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McDonald’s: 3Q earnings supported by higher prices

McDonald’s reported better-than-expected 3Q18 results on Tuesday (23 October), with adjusted earnings of $2.10/ share coming in ahead of the Refinitiv consensus estimates of $1.99/share, although it was still down from the $2.32/share reported in 3Q17. The company said foreign currency exchange rates reduced its EPS by USc5 in the period under review. Meanwhile, revenue of $5.37bn also beat the Refinitiv consensus estimate of $5.32bn but fell 7% YoY. Same-store sales rose 4.2% globally in the quarter, vs a StreetAccount consensus expectation of 3.6% growth, while US same-store sales grew 2.4% YoY – slower than the consensus analysts’ forecast of 2.5% but nevertheless marking the 13th consecutive quarter of positive same-store sales growth.

Menu price increases helped the firm eke out higher sales in the quarter under review. The company has been trying to revive US traffic growth by upgrading its restaurants, serving burgers made with fresh instead of frozen beef and offering drinks for a dollar. It has also been making its food healthier by removing preservatives from its burgers and partnered with Uber Eats to bolster its delivery capabilities.

In a statement following the results release, CEO Steve Easterbrook continued to back the company’s plans to revitalise sales saying “ … we remain confident that our strategy will drive long-term, profitable growth,”. McDonald’s has spent the past few years moving its business model toward more franchises, saying it gives the company a more stable and predictable revenue stream.

Looking ahead, McDonald’s said it expects a net addition of c. 600 locations in 2018. The Group also forecasts c. $2.5bn in capital expenditures for the year (of which $1.6bn will be for the US).

Shares of the company closed 6.3% higher yesterday following the results – at $177.15/share.



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