The American hamburger and fast food chain McDonald’s (MCD, Financial) reported its third quarter earnings and revenue which were in line with the estimations. The company’s adjusted earnings per share for the quarter came in at $1.76. Revenue, on the other hand, stood at $5.75 billion. However, it was 10% below than what it was in third 2016 due to the company’s refranchising initiative. Nevertheless, the company’s CEO Steve Easterbrook was pleased with the quarterly result as is evident from his comment:
“We are serving more customers, more often by offering great tasting food at a good value with the quick service and friendly hospitality they expect from McDonald’s. Our positive comparable sales and guest counts across all of our operating segments during the third quarter demonstrate broad-based momentum throughout our business that builds upon our strong first half of 2017.”
MCD’s financial shape
Net income at the end of the quarter came in at $1.9 billion, up 47.7% as compared with last year’s third quarter. The net income also included a gain of nearly $850 million arising out of the sale of China and Hong Kong dealings to franchising companies. At present, 91% of the total restaurants have been franchised. Revenue at the restaurants operated by the company decreased 23% to $3.06 billion during the quarter. Meanwhile, revenue at the franchise-operated restaurants jumped 10% to $2.69 billion.
Worldwide comps climbed 6% which marked the company’s ninth successive quarter of positive comp growth. Comps growth was, however, lower than the previous quarter comps growth of 6.6%. Operating income soared 44% during the quarter.
Segment details
The company’s comparable store sales surged across key markets, particularly the U.S., up 4.1% from the same quarter last year, thanks to rising sales of beverages supported by McPick 2 promotions and continued success of signature burgers. This segment’s operating income increased 6% on a year-over-year basis.
In the International Lead market segment, comps grew 5.7% versus a projection of 4.2%. Strong performance in key markets including Canada, U.K. and other mature markets powered the segment’s comps. Operating income soared 21%.
The High Growth market segment, which includes Italy, Russia, China, Poland, South Korea and Netherlands, saw a 6.2% comps growth. This was, however, lower than the previous quarter of this year (7% comps growth).
In the Foundation markets, comps improved 10.2% due to robust sales across all the market regions covered under the segment. The segment’s operating income plummeted due to its refranchising efforts and expenditure on lofty restaurant expertise.
Last word
The company has managed to accomplish strong comps across all the segments despite the slowing industry environment. Further, the mobile offers aided by the company’s app have lured many customers during the quarter. McDonald’s is able to provide personalised services to customers resulting in better goodwill and reputation. The company’s results were led by not only value and premium products offered by it, but also the personalised service to customers through mobile offerings.
The company’s future outlook looks bright as the “velocity drivers” have started yielding results. By the end of 2017, McDonald’s plans to initiate its mobile ordering system in 20,000 restaurants which will further help the company increase customer traffic. McDonald’s is aiming to widen its profit margin substantially by 2019, and with its refranchising efforts the company looks to be on track.
Disclosure: I do not hold any position in the stock mentioned in this article.
