McDonald’s Tops Profit Estimates, Warns Inflation Pressures Persist

McDonald's chain restaurant in Middletown, Delaware, on July 26, 2019. Jim Watson/AFP via Getty Images

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.

The sector witnessed a 0.6 percent decline in the fourth quarter from the previous 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.

Despite the rise in prices, restaurant traffic reportedly rose 5 percent throughout 2022, since its meals remained less expensive than its competitors, which drew in low-income consumers, said company executives.

CFO Ian Borden stated last October that the fast-food chain was “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.

Company executives also said the expect 2023 operating margin to rise to about 45 percent, versus 40.4 percent in 2022.

Global revenue fell 1 percent, to $5.93 billion, due to the rise in the value of the U.S. dollar versus 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 rose 10.3 percent in the last quarter.

Last year, the company launched its Cactus Plant Flea Market Box, an adult version of its Happy Meal originally meant for children, which includes popular items like its flagship Big Mac burger and Chicken McNuggets, which allowed it to post better-than-expected domestic sales.

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.

Meanwhile, the share price of the company fell 1.65 percent, to $266.43, by the afternoon of Jan. 31, after gaining about 6 percent in the last 12 months.

Reuters contributed to this report.