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Los Angeles - McDonald's Corp reported a higher-than-expected quarterly profit on Friday as its low price focus helped drive strong sales in Europe and the United States.
Shares of the company rose more than 2% after June sales at restaurants open at least 13 months were stronger than analysts expected in each of the world’s biggest hamburger chain’s operating units.
During the month, closely watched same-restaurant sales were up 6.9% in the United States, 9.1% in Europe and 4.8% in McDonald’s Asia/Pacific, Middle East and Africa unit.
Analysts were expecting June same-restaurant sales to rise 2% in the United States, 3% in Europe and 2% in the Asia/Pacific, Middle East and Africa unit.
Europe is McDonald’s largest market for sales, contributing about 40% of revenue, and the United States is a close second.
"It’s the consistency of the everyday value message that has helped them a lot," said Lazard Capital Markets analyst Matthew DiFrisco, who added that McDonald’s is good at adjusting its marketing to keep customers coming in.
The company has been taking market share from its fast food peers for many months. It has benefited from adding value priced Dollar Menu items as well as high margin beverages like coffee to broaden its appeal beyond the young males that account for the biggest share of sales at most other fast food chains.
It is also renovating restaurants in Europe and the United States, which has boosted business. Europe’s top performers were France, Britain and Russia.
"Broadly speaking, there was just a little bit of a lift in people’s willingness to spend in Europe," said Bernstein Research analyst Sara Senatore, who added that retail sales in Britain also improved slightly in June.
McDonald’s said global same-restaurant sales increased 5.6% in the second quarter and forecast good results for this month.
"As we begin the third quarter, our momentum continues with July global comparable sales expected to be between 4% and 5%," said McDonald’s CEO Jim Skinner said.
Holding the line on prices?
The analysts said the strong results showed that McDonald's has the power to further raise prices to cover higher food costs.
But neither analyst expected the company to aggressively raise prices.
“You want to make very sure that you don’t price your customers out of your product,” Senatore said.
“You can bet their competitors wish they would take pricing,” said Dave Kolpak, an analyst at Victory Capital Management.
“You can’t do it if McDonald’s doesn’t. They’re putting the heat on the competition,” Kolpak said.
McDonald’s second-quarter net income rose to $1.41bn, or $1.35 per share, from $1.23bn or $1.13 a share a year earlier.
The results exceeded the analysts’ average forecast of $1.28 per share, according to Thomson Reuters I/B/E/S.
Foreign currency translation boosted earnings by 10 cents per share in the second quarter.
Operating income increased 24%, or 10% in constant currencies. Revenue rose to $6.91bn from $5.95bn.
Shares of McDonald’s, which has 32 000 restaurants around the globe, were up 2.7% at $88.88 on the New York Stock Exchange on Friday morning, off an earlier high at $89.44.
Shares of the company rose more than 2% after June sales at restaurants open at least 13 months were stronger than analysts expected in each of the world’s biggest hamburger chain’s operating units.
During the month, closely watched same-restaurant sales were up 6.9% in the United States, 9.1% in Europe and 4.8% in McDonald’s Asia/Pacific, Middle East and Africa unit.
Analysts were expecting June same-restaurant sales to rise 2% in the United States, 3% in Europe and 2% in the Asia/Pacific, Middle East and Africa unit.
Europe is McDonald’s largest market for sales, contributing about 40% of revenue, and the United States is a close second.
"It’s the consistency of the everyday value message that has helped them a lot," said Lazard Capital Markets analyst Matthew DiFrisco, who added that McDonald’s is good at adjusting its marketing to keep customers coming in.
The company has been taking market share from its fast food peers for many months. It has benefited from adding value priced Dollar Menu items as well as high margin beverages like coffee to broaden its appeal beyond the young males that account for the biggest share of sales at most other fast food chains.
It is also renovating restaurants in Europe and the United States, which has boosted business. Europe’s top performers were France, Britain and Russia.
"Broadly speaking, there was just a little bit of a lift in people’s willingness to spend in Europe," said Bernstein Research analyst Sara Senatore, who added that retail sales in Britain also improved slightly in June.
McDonald’s said global same-restaurant sales increased 5.6% in the second quarter and forecast good results for this month.
"As we begin the third quarter, our momentum continues with July global comparable sales expected to be between 4% and 5%," said McDonald’s CEO Jim Skinner said.
Holding the line on prices?
The analysts said the strong results showed that McDonald's has the power to further raise prices to cover higher food costs.
But neither analyst expected the company to aggressively raise prices.
“You want to make very sure that you don’t price your customers out of your product,” Senatore said.
“You can bet their competitors wish they would take pricing,” said Dave Kolpak, an analyst at Victory Capital Management.
“You can’t do it if McDonald’s doesn’t. They’re putting the heat on the competition,” Kolpak said.
McDonald’s second-quarter net income rose to $1.41bn, or $1.35 per share, from $1.23bn or $1.13 a share a year earlier.
The results exceeded the analysts’ average forecast of $1.28 per share, according to Thomson Reuters I/B/E/S.
Foreign currency translation boosted earnings by 10 cents per share in the second quarter.
Operating income increased 24%, or 10% in constant currencies. Revenue rose to $6.91bn from $5.95bn.
Shares of McDonald’s, which has 32 000 restaurants around the globe, were up 2.7% at $88.88 on the New York Stock Exchange on Friday morning, off an earlier high at $89.44.
