McDonald’s tops profit estimates, draws low-income customers

10:59 am Thursday, October 27th, 2022

By Uday Sampath Kumar and Hilary Russ

(Reuters) -McDonald’s Corp beat quarterly comparable sales and profit estimates on Thursday, helped by higher menu prices and an increase in restaurant traffic from inflation-weary customers looking for value meals.

The company’s shares rose 3.5% to $265.69.

Like other fast-food chains, McDonald’s raised prices of its burgers and fries to keep up with surging commodity and labor costs. Its U.S. menu prices rose over 10% in the third quarter ended Sept. 30 versus the prior year.

Even so, consumers are still flocking to the chain from more expensive restaurants in Europe and the United States.

“We’re gaining share right now among low-income consumers” in the United States, Chief Financial Officer Ian Borden said during a call with investors. “That goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability.”

Visits to the Chicago-based chain’s U.S. restaurants increased 6.2% in September, outpacing traffic to the broader quick-service restaurant space which rose just 0.8%, according to data from Placer.ai, a location analytics firm.

McDonald’s global same-store sales increased 9.5% in the quarter, compared with estimates for a 5.8% rise, according to IBES data from Refinitiv.

Chief Executive Officer Chris Kempczinski said during the call that he expects a mild to moderate U.S. recession and one that is “a little deeper and longer in Europe.”

Unlike the last recession when McDonald’s relied on its dollar menu to retain low-income consumers, the chain plans to ride out the expected economic downturn using digital orders and delivery, Borden said.

Comparable sales in the United States, the company’s biggest market, rose 6.1% in the quarter, helped by higher prices.

However, McDonald’s total revenue fell 5% to $5.87 billion, due to the impact of a stronger U.S. dollar, but still beat estimates of $5.69 billion.

McDonald’s net income fell 8% to $1.98 billion, or $2.68 per share.

The company’s Cactus Plant Flea Market promotion – its “Happy Meal” for adults – ran in early October and drove the highest weekly U.S. digital transactions ever, Kempczinski said. U.S. comparable sales percentage gains for October are expected to be in the low double digits.

McDonald’s reported profit of $2.68 per share, beating estimates of $2.58 but still 6% lower than the same quarter last year.

(Reporting by Uday Sampath in Bengaluru and Hilary Russ in New York; Editing by Shounak Dasgupta, Kirsten Donovan and Andrea Ricci)