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McDonald’s (MCD)’s first quarter 2022 earnings exceeded estimates

McDonald’s reported better-than-expected earnings and revenue on Thursday, fueled by rising US prices and strong international sales.

However, the war in Ukraine and inflation in the domestic market of the fast-food giant appeared strongly in its quarterly report. CEO Chris Kempczinski said the conflict has not yet affected consumer behavior in the rest of Europe, but some low-income consumers in the US are shrinking their orders or buying cheaper items.

The company’s shares rose less than 1% in pre-orders.

See what the company said compared to what Wall Street expected, based on a survey by Refinitiv analysts:

  • Earnings per share: $ 2.28 adjusted against $ 2.17 expected
  • Revenue: $ 5.67 billion versus $ 5.59 billion expected

The fast food giant reported net earnings of $ 1.1 billion in the first quarter, or $ 1.48 per share, up from $ 1.54 billion, or $ 2.05 per share, a year earlier.

The company spent $ 27 million to pay for rent, employee wages and supplier costs in Russia and Ukraine after suspending operations in both countries due to the war. McDonald’s has reported an additional $ 100 million charge for inventory in its supply chain, which is likely to deteriorate due to the temporary closure of its restaurants in Ukraine and Russia. In total, these costs reduced its earnings by 13 cents per share.

The company also said it had kept $ 500 million, or 67 cents per share, for a possible settlement related to an international tax issue, but did not share further details.

Excluding tax-related expenses, restaurants in Ukraine and Russia and other items, McDonald’s earned $ 2.28 per share, up from $ 2.17 per share expected by analysts surveyed by Refinitiv .

Like the wider restaurant industry, McDonald’s faces higher costs for merchandise and labor, leading the company and its franchisees to raise prices. CFO Kevin Ozan said the company expects rising inflation to continue throughout 2022, given the macroeconomic conditions.

Net sales rose 11% to $ 5.67 billion, beating expectations for $ 5.59 billion. Global sales in the same stores increased by 11.8% in the quarter, fueled by strong growth in markets such as France and the United Kingdom. Sales across the digital system exceeded $ 5 billion in the quarter.

In the United States, sales in the same stores increased by 3.5%, surpassing StreetAccount estimates by 3.3%. The company credits price increases and marketing promotions for growth in its domestic market. A year ago, the fast food chain reported a 13.6% increase in sales of the same stores in the US, as it outperformed weak demand from the pandemic’s early lockdowns.

In the first quarter, McDonald’s menu prices in the US increased by about 8% compared to last year. Executives told the company’s teleconference that consumers are starting to trade for cheaper menu items or smaller orders.

Ozan said consumers were worried about inflation, especially gas prices.

“We definitely monitor lower-end consumers, just to make sure we continue to provide the right value for lower-end consumers,” he said. “But one of the things that is probably useful right now, as you know, is that eating at home has grown even more than eating out.”

In March, house food prices rose 10% year-on-year, while outside food prices rose just 6.9%, according to the Bureau of Statistical Labor.

Kempczinski said the total US consumer is in “good shape”. For example, customers still order their McNuggets and Big Macs for delivery, the most expensive way to buy McDonald’s due to high convenience fees.

McDonald’s international market segment, which includes France, the United Kingdom and Australia, reported a 20.4% increase in sales in the same stores. The company said the reduction in Covid-19 measures boosted sales in the quarter. Sales in the UK were also boosted by the Chicken Big Mac Limited Time, which Kempczinski described as the most successful food promotion on the market.

In the international markets segment with the company’s development license, sales in the same stores increased by 14.7%, due to strong demand in Japan and Brazil. However, China saw sales in the same stores shrink during the quarter as the Covid revival led to renewed lockdowns.

Read the full earnings report here.

McDonald’s (MCD)’s first quarter 2022 earnings exceeded estimates

Source link McDonald’s (MCD)’s first quarter 2022 earnings exceeded estimates

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