Financial Performance

McDonald’s Shares Jump 6% on Earnings Beat

The company benefited from value deals and increased menu prices as it undergoes the largest construction project in its history.
Matthew HellerOctober 23, 2018

McDonald’s shares had their best day in three years on Tuesday after the fast-food giant reported better-than-expected quarterly earnings amid a store modernization program that has depressed customer traffic.

Revenue at McDonald’s fell 7% to $5.37 billion in the third quarter while net income declined 13% to $1.6 billion, or $2.10 per share. But both numbers beat Wall Street estimates of earnings of $1.99 per share on revenue of $5.32 billion.

Same-store sales rose 4.2% worldwide, which was above estimates of 3.6% and included 2.4% in the key U.S. market. “Value deals in the U.S., including a revamped Dollar Menu, helped bring in customers,” CNBC said, while a 2% rise in menu prices contributed to a higher average check domestically.

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On news of the earnings, the company’s stock jumped 6.3% to close at $177.15, the largest percentage gain since October 2015.

“In addition to achieving 13 consecutive quarters of positive comparable store sales, we have made substantial progress modernizing restaurants around the world, enhancing hospitality, and elevating the experience for the millions of customers we serve every day,” CEO Steve Easterbrook said in a news release.

“We remain confident that our strategy will drive long-term, profitable growth,” he added.

As Restaurant Business reports, that strategy has involved what McDonald’s executives “call the largest construction project in the Chicago-based company’s history: remodeling its restaurants to its kiosk-centric ‘experience of the future’ design.”

McDonald’s renovates around 1,000 stores per quarter in the U.S. and plans to spend about $1.6 billion domestically in 2018, with the majority of those funds going toward accelerating the pace of the remodels.

CNBC noted that the “upgrades aren’t boosting revenue and earnings fast enough to satisfy some franchisees.” Sales at McDonald’s locations that are being modernized have typically fallen 30% to 40% during the construction phase.

But Easterbrook said McDonald’s is “seeing encouraging response from customers in restaurants where many of these improvements already completed.”

“We’ve put processes in place to execute strong grand reopening plans after construction that involve our local communities,” CFO Kevin Ozan told analysts.