McDonald's earnings rise on turnaround progress

McDonald's reported higher earnings Thursday, capitalizing on positive buzz from a new buttermilk chicken sandwich and other product tweaks to break a two-year streak of falling US comparable sales.

The fast-food giant, which has been in turnaround mode under new chief executive Steve Easterbrook, reported third-quarter net income of $1.3 billion, up 22.5 percent from the year-ago period.

Revenues fell 5.3 percent to $6.6 billion, dented by the strong dollar in overseas markets.

Global comparable sales rose 4.0 percent, including a 0.9 percent gain in the US, its first quarterly increase in two years for a division that accounts for about one-third of overall revenues.

The results, which bested analyst expectations, sparked a rally in McDonald's shares, which jumped 7.9 percent at midday to $110.66, leading the Dow.

"Momentum breeds confidence... and we're just beginning to feel some early signs of that," Easterbrook, who became CEO in March, told analysts on a conference call.

But the company has more work to do to win back customers who have defected to other chains, he said.

"For a turnaround, you want sustained growth," he said. "So far we've delivered one quarter."

Besides introducing the "deluxe" buttermilk crispy chicken sandwich, McDonald's in the US has swapped out margarine for butter on Egg McMuffins and launched an ambitious menu of "all-day" breakfast.

Other efforts have focused on improving order reliability and beefing up McDonald's digital presence with a mobile app that has been downloaded more than two million times.

Employees and customers alike are having "fun" with all-day breakfast, Easterbrook said, adding that the offering has already built up a "cultish" following among the late-night crowd in college towns.

For other customers, "it just makes life easier" since they do not have to rush in to order breakfast later in the morning, he said.

Easterbrook said it was too early to disclose financial targets or to comment on other aspects of the all-day breakfast option, such as whether the orders for all-day breakfast are expected to cannibalize other McDonald's sales.

International sales rose 4.6 percent in the third quarter, with especially strong results in Australia, Britain and Canada.

A major improvement came in China, where comparable sales jumped 26.8 percent rise compared with the 2014 quarter, when results were battered by a supplier's expired-meat scandal.

Easterbrook said the better China sales reflect an emphasis on restoring "brand trust," as well as a push to collaborate with technology companies to boost McDonald's digital presence in the world's second-biggest economy.