McDonald’s Continues Double-Digit EPS Growth

The popularity of McDonald's all-day breakfast menu and the McPick 2 promotion fueled a 5.4% increase in U.S. same-store sales.
Matthew HellerApril 22, 2016

The success of McDonald’s all-day breakfast menu does not appear to be a flash in the pan. On Friday, the company posted another healthy quarterly earnings report, driven again by the breakfast initiative that is part of its turnaround plan.

McDonald’s first-quarter earnings rose 22% to $1.23 per share on $5.90 billion in revenue. Analysts had expected earnings of about $1.16 a share on $5.83 billion in revenue, according to a consensus estimate from Thomson Reuters.

Same-store sales in the U.S. increased 5.4% on the popularity of the all-day breakfast menu and the McPick 2 value deal, while global comparables were up 6.2%. McDonald’s introduced all-day breakfast in October to attract more diners in the face of growing competition from rivals such as Chipotle Mexican Grill and Shake Shack.

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“Our turnaround is taking hold,” CEO Steve Easterbrook said in a news release. “The ongoing investments we’re making in running great restaurants and delivering what matters most to our customers are beginning to yield sustained positive results.”

McDonald’s has now enjoyed three straight quarters of double-digit earnings growth for the first time in five years. “Breakfast all day is a platform for them, not just a promotion, and it’s driving good traffic growth,” Peter Saleh, restaurant analyst at BTIG, told CNBC’s “Squawk Box.”

RBC Capital Markets analyst David Palmer suggested McDonald’s next step is to to improve the core menu. “They have a long way to go in terms of just improving their quality perception. Their quality is viewed by consumers to be at the bottom rung,” he told CNBC’s “Squawk on the Street.”

Easterbrook told investors in a conference call that McDonald’s will continue enhancing the menu “to improve quality perceptions of our food.”

“The fast-food industry faces extreme headwinds in the fight for Americans’ wallets as public opinion has swayed against processed and unnatural food,” USA Today noted. “McDonald’s has closed underperforming stores and has focused on creating a better experience for customers with a more curated menu and flexible ordering options via its mobile app and kiosks in stores.”