McDonald’s profit higher than expected but there are inflationary risks
2023.01.31 11:29
McDonald’s profit higher than expected but there are inflationary risks
By Ray Johnson
Budrigannews.com – Despite its warning that short-term inflationary pressures would persist in 2023, McDonald’s Corp. beat Wall Street estimates for quarterly profit on Tuesday due to higher menu prices.
In premarket trading, the burger chain’s shares fell about 1% to $268.50, after gaining about 6% in the previous year.
According to IBES data from Refinitiv, the company’s fourth-quarter global same-store sales also beat estimates with a rise of 12.6%, compared to the average analyst estimate of an increase of 8.6%.
NYSE: McDonald’s benefited from higher menu prices, increased restaurant traffic, and increased sales in the UK, Germany, and France despite concerns of a European recession.
After record inflation last year, investors are keeping an eye on the earnings report for signs of a recession. If, as it did in the third quarter, more customers with lower incomes switch from higher-priced restaurants, McDonald’s could gain.
The company reported a 16% increase in profit to $2.59 per share. On average, analysts anticipate a profit of $2.45.
The Chicago-based fast food chain McDonald’s raised the prices of its burgers and fries the previous year in order to keep up with rising labor and commodity costs.
Despite this, traffic increased by 5% for the entire year 2022 because McDonald’s meals remained less expensive than those of many competitors, attracting customers with lower incomes.
Due to McDonald’s “affordability,” the company was “gaining share right now among low-income consumers” in the United States, according to Chief Financial Officer Ian Borden in October.
Although the data provider NPD Group defines “lower income” as annual household incomes of $75,000 or less, he did not define “low income.”
The Cactus (NYSE:) was launched by the company. Plant Flea Market Box, which is an adult version of its Happy Meal for kids and features basic menu items like the Big Mac and Chicken McNuggets, helped it achieve sales in the United States that were higher than anticipated.
According to data provided by the location analytics company Placer.ai, visitors to McDonald’s locations in the United States increased by nearly 30% and 26%, respectively, in the fourth quarter of 2019 compared to the previous year. This is in contrast to a decrease of 0.6% for fast food as a whole in the fourth quarter compared to the same period last year.
According to R.J. Hottovy, the head of analytical research at Placer.ai, “While McDonald’s reputation as a value player helps in an environment where lower- to middle-class consumers are looking to stretch household budgets, the company is also driving visits through other means like celebrity meals and other marketing partnerships, its loyalty program, and improved drive-thru operations.”
He stated that as some of the other fast-food chains increased the prices on their menus, visits began to decline last summer.
In the quarter that ended on December 31, McDonald’s comparable sales in the United States increased by 10.3%. Due to the impact of the stronger U.S. dollar against other currencies, global revenue decreased 1% to $5.93 billion, while revenue increased 5% in constant currencies.
