McDonald’s Earnings Beat, but It Sees a Squeeze Coming for Diners

McDonald's beats earnings but sees slower sales ahead amid inflation. Europe operations face challenges. Stock fluctuates on cautious outlook.

McDonald’s sales and earnings for the second quarter were better than expected, but the company’s stock dropped on Thursday after it said sales would slow in the second half of the year.

McDonald’s (ticker: MCD) posted adjusted earnings of $3.17 per share, which was much higher than what was expected, which was $2.78 per share.

Sales of $6.5 billion were better than the $6.3 billion that was expected.

Sales at the same stores went up 11.7%. Analysts had predicted a 9.4% rise. Same-store sales went up, and the company said it was because they raised prices on the menu and had a lot of customers. On Thursday, management said that people with higher incomes are switching to McDonald’s from more expensive restaurants.

After the news came out, McDonald’s stock went up 2.4%, but the gains slowed down after management made some cautious comments during the company’s earnings call. Early in the day, shares of McDonald’s went up 0.1% to $291.92. The S&P 500 index rose by 0.8%.

In a call with investors, Ian Borden, the company’s chief financial officer, said, “We recognize that we are operating in a challenging macro environment, where costs remain high, customers’ discretionary spending is limited, and industry traffic is under pressure due to industry trends. As inflation begins to normalize later in the year, we expect top-line growth to slow.”

This is shown by the fact that more people with higher incomes are eating at McDonald’s, but people who make less than $45,000 a year are buying less food because they’re becoming more price conscious.

Borden said that this could make it harder for McDonald’s to raise prices like it has in the last two quarters, especially if inflation slows. But the company was still able to raise its expectations for its operating margin for fiscal year 2023 from about 45% to about 46% for the whole year.

In a note to clients, TD Cowen analyst Andrew Charles said, “Our view is that MCD’s 2023 outlook, which is mostly the same as before, shows that the company is being more cautious after strong [second-quarter] results.”

The company also said that it was still having trouble running its business in Europe because of things like ongoing inflation and low customer sentiment. McDonald’s said again that it plans to spend up to $150 million on targeted and temporary rent relief for its partners in Europe this year.

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