Strong demand abroad boosts McDonald’s

McDonald’s topped Wall Street estimates for same-restaurant sales on Tuesday as strong demand in international markets made up for a continued slowdown in the US in the face of stiff competition.

Shares of the company were up 4.3% at $173.80 in morning trading as the Dow component also beat forecasts for its main indicator of profit and said sales in its big developed markets outside the US grew 5.4%.

Restaurant chains in the US have been competing for a bigger share of an overcrowded restaurant market by offering dollar menus, discounts on beverages and limited-time menu items as well as freshly prepared meals to diners.

Those have pressured profits, leading McDonald’s to modernise its US restaurants with touch-screen kiosks and fresh instead of frozen beef burgers, in a bid to justify higher prices.

Analysts say the company’s big overseas operations in Britain, Australia and France have all been modernised faster, and have long been aimed at a slightly higher price point and wealthier demographic than the American equivalent.

Global comparable store sales rose 4.2%, topping an average estimate of 3.72%.

“International lead markets, which are in later stages of remodelling, digital and menu modernisation efforts versus the US, are a bright spot,” said Cowen analyst Andrew Charles.

Higher prices did drive a 2.4% rise in same-store sales at its US outlets open for more than a year, but that was the slowest growth in six quarters and short of a consensus forecast of 2.55%, according to Refinitiv estimates.

Overall revenue at the world’s biggest fast-food chain fell 7% to $5.37bn in the quarter, mostly because of McDonald’s’ strategy to sell more companyowned restaurants to franchisees to save overhead costs.

ANALYSTS SAY THE FIRM’S BIG OVERSEAS OPERATIONS IN BRITAIN, AUSTRALIA AND FRANCE HAVE ALL BEEN MODERNISED FASTER

Total operating income also fell 21% in the third quarter due to heavy investment in the US modernisation. Net income fell 13% to $1.64bn, or $2.10 per share, in the quarter ended September 30, beating expectations of $1.99 per share.

McDonald’s also said it would open a net 600 restaurants in 2018.

Bernstein analyst Sara Senatore said US comparable sales in the quarter had defied her worst fears.

“These results underscore the persistent strength of the MCD model,” she said.