McDonald’s Tops Profit Estimates, Warns Inflation Pressures Persist

McDonald’s announced that it had topped Wall Street estimates for the fourth quarter as it raised meal prices, despite the latest warnings that inflationary pressures would persist into this year.

The fast-food chain said it is still aiming to build new restaurants to boost business as part of its new strategy, which the company says will add nearly 1.5 percent to its total sales growth in 2023, according to CEO Chris Kempczinski during an earnings call on Jan. 30, Reuters reported.

However, he did not rule out future layoffs, as it looks to review corporate staffing levels, while expanding in other areas.

“We will look to our strategy and our values to guide how we reach those decisions and support every impacted member of the company,” Kempczniski wrote to staff, adding that McDonald’s would announce the final decisions by April 3, according to Reuters.

McDonald’s Surpasses Rivals as Menu Prices Grow Worldwide

Like its rival fast-food chains, McDonald’s raised the average price of its menu items last year to keep up with growing food and labor costs and maintain its margin growth.

McDonald’s did better than most of its competitors, as earnings for most fast-food chains started to drop since last summer when menu prices started to increase.

In the fourth quarter, the sector saw a decrease of 0.6 percent compared to the prior year.

In-store dining at McDonald’s in the United States rose 26 percent in the fourth quarter from the same period in 2019, an increase of nearly 30 percent compared with the previous year, according to location analytics firm Placer.ai.

Restaurant traffic rose 5 per cent despite rising prices in 2022. The company’s executives stated that the restaurant’s meals were less expensive than those of its competitors which attracted lower-income customers.

Ian Borden, the CFO of Fast Food Chains, stated that they were closing in October. “gaining share right now among low-income consumers” in the United States because of McDonald’s “affordability.”

Fast-Food Giant Exceeds Investor Expectations

McDonald’s said that it was able to benefit from higher menu prices, and increased restaurant traffic and sales in the United Kingdom, Germany, and France, despite fears of a recession there.

“Overall, the consumer, whether it’s in Europe or the United States, is actually holding up better than… what I would have expected a year ago or six months ago,” Kempczniski told investors.

The McDonald’s CEO expects the burger chain to withstand the mild to moderate recession in the United States expected later this year, with a more severe and longer recession in Europe.

According to company executives, the operating margin for 2023 will be around 45 percent compared to 40.4% in 2022.

Global revenue fell by 1 percent to $5.93billion due to an increase in the U.S. dollars’ value against other foreign currencies.

However, fourth-quarter global sales beat estimates with a 12.6 percent rise in earnings, above most analysts’ estimate of an 8.6 percent increase, according to IBES data from Refinitiv.

Comparable sales in the United States increased 10.3 percent during the quarter.

The company’s Cactus Plant Flea market Box was launched last year. It includes popular items such as its Big Mac burger or Chicken McNuggets. This allowed the company to make better domestic sales than expected.

Investors look to bellwether stocks like McDonald’s in order to monitor U.S. consumer spending while the Federal Reserve continues to raise interest rates to help slow the economy without causing a recession.

After gaining approximately 6 percent over the past 12 months, the company’s share price fell 1.65 percent to $266.43 by afternoon on Jan. 31.

This report was contributed by Reuters

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