McDonald’s Shares Soar as Easterbrook Turnaround Takes Hold

McDonald’s Turnaround Plan on Track
  • U.S. same-store sales rise 0.9 percent, the most in two years
  • Shares surge most in almost seven years in New York trading

McDonald’s Corp. shares soared the most in almost seven years after third-quarter profit topped analysts’ estimates, showing Chief Executive Officer Steve Easterbrook’s plan to turn around the world’s largest restaurant chain is gaining traction.

Net income in the quarter rose 23 percent to $1.31 billion, or $1.40 a share, the Oak Brook, Illinois-based company said in a statement Thursday. Analysts estimated $1.27, on average. And while revenue fell 5.3 percent to $6.62 billion, that beat analysts’ $6.41 billion average projection.

Steve Easterbrook
Steve Easterbrook
Photographer: Hannelore Foerster/Getty Images

Easterbrook has been working to take McDonald’s back to basics since ascending to the CEO position in March. He’s tweaked the menu, paring back weaker-selling items while adding a few new offerings, such as a buttermilk chicken sandwich, that have been hits with customers. The world’s largest restaurant chain also has renewed a focus on providing value for customers with a popular $2.50 meal deal. The changes helped propel global same-store sales to their best performance in more than three years, with gains coming from all of its geographic divisions.

"The return to positive same-store sales across all of the operating segments is huge progress for their turnaround plan," said Jennifer Bartashus, an analyst at Bloomberg Intelligence.

Sales at locations open at least 13 months rose 4 percent globally, topping analysts’ average estimate for a 1.9 percent increase. U.S. same-store sales rose 0.9 percent in the quarter, marking the best performance in more than two years and beating analysts’ average projection for a 0.2 percent decline.

The shares rose 8.1 percent to a record close of $110.87 in New York for the biggest increase since October 2008. McDonald’s has gained 18 percent this year.

Stock gains most in seven years
Stock gains most in seven years

McDonald’s still has a ways to go. The company may need to further simplify its menu by removing more items, as well as continue to improve order speed and accuracy. And while it now has a national smartphone app, the chain is still behind rivals for mobile ordering and pay.

The company also is facing a shifting fast-food landscape, with chains like Chipotle Mexican Grill Inc. luring away millennials in search of better ingredients. At the same time, rivals Shake Shack Inc. and Five Guys Burgers & Fries are winning over the burger crowd.

To keep its recent momentum going, McDonald’s earlier this month started selling breakfast items all day, a move customers had long urged the chain to make. The chain has also tried to upgrade its food by toasting buns longer and searing burgers differently to make them juicier.

Customer Focus

"Our operational growth-led turnaround is focused on appealing to customers in the areas that matter most to them -- great-tasting, high-quality food, convenience and value," Easterbrook said in the statement. The company expects positive same-store sales in the fourth quarter, he said.

Mike Andres, head of McDonald’s U.S. unit, said in an e-mail earlier this month that the rollout of all-day breakfast went well. He also said that the chain is now focused on creating a national value-meal plan, a move to counter rivals’ discounts. Wendy’s Co. recently began advertising a 4-for-$4 deal, while Burger King has 2-for-$5 sandwiches.

The company also may be close to making a decision on what to do with its massive real-estate portfolio. While franchisees operate about 90 percent of U.S. locations, McDonald’s largely owns and leases the properties to them. Some investors have pushed McDonald’s to create a real estate investment trust out of those land holdings, but the company’s improving results may reduce that pressure, said Sara Senatore, an analyst at Sanford C. Bernstein & Co.

Comparable-store sales rose 4.6 percent for the company’s international lead markets division, which includes Australia, the U.K. and Germany. Sales by that measure jumped 8.9 percent in McDonald’s unit that includes China, which had faced consumer backlash after a supplier was investigated for selling food past its expiration date.

"China definitely seems to be in recovery," Bartashus said.

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