McDonald’s prospers as cheaper menu and new items lift demand

McDonald’s beat Wall Street estimates for third-quarter profit and sales on Monday, powered by new launches as well as steady demand for its cheaper burgers and fries from diners struggling with still-high food prices.

Shares of the company rose about 2% to $261 in premarket trading as it also raised its quarterly cash dividend by 10%.

The burger giant has been able to keep its meals relatively more affordable following the industry-wide hike in prices in 2022, helping to counter the trend of inflation-hit consumers opting to eat more at home and a decline in footfall.

Global comparable sales at McDonald’s jumped 8.8% in the quarter ended September 30, while analysts on average expected a 7.36% rise, according to LSEG data.

Drawing on its history of menu enhancements, McDonald's launched the Cheesy Jalapeno Bacon quarter pounder in July and brought back the fan-favourite Spicy Chicken McNuggets to menus in September.

Both items likely drove solid sales growth in the third quarter, UBS analysts had noted.

While overall dining traffic fell in all three months of the quarter, McDonald's saw a 7.3% jump in July, data from Placer.ai showed.

Footfall strength at the company tapered off in the next two months — recording declines of 1.1% and 3.7% — but remained ahead of the broader industry trends.

Comparable sales in the US climbed 8.1% in the quarter, beating estimates of a 7.4% increase, thanks also to higher average spending at stores.

Meanwhile, same-store sales in McDonald's international operated markets increased 8.3%, edging past expectations for 8.03% growth.

Total quarterly revenue increased 14% to $6.69bn, beating estimates of $6.58bn.

Net income rose to $2.32bn, or $3.17 per share, from $1.98bn, or $2.68 per share, a year earlier.

On an adjusted basis, McDonald’s posted a per-share profit of $3.19, handily beating estimates of $3.00.

Reuters