McDonald’s posts positive third quarter results

Global fast food chain, McDonald’s, has posted an increase in sales for the third quarter as its promotions and fresh food offerings attract more customers.

McDonald’s net income rose to $1.88 billion (A$2.42 billion) in the three months ending September 30 from $1.28 billion the previous corresponding period.

Total revenue was $5.75 billion, down 10 per cent from a year earlier due to charges related to a refranchising initiative, according to McDonald’s.

The fast-food company said on Tuesday that sales in the US rose 4.1 per cent at existing locations during the third quarter, thanks to its US$1 drinks and its two for US$5 promotion called McPick 2.

McDonald’s also said pricier burgers, which are stuffed with crispy onions, kale or guacamole, helped boost sales, too.

McDonald’s has been working to modernise its restaurants by adding mobile ordering and offering delivery through the UberEats app. It’s also been tinkering with its menu as more people shun processed foods: It removed artificial preservatives from its nuggets and it’s working to use fresh beef in its Quarter Pounder burgers.

“We’re building a better McDonald’s and more customers are noticing,” said chief executive Steve Easterbrook.

Adjusted earnings came to $US1.76 per share, a penny above what analysts expected, according to Zacks Investment Research.

Revenue fell 10 per cent to US$5.75 billion, missing analyst expectations of US$5.8 billion. The company said it brought in less revenue as it switches more stores from company-owned restaurants to ones owned by franchisees, especially in China and Hong Kong.

Neil Saunders, managing director of GlobalData Retail, although various storms and natural disasters across the US threatened to blow McDonald’s off course, the company’s third-quarter numbers are a testament to both its resilience and the soundness of its reinvention strategy.

He said international growth may have waned slightly in lead markets, but its US comparable sales growth continues to accelerate over the same period last year.

“Given that the fast food and casual dining segments as a whole struggled over the third quarter, this is an encouraging set of results which suggests McDonald’s is gaining both market and customer share,” Saunders said.

Saunders said promotional activity has been key to McDonald’s success within the US, with the cold beverage promotion, the recent McCafé offer, and the McPick 2 deals pulling in customers.

“While such activity is not new and helped to drive trade during the second quarter, we are encouraged that it still has resonance given the recent increase in the number of offers and deals from fast food rivals,” he said.

Pleasingly, Saunders added, a focus on value for money did not erode margins, mainly thanks to cost savings initiatives and an increase in the sale of higher margin products. As a result, regional operating income for the quarter increased by a respectable six per cent.

“If McDonald’s success were solely reliant on a value play, we would harbor some concerns about its long-term sustainability,” Saunders said. “However, our data show that the company is also successfully driving sales of more premium products and drawing in new diners who are attracted by items like its Signature Crafted sandwiches.”

Saunders also said improvements to restaurants are also helping to shift perceptions of McDonald’s.

“Refurbished locations project a modern image and are also spaces that help attract new diners, especially family segments and younger age groups,” he said. “Better displays of products like snacks and treats have also boosted sales in categories where McDonald’s has traditionally been lackluster.”

“Although the modernisation program has further to run, we are encouraged that McDonald’s projects most of its freestanding restaurants will have been enhanced by the end of 2020,” Saunders said. “This, in our view, will provide a continued uplift to sales over the next few years. Moreover, changes to restaurant processes, which includes the introduction of more kiosks and the rollout of mobile ordering and pay, will help to improve operational efficiencies.”

Overall, according to Saunders, McDonald’s is proving that despite its already high market share and the sluggishness of the sector, it remains a fast food player that is firmly on the front foot.

* This story first appeared on sister site, Inside Retail New Zealand.

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