McDonald's CEO predicts return to growth
McDonald's Corp. Chief Executive Officer Steve Easterbrook predicted a return to growth for the burger chain in the second half of the year, giving investors cause for optimism after another quarter of slumping sales.
Global same-store sales, which measure locations open at least 13 months, will grow in the third quarter, Easterbrook said on Thursday when the company released its earnings results. The sales fell 0.7 percent by that measure last quarter, missing the average estimate compiled by Consensus Metrix.
Though a rebound was already expected in the third quarter, Easterbrook's remarks offered comfort, said Jack Russo, an analyst at Edward Jones. Easterbrook, a longtime McDonald's executive who was elevated to the top job in March, is working on a turnaround plan that includes reorganizing management, cutting costs and returning cash to shareholders.
"A lot of analysts were projecting that, but it's still good to hear from management," he said. "We hope for better days ahead."
After rising and falling over the course of the day, McDonald's shares closed at $97.09, down less than 1 percent. The stock is up 3.6 percent this year.
Oak Brook-based McDonald's is still facing a tough challenge in its home market, where same-store sales have declined for seven straight quarters. McDonald's has struggled with changing U.S. consumer tastes, a bloated menu and slow service times.
Promotional Efforts
The U.S. sales drop was 2 percent in the second quarter, worse than the 1.5 percent decrease predicted by analysts. The company blamed ineffective "featured products and promotions" for contributing to the decline.
In recent months, McDonald's has advertised a "Summer Break Menu," offering options such as a double cheeseburger and fish sandwich with a small french fries for $2.50. The company also has promoted an artisan chicken sandwich and premium sirloin burger.
"While our second-quarter results were disappointing, we are seeing early signs of momentum," Easterbrook said in the statement.
The company has been cutting costs as it copes with the sales slump, helping profit edge past estimates last quarter. McDonald's posted earnings of $1.26 a share, compared with the $1.23 predicted by analysts on average. Total revenue declined 9.5 percent to $6.5 billion. Analysts had projected $6.43 billion.
Modern Company
Easterbrook has vowed to transform McDonald's into a modern burger company focused on tasty food and convenience. Since he took over, McDonald's has embarked on a plan to stop serving chicken raised with some antibiotics. He also announced a pay raise for workers at U.S. stores owned by the company, about 10 percent of the restaurant chain's total.
Easterbrook said in May that McDonald's had lost its place as a leader in convenience. He said companies like Amazon.com Inc. and Uber Technologies Inc. have reframed customers' expectations and that McDonald's needs to "keep evolving our proposition to the customers."
McDonald's has changed how it grills hamburgers to make them juicer and is toasting sandwich buns longer to make the food hotter. And the chain is experimenting with more localized menu items in various markets across the U.S., trying to appeal to a wider swath of Americans.
In the past year, McDonald's restaurants in the U.S. have sold less-characteristic fare, including mini bundt cakes, grits, chorizo burritos and a variety of muffin flavors. Sometimes, thousands of locations sell the regional offerings, and other times the count is less than 100.
The company also is testing serving breakfast all-day, something customers have requested for many years. Selling Egg McMuffins later in the day could help sales in the U.S., but isn't enough to transform the business, said Asit Sharma, an analyst at the Motley Fool.
"McDonald's still has to find the last puzzle piece: Menu innovation with higher perceived quality that will draw customers back and keep them coming back," he said.