McDonald's reports higher Q3 sales after recent E. coli outbreak shakes investor confidence

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McDonald's (MCD) beat expectations for its third quarter results as the burger chain continues to investigate an E. coli outbreak.

On Tuesday morning, the company posted revenue of $6.87 billion, up 3% year over year and higher than the $6.81 billion Wall Street expected, per Bloomberg consensus data. Adjusted earnings grew 1% to $3.23 a share, compared with estimates of $3.20.

"Value and affordability will remain at the forefront of our conversations with markets around the world as we continue to monitor the environment and listen to our customers," CEO Chris Kempczinski said on the earnings call.

He acknowledged that quick-service restaurants were under pressure in Q3 with "industry traffic declines" in several of its markets, led by low-income customers eating at home more. The company is trying to improve its value proposition with "urgency," he said.

Same-store sales grew 0.3% in the US, partially driven by a $5 meal deal bundle. CFO Ian Borden said the deal drew in customers, maintained an average check north of $10, and was profitable for franchisees. McDonald's plans to introduce a more holistic US value menu in Q1 of 2025, taking key lessons from the $5 deal.

The launch of limited-edition collector's cups also increased spending during a two-week run before selling out. By comparison, McDonald's US same-store sales decreased 0.7% in the second quarter, the first decline in US same-store sales in 16 quarters.

"We feel really confident we can get momentum back restored into the US business to where it was," Kempczinski said. "We certainly feel confident about our ability to drive margin leverage because at the end of the day, if we've got greater volume, that's what allows us to obviously drive margins over time."

The international markets segment was a drag on Q3 results, with same-store sales down 1.5% year over year. Franchised operations reported sales decreases of 3.5% due to the negative trends in China and the ongoing impact of the war in the Middle East.

International-owned operations saw a 2.1% drop in same-store sales, with sales declines across a number of markets, primarily in France and the UK. Borden said the company is starting to see "improvement in market trends since the launch of the McSmart menu."

Wall Street has been hyper-focused on the E. coli outbreak. Since Q3 ended on Sept. 30, the effects of the outbreak will be seen in Q4 results. Executives indicated it won't have a material impact on the business.