McDonald's Profit Beat Estimates as U.S. Sales Slipped for the First Time in Six Quarters

McDonald's adjusted earnings of $3.57 a share beat the $3.38 analysts expected, even as U.S. comparable sales fell 0.2%.

McDonald's is the world's largest restaurant company by locations. It runs more than 45,000 restaurants in over 100 countries. About 95% are franchised, owned by independent local operators. Its shares trade on the New York Stock Exchange as MCD.

Profit beat, revenue missed

Adjusted earnings were $3.57 a share in the third quarter. Analysts had expected $3.38, per Seeking Alpha and MarketBeat. That is a beat of 19 cents. Adjusted net income rose 10% to $2.53 billion.

Revenue told the other half of the story. Total revenue rose 1% to $7.16 billion. Analysts had expected $7.28 billion. The company missed on the top line while beating on profit.

GAAP earnings, the standard accounting measure, were $3.51 a share. That was up 10% from a year earlier. GAAP net income rose 9% to $2.49 billion. Operating income rose 7% to $3.60 billion.

U.S. sales slipped for the first time in six quarters

Global comparable sales rose 1.5% in the quarter. Comparable sales track sales at restaurants open at least a year. A year earlier, global comparable sales rose 3.6%. The U.S. moved the other way.

U.S. comparable sales fell 0.2%, against a 2.4% gain a year earlier. The company said fewer guests came in. Higher spending per visit, or check growth, largely offset the drop. Management said U.S. results improved as the quarter went on.

"McDonald's delivered another quarter of global growth, with solid performance across much of our international business," Chief Executive Chris Kempczinski said in the release. "In the U.S., we're encouraged by improvement as the quarter progressed following our intervention on value."

"We're focused on building from here, strengthening the business today and investing in the next chapter of growth," Kempczinski said.

International markets carried the growth

International Operated Markets comparable sales rose 1.4%. Germany and Australia led the gains. France partly offset them. A year earlier, that segment rose 4.3%.

International Developmental Licensed Markets rose 4.2%. Japan led that segment. Negative sales in China partly offset the gain. Every region in the segment was positive overall.

Systemwide sales rose 4% to more than $38 billion. Systemwide sales count every restaurant sale, franchised ones included. Loyalty members spent $41 billion over the past 12 months. They spent more than $11 billion in the quarter alone.

Costs fell faster than revenue grew

Franchised revenues rose 3% to $4.49 billion. Sales at company-owned restaurants fell 3% to $2.48 billion. Other revenues rose 26% to $189 million. The mix favors the franchised model, which carries lighter costs.

Total operating costs fell 4% to $3.56 billion. Other operating income was $139 million, up from $37 million. That cost and income help explains how profit outgrew revenue. Adjusted operating income rose 8%, excluding the charges below.

The quarter carried pre-tax charges of $56 million, or 6 cents a share. The charges were mainly restructuring under Accelerating the Organization. That is the company's internal program to modernize how it works. A year earlier, charges were $39 million.

The dividend rose, and the nine months stayed ahead

McDonald's declared a 4% increase in its quarterly cash dividend. The dividend is now $1.93 a share. A higher dividend returns cash while U.S. traffic recovers. It also signals confidence in the cash flow behind it.

For the first nine months, revenue rose 5% to $20.77 billion. Operating income rose 7% to $9.89 billion. Net income rose 7% to $6.83 billion. GAAP earnings were $9.61 a share, up 8%. Charges for the nine months were $155 million.

Shares rose in premarket trading

MCD shares closed on November 3 at $263.04, down 0.98%. In premarket trading on November 4, they rose to $269.29, up 2.38% as of 8:00 a.m. Eastern, per Nasdaq. Premarket trading is thin, so the open may differ. The print is a premarket print, not a close.

What remains unknown

What remains unknown starts with U.S. traffic. The company said results improved late in the quarter. It has not shown whether guest counts turn positive next. One improving stretch is not yet a trend.

The value question also stays open. McDonald's intervened on value during the quarter. The release does not size what that intervention cost. Nor does it say how long the support runs.

France and China are open items too. Both partly offset their segments this quarter. The release gives no timeline for either market to recover.

What to watch next

What to watch next starts with the earnings call. Watch the November 4 call, at 8:30 a.m. Eastern, for detail on U.S. traffic. Watch whether management quantifies the value intervention.

Watch U.S. comparable sales in the fourth quarter. Watch whether guest counts return to growth. Watch International Operated Markets against a softer comparison.

Watch the cash session against the premarket print. Watch whether the profit beat, not the revenue miss, sets the day's tone.