McDonald’s shares surge 6.1% after Q3 earnings top expectations

26 Oct 2015 | Author: | No comments yet »

McDonald’s earnings: Does the company think we’ve reached peak burger?.

The addition of the fast-food giant’s all-day breakfast offering wasn’t calculated into the latest quarterly results since it was rolled out at the very beginning of the fourth quarter on October 6.Shares of McDonald’s Corp. jumped 8 percent Thursday after the fast food giant topped profit and revenue expectations in the third quarter and said comparable restaurant sales rose for the first time in two years. It’s serving two versions of the highly caffeinated Monster energy drinks in about 20 locations including “the so-called Rock N’ Roll McDonald’s at 600 N.

Two of the mentions came at the beginning and end of the call when CEO Steve Easterbrook repeated that the company was repositioning itself to be a “modern, progressive burger company.” By comparison, the execs referred to breakfast 17 times and chicken eight times. Global sales at established restaurants had been anticipated to go up by 1.9% whilst within the USA, restaurants sales had been estimate lower by 0.2 %, based on a consensus estimate. This latest earnings report offers new CEO Steven Easterbrook tangible evidence that the plan he instituted to transform the burger chain into what he refers to as a progressive, modern burger company has started to take shape.

There are 50,000 burger restaurants in the U.S.—that’s one for every 6,300 people, according to industry analyst Aaron Allen, who says that Americans eat 46 hamburgers a year on average. Of all the sandwiches sold in the U.S., he says three out of every five are burgers, and more than two-thirds of all the beef we consume comes in the form of a patty on a bun. Finally, growth in comparable sales in the USA will appease and engage what is at the moment one of the most important stakeholder groups in the company’s universe – its US franchisees. Restaurants are shaving seconds off average service times at drive-throughs, thanks to simpler menu boards, he said. “Our goal is net simplification”, he said. Comparing the earnings of the Oak Brook Company last year, they made $1.31 billion, or $1.40 per share this year as against the $1.07 billion, or $1.09 per share made last year.

Allen found that some 50 national chains—from Shake Shack to Five Guys to Smashburger—have plans to expand, which will add thousands of locations in the coming years. Over the summer, McDonald’s offered a Double Cheeseburger and small fries for $2.50, a deal that executives said performed better as the season went on. Darren Tristano of industry research firm Technomic says that the burger is also popping up in unexpected places, such as on Olive Garden’s menu or integrated into tacos.

Easterbrook said the investment is part of McDonald’s long-term plan to improve the experience in restaurants, reduce turnover, and motivate restaurant workers – which will hopefully encourage customers to return even as competing chains like Chipotle and Chick-fil-A expand. But the pace of growth of the better burger segment is not in line with the growth of burger consumption, which Allen says lags behind population growth.

Overall performance was particularly robust within the section that consists of China, led by way of a sales restoration within that country following a provider problem in the previous year. How much more beef can we stomach? “The only growth is coming from cannibalization,” Allen says. “We’ve capped out on the number of burgers we can eat. Allen, who has done an analysis of McDonald’s menu, says there are now more chicken-related items than anything else on the its menu, and McDonald’s now sells more chicken than beef. As Fortune noted last year in a story detailing McDonald’s woes, the company has a perception problem when it comes to quality: A survey in Consumer Reports showed that McDonald’s customers ranked its burgers significantly below those of 20 competitors.

Cheese’s scored lower.) Whether it likes it or not and no matter how much chicken it sells, McDonald’s will always be known first and foremost for the hamburger.

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