McDonald’s Tops Profit Estimates, Attracts Low-income Customers

McDonald’s Corp’s share price rose 3.5% to $265.69. The company beat quarterly comparable sales and profit estimates on Thursday, helped by higher menu prices and an increase in restaurant traffic from inflation-weary customers looking for value meals.

Like other fast-food chains, McDonald’s raised the costs of its burgers and fries to keep up with surging commodity and labour costs. Its U.S. menu costs rose over 10% in the third quarter ended Sept. 30 versus the earlier year. Even so, customers are still flocking to the chain from more expensive restaurants in Europe and the United States.

“We’re gaining share right now among low-income consumers” in the United States, Chief Financial Officer Ian Borden said during a call with investors. “That goes back to the fact that we are positioned as the leading brand in terms of value for money and affordability.”

Visits to the Chicago-based chain’s U.S. eateries increased 6.2% in September, dominating traffic to the broader quick-service eatery space which rose just 0.8%, according to data from Placer.ai, a location analytics firm.

McDonald’s global same-store sales increased 9.5% in the quarter, compared with estimates for a 5.8% rise, according to IBES information from Refinitiv. Chief Executive Officer Chris Kempczinski said during the call that he expects a mild to moderate U.S. recession and one that is “a little deeper and longer in Europe.”

Not at all like the last recession when McDonald’s relied on its dollar menu to retain low-income buyers, the chain plans to ride out the expected economic downturn using digital orders and delivery, Borden said.

Similar sales in the United States, the company’s biggest market, rose 6.1% in the quarter, helped by higher prices. However, McDonald’s total revenue fell 5% to $5.87 billion, due to the effect of a stronger U.S. dollar, but still beat estimates of $5.69 billion.

McDonald’s net income fell 8% to $1.98 billion, or $2.68 per share.

The company’s Cactus Plant Flea Market promotion – its “Happy Meal” for adults – ran in early October and drove the highest weekly U.S. digital transactions ever, Kempczinski said. U.S. comparable sales percentage gains for October are expected to be in the low double digits.

McDonald’s reported profit of $2.68 per share, beating estimates of $2.58 but still 6% lower than the same quarter last year.