McDonald’s stock gains despite missing profit and revenue expectations

McDonald’s (NYSE:) reported a decline in its second-quarter earnings and revenue, missing analyst estimates. However, the stock gained shortly after, despite the results initially sending its shares lower premarket.

The fast-food giant posted an adjusted EPS of $2.80, falling short of the consensus estimate of $3.07. Revenue for the quarter also came in below expectations at $6.49 billion, compared to the predicted $6.62 billion.

The company’s global comparable sales decreased by 1.0%, with negative sales across all segments, including a 0.7% drop in the U.S., a 1.1% decrease in International Operated Markets, and a 1.3% fall in International Developmental Licensed Markets.

Despite the overall decline, consolidated revenues showed a slight increase of 1% in constant currencies compared to the same quarter last year.

McDonald’s CEO Chris Kempczinski attributed the mixed results to the company’s focus on executing its “Accelerating the Arches” strategy, emphasizing value and growth drivers such as chicken and loyalty programs.

However, the earnings were impacted by various charges, including $97 million in pre-tax non-cash impairment charges and $57 million in pre-tax restructuring charges related to the company’s modernization efforts.

In the U.S., negative comparable guest counts were partly offset by average check growth due to strategic menu price increases. The International Operated Markets segment saw performance affected by negative sales in France, while the International Developmental Licensed Markets were impacted by the ongoing war in the Middle East and negative sales in China, despite positive sales in Latin America and Japan.

Looking ahead, McDonald’s did not provide specific guidance for the coming quarters, but the focus remains on delivering everyday value and accelerating strategic growth drivers.

“We are focused on the outstanding execution of delivering reliable, everyday value and accelerating strategic growth drivers like chicken and loyalty,” said Kempczinski, signaling the company’s commitment to its long-term strategy despite the current quarter’s challenges.

MCD stock experienced an initial 1% decline following the earnings release, indicating investor concern over the earnings and revenue miss. However, there was a swift recovery, with the shares moving higher premarket. It is now up 2.8% following the open.

The company told investors that it expects to raise prices less this year, although it also noted that the $5 deal has yet to have an impact on sales. Furthermore, MCD cautioned that it is seeing negative 3Q comp trends across all segments.

Following the earnings release, analysts at TD Cowen said, “The results were challenged in the U.S. as expected while IOM was negative, in line with the bear thesis.”

“In our view, the key determinant to today’s stock move will be conf call commentary to discuss plans to improve 2H traffic, which we expect will be a continuation of focus on value, and how this is resonating in July since the 6/25 launch of the $5 Meal Deal,” wrote the bank.