McDonald's Sales Boosted by Higher Menu Prices -- 2nd Update

By Julie Jargon 

McDonald's Corp.'s global sales and profit growth in the first quarter was overshadowed by weakness in its key U.S. market.

The company on Monday said customer visits in the U.S. fell in the quarter due to greater competition at breakfast. Breakfast had long been a McDonald's strong suit, especially when the chain started selling many breakfast items all day in late 2015.

Chief Executive Steve Easterbrook acknowledged that breakfast had become a "market share fight overall." Taco Bell sells breakfast items for $1 and Burger King has a two-for-$4 breakfast deal. Some McDonald's franchisees in March began offering their own two-for-$4 breakfast promotion, but it was too late in the quarter to make a difference, Chief Financial Officer Kevin Ozan said.

Same-store sales in the U.S. rose by 2.9%, thanks to higher menu prices and customers adding extra items to their orders from the chain's new $1, $2, $3 value menu. Mr. Easterbrook said the menu has met internal sales expectations since it was introduced in January but that the company will continue to adapt it as it learns which items customers prefer.

"We do want to get the guest count moving," Mr. Easterbrook said. McDonald's shares rose more than 5% to $166.76 in midday trading.

The company in May plans to advertise that its quarter-pound burgers are now made with fresh, rather than frozen, beef. Mr. Easterbrook said customers have responded positively to the burgers in the markets where they've been tested.

Globally, it was McDonald's fifth consecutive quarter of positive guest counts, due in particular to strength in the U.K. and Germany.

Global comparable sales rose 5.5%, ahead of the 3.8% that analysts polled by Consensus Metrix had forecast, and global comparable guest counts rose 0.8%.

Revenue fell 9.5% to $5.14 billion, more than the $4.98 billion analysts polled by Thomson Reuters had expected, as McDonald's sold more restaurants to franchisees. On a constant-currency basis, revenue fell 15%, McDonald's said.

McDonald's reported a profit of $1.38 billion, or $1.72 a share, during the quarter, up 13% from a year ago. Omitting a $52 million expense from the new tax law, which impacted earnings by 7 cents a share, the company said it made $1.79 a share. McDonald's said foreign-currency translation also boosted its earnings by 8 cents a share.

Analysts expected a profit of $1.67 a share.

Allison Prang contributed to this article

Write to Julie Jargon at [e-mail]

(END) Dow Jones Newswires

April 30, 2018 13:00 ET (17:00 GMT)

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