McDonald’s reported earnings and revenue ahead of market expectations, but warned that consumer spending conditions may be deteriorating further as higher fuel prices linked to the Iran conflict place additional pressure on lower-income households.
Adjusted earnings per share (EPS) came in at US$2.83, ahead of analyst estimates of $2.74, while revenue rose 9% to $6.52 billion, surpassing expectations of $6.47 billion.
“McDonald's delivered this quarter. Our 6% global Systemwide sales growth shows how we executed with discipline, proving that we can drive results even in a challenging environment," said Chairman and CEO Chris Kempczinski in the company's earnings release.
"And it’s our commitment to going three-for-three that sets McDonald’s apart. Our value leadership, breakthrough marketing, and menu innovation continue to serve up what customers want.”
However, executives raised concerns about the current consumer environment.
Kempczinski said rising fuel costs caused by the ongoing U.S. conflict with Iran were disproportionately affecting lower-income consumers, a key customer base for McDonald’s and other fast-food chains.
Kempczinski noted during the company’s earnings conference call, “I think probably it’s fair to say that … it’s certainly not improving, and it may be getting a little bit worse,”
“Our focus is on what we can control, and on that score, I feel very good about the balance of the year.”
Additionally, Chief Financial Officer Ian Borden warned that second-quarter sales had started weakly, with April sales slipping slightly as fuel costs and inflation continued pressuring consumers.
“Obviously, with the difficult April comp now behind us, we’re confident in our underlying momentum, driven by what Chris was just talking about, the strength of value and affordability, which we think we’ve really got right,” Borden said.
Borden also highlighted ongoing margin pressure from rising food, paper, energy and operating costs, which franchisees have struggled to fully offset through higher menu prices.
The company said margins at U.S. company-operated restaurants fell 25% to $59 million from a year earlier.
McDonald’s reported first-quarter net income of $1.983 billion, compared with $1.868 billion a year earlier.
Global comparable sales increased 3.8% during the quarter, down 1% on the previous corresponding period (pcp).
In the United States, same-store sales rose 3.9%, supported by higher customer spending per visit.
The company has continued pushing value offerings to attract budget-conscious diners while also promoting premium menu items and entertainment tie-ins.
McDonald’s international operated markets division, which includes Australia, France and Germany, reported same-store sales growth of 3.9%, while its international developmental licensed markets segment recorded 3.4% growth, led by strong performance in Japan.
McDonald's stock traded 0.1% lower on Thursday, closing at US$283.70. The company's market capitalisation stands at $201.66 billion.
