McDonald’s (MCD) posted his third quarter 2022 results Thursday before the market opened which exceeded expectations thanks to company marketing efforts and higher menu prices, but somewhat offset by the strength of the US dollar.
Here are the Golden Arches reported, compared to Wall Street expectations as detailed by Bloomberg consensus estimates:
Revenue: $5.87 billion vs $5.70 billion expected
Adj. earnings per share (EPS): $2.68 vs $2.57 expected
U.S. same store sales: 6.1% vs. 3.66% expected
International same-store sales: 8.5% vs. 5.60% expected
“I remain confident in our Arches Acceleration as our teams continue to perform at a high level,” CEO and Chairman Chris Kempczinski said in the statement. “As the macroeconomic landscape continues to evolve and uncertainties persist, we operate from a position of competitive strength.
McDonald’s stock rose more than 2% in premarket trading.
In the United States, sales were driven by menu prices and positive guest numbers, according to the release, in addition to successful marketing campaigns like its “Camp McDonald’s” in July and digital and delivery demand.
At the same time, McDonald’s massive overseas exposure weighed on results. The statement noted that “results for the quarter and nine months of 2022 were negatively impacted by currency translation due to the weakening of all major currencies against the US dollar.”
Cowen analysts recently noted that McDonald’s has “the highest European exposure and is most affected by movement in the euro dollar, British pound and Australian dollar.” Cowen has an outperform rating and a price target of $280.
The release indicates that system-wide sales increased 2% (9% at constant exchange rates) while consolidated revenue decreased 5% (an increase of 2% at constant exchange rates). Diluted earnings per share were $2.68, down 6% (stable at constant exchange rates).
In internationally operated markets such as Germany, Australia and France, strong operational performance generated positive same-store sales. In developing markets, Brazil and Japan generated strong sales for the segment, which were offset by negative same-store sales in China amid ongoing COVID-19 restrictions.
In a recent note from Goldman Sachs, analyst Jared Garber said the company plans to consider “updated estimates of IOM (internationally operated markets) SSS (comparable store sales) and margins.” segment, which were reduced due to a weaker economic environment in Europe and inflation”, as the dollar strength is taking a toll across the board this earnings season. The company has a buy rating on the stock, but recently lowered its price target to $270 from $278.
According to the memo, McDonald’s international exposure in fiscal year 2021 (total percentage of units outside the United States) was 66%, only to be surpassed by Yum! Brands, 67%, and Domino’s Pizza, 70%. In particular for McDonald’s, Goldman analysts are keeping an eye on Japan, where the average FX/USD rate in the third quarter is down 20% year-on-year, compared to Europe and the UK. UK, both down 14%.
The food chain declared a 10% increase in its quarterly cash dividend to $1.52 per share. McDonald’s also pointed to costs incurred so far this year, which include pretax charges of $1.28 billion, or $1.44 per share, from the the company’s sale of its operations in Russiathe pre-tax gain of $2.71 million, or $0.40 per share, for the sale of Dynamic Yieldand $537 million of non-operating expenses related to the settlement of a tax audit in France.