McDonald's profits beat expectations thanks to its new Big Mac burger

The chain posted a surprisingly strong gain in same-store sales last quarter, with the measure growing four per cent globally

Leslie Patton
Tuesday 25 April 2017 15:41
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McDonald’s total revenue was $5.68bn (£4.43bn) last quarter, compared with the average projection of $5.53bn (£4.31bn)
McDonald’s total revenue was $5.68bn (£4.43bn) last quarter, compared with the average projection of $5.53bn (£4.31bn)

A revamp of McDonald’s iconic Big Mac burger and more aggressive drink promotions are helping the restaurant giant overcome a broader slump in the fast-food industry.

The chain posted a surprisingly strong gain in same-store sales last quarter, with the measure growing four per cent globally. Analysts had estimated a 1.3 per cent rise. Earnings also topped projections.

The results suggest that Chief Executive Officer Steve Easterbrook got a payoff from efforts to overhaul the company’s menu. He rolled out different sizes of the Big Mac and offered $1(78p) and $2 (£1.58) drink deals, a bid to attract customers in a cutthroat US restaurant environment. A switch to all-day breakfast in the US in 2015 also continues to fuel sales.

“US sales showed a nice acceleration in the quarter,” said Michael Halen, an analyst at Bloomberg Intelligence. “They’ve made a lot of positive changes over the last two years, and all of these positive changes are starting to add up.”

Shares of McDonald’s rose as much as 3.6 per cent to $139 (£108) in early trading. Through Monday’s close, the stock had climbed 10 per cent this year, outpacing the Standard & Poor’s 500 Index’s six per cent gain.

US same-store sales rose 1.7 per cent last quarter, an unexpected gain. Analysts projected a 0.8 per cent drop. Earnings amounted to $1.47 (£1.15) a share in the period, handily beating the $1.34 (£1.05) estimate of analysts.

The company also is looking to delivery services and more digital options to help attract diners. It hasn’t been easy. US competitors are advertising steeply discounted food, along with new fare. Industry same-store sales fell 0.6 per cent in March, slipping for the fourth straight month, according to MillerPulse data.

McDonald’s also performed well in overseas markets, which provide about two-thirds of revenue. Same-store sales at its high-growth division rose 3.8 per cent, topping the 2.7 per cent estimate. That segment includes China, where the chain is opening new locations to better compete with Yum China Holdings’s KFC and Pizza Hut brands.

Its so-called international lead markets climbed 2.8 per cent by that measure, driven by strong results from the UK and Canada. New fare has attracted diners in the UK, while the chain has been working to improve its customer service at Canadian locations.

McDonald’s total revenue was $5.68bn (£4.43bn) last quarter, compared with the average projection of $5.53bn (£4.31bn). Some of the gain may have come at the expense of other restaurant chains, including Sonic and IHOP, Mr Halen said.

“They could be stealing traffic,” he said. “There’s no doubt things are looking up for McDonald’s.”

Bloomberg

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