McDonald's had a stronger-than-expected quarter thanks to big changes at the fast food giant. Could this be the big turnaround they were hoping for?
— Kristen Hawley
McDonald’s Corp. is getting customers back into its restaurants after years of declining traffic, helped by drink deals and more upscale burgers.
The company saw an increase in U.S. diners last quarter — a key milestone that has proved elusive to Chief Executive Officer Steve Easterbrook — and posted same-store sales that handily beat analysts’ estimates.
The results mark a victory for the 49-year-old CEO, who has been working to overhaul McDonald’s for the past two years. Even after he managed to increase sales at the world’s largest restaurant chain — helped by higher prices — it’s taken longer to get more people in the door.
“You can increase sales by raising prices, but that’s not sustainable,” said Michael Halen, an analyst at Bloomberg Intelligence. “This is good, strong sustainable growth.”
The shares gained as much as 3.1 percent to $156.50 in early trading after the results were posted. They had increased 25 percent this year through Monday’s close.
As many of its fast-food competitors struggle, McDonald’s has boosted sales with cheaper drinks, all-day breakfast and higher-quality chicken. The chain is also improving kitchen equipment to make its food taste better. Same-store sales rose for the eighth-straight quarter, and its domestic gain of 3.9 percent beat analysts’ estimate of 3.2 percent.
Easterbrook, who took over in March 2015, also has contended with a record run of grocery deflation that has made restaurants a tougher sell to many Americans. Chains have had to work harder to compete with supermarkets, where eggs and other staples are increasingly cheap.
“We’re building a better McDonald’s and more customers are noticing,” Easterbrook said in a statement.
Second-quarter revenue amounted to $6.05 billion, beating the average analyst estimate of $5.96 billion. Earnings rose to $1.70 a share, compared with a projection of about $1.62.
Globally, same-store sales gained 6.6 percent, well ahead of the 4 percent predicted by analysts, according to Consensus Metrix.
McDonald’s traffic had dropped domestically for the past four years. While Oak Brook, Illinois-based McDonald’s posted surprisingly strong sales in the first quarter, customer counts were still negative.
In March, company executives said McDonald’s had lost over 500 million transactions in its home market since 2012. Most of those customers defected to other traditional fast-food competitors, not fancier or fast-casual chains like Chipotle Mexican Grill Inc. and Panera Bread Co., according to company officials.
McDonald’s sees delivery services and digital ordering options as the key to attracting more diners. It hasn’t been easy. U.S. competitors are advertising steeply discounted food and new fare. In response, Easterbrook has tried to overhaul the company’s menu and added all-day breakfast in the U.S. in 2015.
©2017 Bloomberg L.P.