McDonalds Misses Profit Target as Competition Delivers Breakfast, Plant Burgers

McDonalds Corp. missed Wall Street estimates for profit for the first time in two years on Oct 22 as more investment to spruce up U.S. restaurants and speed up service weighed on the worlds biggest fast-food chain, sending its shares down 4%.

Rival fast-food chains in the United States have challenged its dominance with value meals and new menu items, including plant-based burgers and meat substitutes launched by rivals including Restaurant Brands International Inc.s Burger King and Yum Brands Inc.s KFC. McDonalds is seen late in reintroducing chicken sandwiches and rival Wendys Co. has started serving breakfast.

In the face of declining customer traffic, McDonalds has been remodeling its 14,000 U.S. restaurants to include digital ordering kiosks, mobile ordering as well as pay-and-pickup services, while partnering with app-based delivery services GrubHub Inc., Uber Eats and DoorDash.

Those investment led to a 2% rise in operating costs to about $3 billion, leading McDonalds to post a smaller-than-expected profit of $2.11 per share versus an average estimate of $2.21, according to IBES data from Refinitiv.

“The world is different than it was in 1955,” Chief Executive Officer Steve Easterbrook said during a call with investors.

“Were keenly aware we have to be ahead of these changes, investing, executing and growing with a deep sense of urgency and purpose,” he said.

U.S. traffic was negative—an industry-wide trend expected to continue through the end of the year, especially due to weakening economic conditions, according to TDn2K research.

Sales at U.S. restaurants open for at least 13 months rose 4.8% in the third quarter ended Sept. 30, below the 5.17% growth expected by analysts, according to Refinitiv data.

“Our gut tells us that McDonalds was outcompeted in the third quarter by Wendys and Burger King,” Cowen analyst Andrew Charles said in a note.

Despite the U.S. miss, Bernstein analyst Sara Senatore said sales “continue to be among the best in the industry” and that benefits from store renovations should build in future quarters.

Globally, the company reported better-than-expected comparable sales growth of 5.9% on strong performance in markets such as the UK and France.

Interest in plant-based burgers has jumped in North America, and consumers have been waiting to see if McDonalds will expand its test of a Beyond Meat Inc. burger in Ontario, Canada, to the United States and other markets.

Easterbrook gave no clues other than saying they were interested in such products and wanted to get the flavor and marketing right.

“What were interested in is really how best to position this, get a sense of the flexitarian customerRead More – Source