higher menu prices boosted sales growth.
Global systemwide sales — which include sales at company-owned and franchised restaurants — increased 11%. Same-store sales jumped 8.8%, higher than analysts' estimates of 7.79%, per Bloomberg consensus data.
Revenue jumped 14% year over year to $6.69 billion, higher than estimates of $6.52 billion. Adjusted earnings per share came in at $3.19, up 19% from last year.
“The macroeconomic environment is unfolding in line with our expectations for the year, and we continued to deliver convenience and value for our customers," CEO and president Chris Kempczinski said in a press release.
Shares of McDonald's are down nearly 3% year to date, trailing behind Restaurant Brands International (QSR), which is up nearly 2% year to date, but ahead of YUM! Brands (YUM) shares, which are down nearly 7%.
As consumers buckled down on where they spent their money, McDonald's said it got a boost in its home country.
In the US, sales benefitted from higher menu prices, new marketing campaigns, and growing digital and delivery orders. Beginning in August, the company launched its As Featured In Meal campaign that showed meals that have appeared in films, movies, or TV shows.
Low-income consumers in the US, who make $45,000 and under, contributed to a "slight dip in traffic" compared to a year ago in Q3, Kempczinski said on a call with investors. However, the company continues to gain share among middle and high-income consumers.
Baird analyst David Tarantino said McDonald's typically gains foot traffic when there are "mounting macroeconomic uncertainties" in a note to clients, adding that the Golden Arches is "one of the best positioned brands ... to navigate a tougher backdrop."
During the financial crisis from 2008 to 2009, sales growth averaged 3.4% in the U.S. and 6.9% in Europe, he said.
The company also reported systemwide digital sales — which includes sales made on the app, delivery, or on the kiosk — totaled $9 billion across its six biggest markets, making up 40% of total sales. That's more than Q2, which saw $8 billion in digital sales.
Kempczinski said the brand is building "pretty significant scale" when it comes to digital, which "opens up a lot of opportunities" and is "difficult for our competitors to match."
The earnings rundown
Here's what McDonald's reported, compared to Wall Street estimates per Bloomberg consensus data:
Revenue: $6.69 billion versus $6.52 billion expected
Adjusted EPS: $3.19 versus $2.98 expected
Same-store sales growth: 8.8% versus 7.79% expected
US sales growth: 8.1% versus 7.5% expected
International operated markets sales growth: 8.3% versus 8.51% expected
International developed licensed markets sales growth: 10.5% versus 8.27% expected
McDonald's also incurred pre-tax charges of $26 million, or $0.02 per share for the quarter, primarily related to its restructuring plan that saw the company lay off an undisclosed number of workers in early April. The fast food giant expects the total annual charge to be $224 million for the year.
On Dec. 6, the company is holding an investor update, where it plans to share more about its 2024 outlook. Kempczinski teased during the call that updates include information about its drive-thru only location in Fort Worth, Texas.
"There is going to be an opportunity for us to have restaurants that are smaller footprint that don't have a dining room," he said.
There was no mention of the impact of weight loss drugs, known as GLP-1s, on the earnings call.
A note to clients from TD Cowen's consumer team said the impact to quick-service restaurants isn't as large compared to other food retail categories due to two factors.
Quick service has a "higher exposure to low income consumers who are less likely to pay for GLP-1s out of pocket," and "higher international exposure, where obesity rates are significantly lower & Wegovy is generally not approved or unavailable for weight-loss."
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].
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