McDonald’s Corp. (MCD) reported that its net income for the third-quarter 2015 increased to $1.31 billion or $1.40 per share from $1.07 billion or $1.09 per share in the year ago quarter. Analysts polled by Thomson Reuters expected the company to report earnings of $1.28 per share for the quarter. Analysts’ estimates typically exclude special items.
McDonald’s thinks the key to improving its struggling global business is simple: Do less, and do it right. On Thursday there were some early signs that the plan is working.
The company’s “back-to-basics” strategy — including cutting menu items and improving order accuracy — paid off in the third quarter, as McDonald’s reported its first U.S. sales improvement in two years. McDonald’s expects that trend to continue in the fourth quarter.
The stock hit an all-time high of $111 before retreating slightly. It closed at $110.86 a share, up 8 percent.
The Oak Brook-based company, the world’s largest burger chain, said earnings in the fall quarter jumped 23 percent despite a slight decline in sales. The results topped Wall Street’s expectations.
McDonald’s CEO Steve Easterbrook credited the results to “tweaks” like toasting buns longer, changing how burgers are seared and switching to butter from margarine on Egg McMuffins — small improvements in quality that are leading to people buying more and coming back more often.
The new executive, who has been in the top job since March, also said big moves like the addition of a new premium chicken sandwich and all-day breakfast drove results.
McDonald’s started testing all-day breakfast in May and rolled it out nationwide just two weeks ago. The move was heralded by investors for its potential to boost the company’s bottom line.
But reports suggest franchisees are unhappy because all-day breakfast adds menu items they have to handle at the same time as burgers and fries, and some customers choose breakfast over more expensive options, hurting sales.
Discussing the results with analysts Thursday, Easterbrook said it’s still too early to tell how all-day breakfast is affecting sales, but the company is encouraged with performance so far.
Morningstar analyst R.J. Hottovy said the fact that McDonald’s rolled out all-day breakfast so quickly is a sign the business is improving behind the scenes too, including smoother delivery from supplier to restaurant.
All-day breakfast is something that franchisees “have been asking for years,” Easterbrook said, but it will still take time to work out some hiccups. To prevent an overly complicated menu and overloaded workers and to make room for breakfast items, McDonald’s has removed some less popular lunch and dinner options from its menu, like some McWraps.
“It’s going a lot smoother than perhaps people had feared,” he said.
Drive-thru menus have also been slimmed down to speed order times, and the company has ramped up training to improve order accuracy. There’s a lot more room for improvement, Easterbrook said.
“We are encouraged by this progress, but we realize there is much more work to be done,” Easterbrook said.
He said the company will also continue to focus on value. A trade publication, Nation’s Restaurant News, reported this week that the value plan may focus on a 2-for-$2 menu, pending the approval of franchisees.
The Oak Brook company earned $1.31 billion, or $1.40 per share in the three months that ended Aug. 31, compared with $1.07 billion, or $1.09 per share, last year.
Revenue across all its global segments fell 5 percent to $6.62 billion, hurt by some continued declines outside the U.S.
In the U.S., sales at stores open at least 13 months rose just under 1 percent, the first time McDonald’s has seen a gain in its biggest market since 2013. Sales at established stores are a closely watched metric of restaurant performance because they strip out the potential boost from new locations.
U.S. third-quarter operating income declined 1 percent as the company improved wages and benefits for its company-owned restaurant employees, a move the company announced in April after a strong backlash from groups like Fight for $15. The number of overall customers also declined in the U.S.
Hottovy said that although traffic in U.S. stores was still down slightly, he believes the results showed that customers are looking at McDonald’s more favorably.
The YouGov Brand Index, which measures public perception, said last week that McDonald’s by that metric is at its highest point in two years.