McDonald’s robust US sales fail to impress; shares fall

NEW YORK — McDonald’s Corp. on Tuesday reported robust US fourthquarter restaurant sales, boosted by new buttermilk chicken tenders and low-price food, but that was not enough to match Wall Street’s increasing appetite for growth.

Investor expectations are high three years into a turnaround led by Chief Executive Steve Easterbrook. Under his guidance, the company is recapturing share from rivals and winning back customers who had defected to direct competitors and fast-casual chains like Panera Bread and Chipotle Mexican Grill, Inc.

Shares in the world’s biggest restaurant chain fell as much as 2.6% to $173.14 on Tuesday. The stock has jumped 80% since Easterbrook was named CEO on March 1, 2015, outperforming a 36% rise in the S&P 500.

McDonald’s is now doubled down on discounting, piling more pricing pressure on rivals with a $1, $2, $3 value menu launched earlier this month.

It is preparing for tough battles as US restaurants fight for a bigger share of a pie that is not growing.

“Value is where the street fighting really hits,” Mr. Easterbrook said on a conference call with analysts.

McDonald’s also plans to invest $2.4 billion this year to help open 1,000 new restaurants and renovate and modernize existing units to accommodate self-service kiosks, mobile ordering and delivery.

Executives said the company, which will see its effective tax rate drop due to the new US tax law, is putting business investments before large share repurchases, comments that also contributed to Tuesday’s share declines.

Sales at US restaurants open at least 13 months jumped an enviable 4.5%, the fourth straight quarterly rise, but only matched analysts’ estimates. Sales in the region were boosted by higher demand for its McPick 2 $5 combo offer and cheap drinks. The US is McDonald’s biggest market by restaurants, revenue and operating income.

Global same-store sales rose 5.5%, as it served more customers in regions including Canada, the United Kingdom and China. That exceeded the 5% gain analysts expected, “though a bit more modestly than in previous quarters,” Bernstein analyst Sara Senatore said in a client note.

Net income fell 41.5% to $698.7 million or 87 cents per share, mainly due to a $700 million one-time net charge related to the new US tax law.

Excluding items, the company earned $1.71 per share, beating the average analyst estimate of $1.59, according to Thomson Reuters I/B/E/S.

After crunching the numbers to account for the tax charge and a lower-than-expected effective rate in the fourth quarter, Cowen & Co analyst Andrew Charles said in a client note that he viewed the underlying earnings per share as in line with expectations.

Revenue fell 11.4% to $5.3 billion in the quarter ended Dec. 31 as McDonald’s stepped up sales of restaurants to franchisees and strategic partners. —