McDonald’s on Thursday reported quarterly results and revenue that beat analysts’ expectations as rising costs weighed on its profits.
This is the fourth shortfall for the company in eight quarters. Shares of McDonald’s fell slightly in afternoon trading.
Here’s what the company reported for the quarter ended Dec. 31 compared to what Wall Street expected, based on a Refinitiv analyst survey:
- Earnings per share: $2.23 adjusted vs. $2.34 expected
- Revenue: $6.01 billion vs. $6.03 billion expected
The hamburger chain reported fourth-quarter net income of $1.64 billion, or $2.18 per share, from $1.38 billion, or $1.84 per share, a year earlier. Excluding charges related to the sale of McD Tech Labs to IBM and other items, McDonald’s earned $2.23 per share, below the $2.34 per share expected by analysts polled by Refinitiv.
Operating costs and expenses increased by 14% in the quarter. These higher costs include wage hikes by McDonald’s and many of its franchisees to attract and retain workers in a tough labor market. Ingredients for menu staples like its Big Macs and McNuggets are also getting more expensive.
Chief Financial Officer Kevin Ozan said on the conference call that commodity and labor inflation is expected to continue in the near term. In 2022, the company expects food and paper costs in the United States to increase by high single digits or double digits. For comparison, these costs have only increased by 4% in 2021. International markets will also likely experience rising food and paper costs, but not as dramatically as inflation in the United States.
The company’s general and administrative expenses also increased, up 9%, mainly due to higher incentive compensation, as McDonald’s exceeded its own performance expectations.
Net sales rose 13% to $6.01 billion, missing expectations of $6.03 billion. The company’s same-store sales were up 12.3% from a year ago and 10.8% year over year. Menu price hikes put in place to combat rising costs helped boost sales.
In McDonald’s home market, same-store sales increased 7.5%, beating StreetAccount estimates of 6.9%. On a two-year basis, comparable store sales in the United States increased 13.4%. In addition to higher menu prices, the company attributed the strong market performance to its growing loyalty program and promotional menu items like the McRib. The McDonald’s loyalty program has 21 million members as active users.
And while the Covid omicron variant has led some of McDonald’s US restaurants to limit hours due to staffing shortages, CEO Chris Kempczinski said only 1% of its domestic locations are operating shorter hours, at from this week. More than three-quarters of U.S. restaurants have open dining rooms, helping to relieve pressure on drive-thru lanes. Kempczinski said drive-thru times slowed in 2021, a problem the chain is looking to fix.
Outside the US, McDonald’s performance was equally strong, although some markets saw Covid-19 revenue impacted. Its international licensed development division, which includes Japan and Latin America, reported same-store sales growth of 14.2%, smashing StreetAccount estimates of 9%. However, China reported lower same-store sales as the country dealt with resurgences of Covid-19 during the quarter.
The Company’s International Operated Markets segment, which includes the UK, Australia and France, reported comparable store sales growth of 16.8%, just beating estimates of 16.5%. Same-store sales in Australia were flat in the quarter as government restrictions weighed on demand.
For the full year, digital sales exceeded $18 billion, accounting for approximately 16% of its global system-wide sales.
For 2022, the company expects to spend between $2.2 billion and $2.4 billion in capital expenditures. About half of that money will go to opening more than 1,400 net new restaurants, which are expected to contribute 1.5% of the company’s system-wide sales in 2022. About 40% of spending in capital will be used for the American activities, largely modernizing the restaurants.
Read the full earnings release here.