McDonald's earnings beat estimates, boosted by higher menu prices
McDonald's (MCD) posted its third quarter 2022 earnings results Thursday before market open that beat expectations led by the company's marketing efforts and higher menu prices but somewhat offset by the strong U.S. dollar.
Here’s the Golden Arches reported, compared to Wall Street expectations as detailed by Bloomberg consensus estimates:
Revenue: $5.87 billion versus $5.70 billion expected
Adj. earnings per share (EPS): $2.68 versus $2.57 expected
U.S. same-store sales: 6.1% versus 3.66% expected
International same-store sales: 8.5% versus 5.60% expected
"I remain confident in our Accelerating the Arches strategy as our teams around the continue to execute at a high level," CEO and President Chris Kempczinski stated in the release. "As the macroeconomic landscape continues to evolve and uncertainties persist, we are operating from a position of competitive strength."
McDonald's stock rose more than 2% in premarket trading.
In the U.S., sales were driven by menu prices and positive guest counts, per the release, in addition to successful marketing campaigns like its “Camp McDonald’s” in July and digital and delivery demand.
At the same time, McDonald's massive foreign exposure took a toll on the results. The release noted "results for the quarter and nine months 2022 were negatively impacted by foreign currency translation due to the weakening of all major currencies against the U.S. dollar."
Cowen analysts recently noted that McDonald's has "the highest European exposure and is the most impacted by the movement of the Euro Dollar, British Pound and Australian Dollar." Cowen has an Outperform rating and $280 price target.
The release reported that systemwide sales increased by 2% (9% in constant currencies) while consolidated revenues decreased by 5% (an increase of 2% in constant currencies). Diluted earnings per share came in at $2.68, down by 6% (flat in constant currencies).
In internationally operated markets such as Germany, Australia, and France, strong operating performance drove positive same-store sales. In developing markets, Brazil and Japan drove strong sales for the segment, which was offset by negative same-store-sales in China amid ongoing COVID-19 restrictions.
In a recent note from Goldman Sachs, analyst Jared Garber said the firm planned to account for "updated IOM (Internationally operated markets) SSS (same-store sales) estimates and segment margins, which have been lowered due to a weaker economic backdrop in Europe and inflation," as the strength of the dollar takes a toll across the board this earnings season. The firm has Buy rating on the stock, but recently lowered its price target to $270 from $278.
Per the note, McDonald's international exposure in fiscal year 2021 (total percent of units outside of the U.S.), was 66%, only to be outdone by Yum! Brands, 67%, and Domino's Pizza, 70%. Particularly for McDonald's, analysts at Goldman are keeping an eye out for Japan, where the average third-quarter FX/USD rate is down 20% year-over-year, compared to Europe and the U.K., both down 14%.
The food chain declared a 10% increase in its quarterly cash dividend to $1.52 per share. McDonald's also highlighted incurred costs so far this year, which include pre-tax charges of $1.28 billion dollars, or $1.44 per share, from the company's sale of its Russia business, the pre-tax gain of $2.71 million, or $0.40 per share, for the sale of Dynamic Yield, and $537 million dollars of non-operating expenses related to the settlement of a tax audit in France.
Brooke DiPalma is a reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at firstname.lastname@example.org.
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