McDonald’s Sales and Earnings Top Estimates, Shares Climb

Ticker Symbol: MCD

McDonald’s, the world’s largest fast-food chain, announced second quarter financials today which broadly beat Wall Street estimates. The company, which pulled out of Russia during the quarter in a historic move, managed to increase prices for most of its menu items without impacting customer demand. Shares were trading up 2% in the morning session and are down 4.8% for the year versus the 17.4% decline in the S&P 500.

Same-store sales, the critical key performance metric for restaurants, were up 9.7% year over year, well ahead of the average analyst expectation for an increase of 7.5%. International operated market’s comparable sales were up 13% beating the estimate of a 9.3% increase. U.S. comparable sales were up 3.7%. Analysts were looking for an increase of 3%. The company reported adjusted earnings per share of $2.55 versus the $2.46 expected.

Management said they increased prices strategically throughout the U.S. during the quarter, which helped boost sales. The company also had success with value menu items. Additionally, McDonald’s mobile app and delivery service started gaining attrition during the period as well. Digital sales exceeded $6 billion in the firm’s top six markets, representing almost 35% of total sales.

The total guest count was flat in the U.S. indicating that despite price hikes, the company’s products did not meet weaker demand. Chief Executive Officer Chris Kempczikski said that the company remains confident that it can maintain its price hikes without losing demand. The firm reported restaurant margins rose 3% during the three months. Management guided towards operating margins in the 40% range for the fiscal year. The company sees over 1,300 net restaurant additions in 2022, similar to its previous guidance.

McDonald’s reported a write-off of approximately $1.2 billion based on its decision to shutter its Russian operations. Foreign exchange translation losses also weighed on results. The strengthening U.S. dollar has forced most American companies to report lower revenues than what they would have been on a constant-currency basis. The United States only represents roughly 38% of the total revenue for the company.

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