McDonald’s reported Thursday that U.S. sales rose 5.5% in the most recent quarter, but the coronavirus pandemic is still costing and slowing the recovery in many of its international markets.
With the fast food giant entering 2021, system-wide sales are expected to rise again to beat 2019 comparisons.
The company’s shares rose less than 1% in morning trading.
The company reported for the quarter ended December 31st, versus Wall Street’s expectations, based on an analyst survey conducted by Refinitiv:
- Earnings per share: $ 1.70, adjusted versus expected $ 1.78
- Revenue: $ 5.31 billion versus $ 5.37 billion expected
The company reported net income of $ 1.38 billion, or $ 1.84 per share, for the fourth quarter, compared with $ 1.57 billion or $ 2.08 per share a year earlier. The company reported that higher restaurant shutdown costs of $ 30 million and lower profits from restaurant business sales weighed on quarterly earnings.
Excluding profits related to the sale of McDonald’s Japan stock and other items, McDonald’s made $ 1.70 per share, falling short of what Refinitiv polled analysts had expected $ 1.78 per share.
Net sales declined 2% to $ 5.31 billion, below expectations of $ 5.37 billion. Global sales in the same store were down 1.3% but were better than the third quarter.
In the US, sales in the same business were positive for the second quarter in a row. The company’s home market saw sales growth of 5.5% in the same business. The company credited marketing investments and promotional activities, including those focused on core menu items like the Big Mac. The consumer trend to spend more per order persisted through the quarter, although traffic remained negative.
Work through franchisee feud
But the rapid recovery in US sales has not deterred McDonald’s management and franchisees from feuding. Operators’ complaints to the company include that franchisees are being asked to pay higher fees for technology investments and that a decade-long subsidy for Happy Meals is being terminated. As part of their revolt, the franchisees plan to defend themselves against future added value and to re-examine those already decided for 2021. The operators have also stopped all non-essential communication with the company.
CEO Chris Kempczinski told analysts he was confident that U.S. President Joe Erlinger and the franchisee’s leadership would be able to resolve the differences. Executives also said that the U.S. franchisee restaurant’s average cash flow hit an all-time high in 2020, up nearly $ 40,000 from 2019.
He also commented on President Joe Biden’s plan to raise the federal minimum wage to $ 15 an hour over the next five years. He told analysts that the company would be able to weather the rise in labor costs due to the increase in the Canadian minimum wage a few years ago and the salary increases in various states and communities in recent years.
“As long as it’s staged and fair for everyone, McDonald’s will be fine,” said Kempczinski.
Covid shutdowns are taking their toll
McDonald’s internationally operated markets, which include France, Germany and Australia, were the latecomers of the quarter. Sales in the same store decreased 7.4%. Resurgences of Covid-19 hit most of the segment’s markets and resulted in increased government restrictions. However, the company reported that both the UK and Australia saw positive sales growth in the same business for the quarter.
Kempczinski said Australia could be a good model for post-pandemic business. The country has effectively avoided an increase in new cases in the fall and winter, allowing its residents to resume many normal activities. But Kempczinski said restaurants in Australia are still reporting higher digital sales and an increase in the average ticket.
The chain’s international development license markets segment fared better. Sales in the same store only decreased 3.6% in the quarter. Japan saw strong sales growth in the same store, but it was insufficient to offset declining sales in other parts of Asia and Latin America.
In 2021, McDonald’s expects system-wide revenue growth in the low double-digit range, excluding currency changes. New restaurant units are expected to contribute around 1% to system-wide sales growth.
Investments of $ 2.3 billion are expected, approximately half of which will be used to open nearly 500 new restaurants in the US and international markets.
Read the full results report here.
– CNBC’s Kate Rogers contributed to this report.