McDonald's Meal Specials, New Menu Items Feeding Sales

By Julie Jargon and Cara LombardoFeaturesDow Jones Newswires

McDonald's Corp. gained sales again by luring core customers to its cheapest meals and drinks.

The burger giant attributed U.S. sales growth in the fourth quarter to a "McPick 2" meal deal and low-priced beverages, as well as to higher-priced Buttermilk Crispy Tenders. The chain introduced a new nationwide value menu this month with items priced at $1, $2 and $3.

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McDonald's has focused its marketing on its low prices, hoping that consumers drawn in for $1 sodas will also order more expensive items. Some franchisees worry the strategy isn't sustainable.

In a recent anonymous survey conducted by Instinet, many McDonald's franchisees in the U.S. said they worry low-priced items will eat into their profits, especially as commodity prices rise again. One franchisee said the new menu is "good for buying guest counts" but isn't likely to be profitable. Another predicted that the new dollar menu won't last the year.

Fourth-quarter same-store sales rose 5.5% globally and 4.5% in the U.S., the largest market for McDonald's. Both figures beat estimates. While adjusted earnings also rose, revenue dropped 11% from a year ago to $5.34 billion, stemming from the sale of company-owned restaurants to franchisees.

McDonald's shares, up 43% in the past 12 months, slid 1% in early Tuesday trading.

In the past year the chain has attracted customers with food delivery, a mobile app and discounted drinks. "2017 was a strong year for McDonald's as customers responded to the many ways we are making their experience more convenient and enjoyable," Chief Executive Steve Easterbrook said.

But some have questioned whether the company can maintain the growth. The company expects another boost midyear with the introduction of Quarter Pounders made with fresh beef.

Finance chief Kevin Ozan said the company expects to spend about $2.4 billion of capital in 2018, mostly on upgrading restaurants. McDonald's plans to open about 1,000 new locations this year.

Overall for the quarter, McDonald's reported a profit of $698.7 million, or 87 cents a share, compared with $1.19 billion, or $1.44 a share, a year ago. Excluding charges related to the new U.S. tax law, the company earned $1.71 a share, up from $1.43 in the year-earlier period. Analysts had expected adjusted earnings per share of $1.59.

The company booked a $1.2 billion tax charge related to foreign earnings, which was partly offset by a $500 million benefit from revaluing deferred tax assets and liabilities due to the new lower corporate tax rate.

Write to Julie Jargon at julie.jargon@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

(END) Dow Jones Newswires

January 30, 2018 10:34 ET (15:34 GMT)