McDonald's gourmet burgers, global sales drive quarterly results beat

EarningsReuters

This Tuesday, June 28, 2016, photo shows the sign at a McDonald's restaurant, in Miami. On Monday, Jan. 23, 2017, McDonald's said quarterly sales rose 2.7 percent at established locations as growth overseas offset a drop in the U.S. (AP Photo/Alan Di (AP)

(Reuters) - McDonald's Corp. reported first quarter results that topped analysts' forecast on Monday, helped by strength in international markets and U.S. consumers opting for more expensive burgers over value meals.

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Shares of the world's biggest chain by revenue rose 4.2 percent to $165.10 in premarket trading as global same-restaurant sales topped Wall Street forecasts, pulling profit higher.

A multiyear turnaround plan launched by Chief Executive Steve Easterbrook three years ago, has brought menu changes, new technology to stores and restaurant upgrades to drive more traffic.

High-margin "gourmet" burgers which offer fresh and more expensive ingredients, costing $6 or $7 a time compared to the chain's $1 to $3 value options, raised the overall average U.S. check value.

Sales at McDonald's U.S. restaurants rose 2.9 percent, topping analysts expectations of 2.7 percent, according to Thomson Reuters I/B/E/S.

Global sales at stores open at least 13 months rose 5.5 percent, easily topping an average estimate of 3.94 percent and reflecting a 7.8 percent surge in the company's more mature international markets - Australia, Canada, France, Germany and the United Kingdom.

TickerSecurityLastChange%Chg
MCDMCDONALD'S CORP.218.47+0.20+0.09%
QSRRESTAURANT BRANDS INTERNATIONAL INC.74.52+0.94+1.28%
WENTHE WENDY'S COMPANY19.95+0.16+0.81%
YUMYUM! BRANDS115.62-0.36-0.31%

"(This) shows the power of the brand ... globally the numbers were outstanding," Peter Saleh, an analyst with brokerage BTIG, said. "The results were very impressive, actually more impressive than we initially had anticipated."

Excluding items, the company earned $1.79 per share, beating the estimate of $1.67. Revenue overall fell 9 percent as a result of refranchising - a cost-cutting move where the company sells McDonalds-owned outlets to a franchisee investor and receives only a cut of sales.

The shape of the results also ran contrary to recent quarters, when McDonalds and other fast food chains have focused on battling each other with dollar menus, discounts on beverages and limited-time menu items as consumer spending cools.

"It is clear that diners now see the value options as a permanent fixture and are no longer as excited or stimulated by them," said Neil Saunders, Managing Director of market research house GlobalData Retail.

Net income rose to $1.38 billion, or $1.72 per share, from $1.21 billion, or $1.47 per share, a year earlier.

Shares of the company were down 7.9 percent this year, underperforming Dow U.S. Restaurants index, which is down just 0.7 percent.

(Reporting by Aishwarya Venugopal in Bengaluru; Editing by Saumyadeb Chakrabarty and Patrick Graham)

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