Thanks to $5 meal deals, McDonald’s managed to keep consumers coming into its restaurants in the latest quarter.
Although global same-store sales slipped 1.5 percent in the quarter ending Sept. 30 from year-earlier levels, same-store sales in the United States increased 0.3 percent in the quarter, the company reported Tuesday.
The quarterly earnings results did not reflect any fallout from a recent E. coli outbreak in 13 states linked to McDonald’s popular Quarter Pounder burgers that health officials say has sickened 75 people and caused the death of one Colorado resident.
More details on the investigation and its potential impact on McDonald’s business for the rest of the year are likely to be discussed on a call Tuesday morning with Wall Street analysts and investors.
Jeff Farmer, an analyst at Gordon Haskett Research Advisors, said in a research note that foot traffic levels at McDonald’s in the United States late last week was down 9.5 percent from year-ago levels. But he added that states with more reported E. coli cases saw greater declines: 33 percent in Colorado and 26 percent in Wyoming.
Still, McDonald’s earnings are a closely watched barometer for consumer spending, especially among lower-income consumers, who have been tightening their belts over the past year. McDonald’s introduced the $5 meal deal promotion this summer and then extended it through the end of the year in a majority of its markets.
“We will stay laser-focused on providing an unparalleled experience with simple, everyday value and affordability that our consumers can count on as they continue to be mindful about their spending,” the company’s chairman and chief executive, Chris Kempczinski, said in a statement.
Overall, McDonald’s earnings showed that global revenue for the third-quarter rose 3 percent to $6.8 billion while net income fell 3 percent to $2.3 billion.
McDonald’s is hoping to quickly contain the fallout from the E. coli outbreak. On Sunday night, the Department of Agriculture in Colorado, the state with the most reported cases, said the beef patties on the Quarter Pounder were not the source for the E. coli contamination.
Instead, federal investigators appear to be looking closely at slivered yellow onions from the Colorado Springs location of Taylor Farms, a multistate producer of vegetables and fruits. Last week, Taylor Farms voluntarily recalled several of its yellow onion products because of “potential E. coli contamination.”
McDonald’s — which had stopped serving the Quarter Pounder in some places — said in response to the Colorado Department of Agriculture findings that the Quarter Pounder would be back on the menu at thousands of locations, but would not be topped with slivered onions in 900 of those sites. Several other fast-food chains, including Taco Bell, KFC, Pizza Hut and Burger King, have stopped including onions in some of their menu items in the affected region as a precautionary measure.
Any fallout from the E. coli outbreak will likely be “minimal and short-lived,” analysts at Wedbush Securities said in a research note last week. While an E. coli outbreak at Chipotle Mexican Grill starting in 2015 resulted in years of reputational harm and a $25 million fine, McDonald’s “has the scale and expertise to respond and contain far more quickly,” the analysts said.
“We are anticipating this company’s leading supply chain will make quick fixes to this problem as already messaged, and don’t expect this to engulf the U.S. or certainly international,” JPMorgan analysts said in a note last week, stressing that they do not expect the incident to cause long-term harm to the brand.
McDonald’s strong supply chain and tracing capabilities are working in the company’s favor to avoid substantial harm as a result of the outbreak, according to Sara Senatore, a restaurants analyst at Bank of America. The impact will largely depend on how long the incident remains in the news, and the volume of coverage already appears to be dissipating, she said.
Had it not been for the E. coli developments, investors would have been paying closest attention to signs of demand among U.S. consumers, and McDonald’s success in focusing on value given the pressure on consumer spending, Ms. Senatore added.
“They had been seeing more pressure than they had anticipated at the beginning of the year on consumer spending,” she said. “That would be the No. 1 focus.”
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