Sales in international markets fall far more than expected
29 October 2024 - 19:13
bySavyata Mishra
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
‘Golden arches’ of a McDonald's restaurant in the US. Picture: REUTERS/ANDREW KELLY
Bengaluru — McDonald’s posted a steeper-than-expected drop in quarterly global sales, hurt by muted demand across key markets, including Europe and the US where it is expected to face more weakness as the burger giant reels from a deadly E coli outbreak.
Shares of the company were down 2.4% before the bell on Tuesday even as it beat profit estimates.
Global sales fell 1.5% in the third quarter, the biggest decline in four years, compared with analysts’ average estimate of a 0.72% fall, according to data compiled by LSEG.
Last week, McDonald’s temporarily paused serving Quarter Pounders in a fifth of its 14,000 US restaurants in an E coli outbreak that has killed at least one person. Shares declined nearly 7% last week as infections rose to 75 people. Quarter Pounders were being added back to the menu this week.
Slivered onions used in the hamburgers are likely to be the source of the infection, with the Colorado department of agriculture over the weekend ruling out beef patties as the possible cause.
Customer visits in the US fell 6.4%, 9.1% and 9.5% year-on-year on October 23, 24 and 25, respectively, according to a Gordon Haskett note. The company’s conference call on earnings is expected to focus on any fallout from the outbreak.
The outbreak was likely to have thrown a near term “monkey wrench” into the US sales recovery when coupled with mixed third-quarter results, Citi analyst Jon Tower said.
The fast-food chain has been hit by slowing customer visits across the US, France, UK, Middle East and China as price-conscious shoppers looked for cheaper meals and cooked more at home.
Sales in international markets fell 2.1%, driven by weakness in France and Britain, compared with estimates of a 1.21% drop.
Weaker consumer spending in China and impacts of the Middle East conflict have dented McDonald’s business segment where restaurants are operated by local partners, with sales dipping 3.5% compared with a 10.5% rise a year earlier.
“We believe European economies remain under pressure with potential for softer traffic from concerns with war in the Middle East, especially in urban markets, and some pressure on costs from a stronger dollar,” Jim Sanderson, an analyst with Northcoast Research.
Western fast-food chains such as McDonald’s and Starbucks have seen boycott campaigns over their perceived pro-Israeli stance and alleged financial ties to Israel.
US comparable sales grew 0.3%, reversing the previous quarter’s drop, aided by promotions.
Overall sluggish demand has prompted fast-food chains including McDonald’s, Wendy’s, Burger King and Taco Bell to lean into meal bundles and limited-time offers in a bid to revive traffic, especially among lower-income customers.
McDonald’s CEO Chris Kempczinski said the company was focused on affordability as customers continue to be mindful about spending.
The Chicago-based company earned $3.23 per share on an adjusted basis, above analysts’ estimates of $3.20.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
McDonald’s global sales fall on muted demand
Sales in international markets fall far more than expected
Bengaluru — McDonald’s posted a steeper-than-expected drop in quarterly global sales, hurt by muted demand across key markets, including Europe and the US where it is expected to face more weakness as the burger giant reels from a deadly E coli outbreak.
Shares of the company were down 2.4% before the bell on Tuesday even as it beat profit estimates.
Global sales fell 1.5% in the third quarter, the biggest decline in four years, compared with analysts’ average estimate of a 0.72% fall, according to data compiled by LSEG.
Last week, McDonald’s temporarily paused serving Quarter Pounders in a fifth of its 14,000 US restaurants in an E coli outbreak that has killed at least one person. Shares declined nearly 7% last week as infections rose to 75 people. Quarter Pounders were being added back to the menu this week.
Slivered onions used in the hamburgers are likely to be the source of the infection, with the Colorado department of agriculture over the weekend ruling out beef patties as the possible cause.
Customer visits in the US fell 6.4%, 9.1% and 9.5% year-on-year on October 23, 24 and 25, respectively, according to a Gordon Haskett note. The company’s conference call on earnings is expected to focus on any fallout from the outbreak.
The outbreak was likely to have thrown a near term “monkey wrench” into the US sales recovery when coupled with mixed third-quarter results, Citi analyst Jon Tower said.
The fast-food chain has been hit by slowing customer visits across the US, France, UK, Middle East and China as price-conscious shoppers looked for cheaper meals and cooked more at home.
Sales in international markets fell 2.1%, driven by weakness in France and Britain, compared with estimates of a 1.21% drop.
Weaker consumer spending in China and impacts of the Middle East conflict have dented McDonald’s business segment where restaurants are operated by local partners, with sales dipping 3.5% compared with a 10.5% rise a year earlier.
“We believe European economies remain under pressure with potential for softer traffic from concerns with war in the Middle East, especially in urban markets, and some pressure on costs from a stronger dollar,” Jim Sanderson, an analyst with Northcoast Research.
Western fast-food chains such as McDonald’s and Starbucks have seen boycott campaigns over their perceived pro-Israeli stance and alleged financial ties to Israel.
US comparable sales grew 0.3%, reversing the previous quarter’s drop, aided by promotions.
Overall sluggish demand has prompted fast-food chains including McDonald’s, Wendy’s, Burger King and Taco Bell to lean into meal bundles and limited-time offers in a bid to revive traffic, especially among lower-income customers.
McDonald’s CEO Chris Kempczinski said the company was focused on affordability as customers continue to be mindful about spending.
The Chicago-based company earned $3.23 per share on an adjusted basis, above analysts’ estimates of $3.20.
Reuters
US probes supplier as possible source of McDonald’s E coli outbreak
McDonald’s shares slide after E coli outbreak linked to fatality in US
KEVIN MCCALLUM: A farce we’ve been waiting for since 1992
McDonald’s posts surprise drop in quarterly global sales as spending slows
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.
Most Read
Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.