October 23, 2018 / 12:16 PM / a month ago

McDonald's overseas strength counters U.S. sales miss

(Reuters) - McDonald’s Corp’s investment in online and touch-screen ordering drove a 13th straight rise in global same-store sales in the third quarter, allaying concerns about the world’s biggest fast food chain’s poor growth in the United States.

The logo of a McDonald's restaurant is seen in Bordeaux, France, June 18, 2018. Picture taken June 18, 2018. REUTERS/Regis Duvignau

Shares of the company rose as much as 6.7 percent in response and were on track for their best day in three years as the company beat forecasts for its main indicator of profit and same-store sales in its big developed overseas markets.

International markets including Britain, Canada and Australia, have been a bright spot for McDonald’s having launched a restaurant modernization program years before similar efforts in the U.S.

This drove global comparable store sales 4.2 percent higher, beating analysts’ average forecast of 3.72 percent, according to Refinitiv estimates.

U.S. same-restaurant sales missed expectations as guest counts dropped amid a rise in menu prices and fierce competition from Restaurant Brand’s Burger King, Wendys, Chick-fil-A and Yum Brands’ KFC and Taco Bell.

McDonald’s has embarked on a massive renovation program for 12,000 U.S. restaurants, introducing new decor, touch-screen kiosks, app-based delivery and equipment to store and use fresher ingredients.

However, the program has reduced overall productivity at one of America’s biggest employers and temporary closures of restaurants for renovations has resulted in lost customers.

A rise in prices to compensate drove same-store sales up 2.4 percent in the third quarter, but that was still its slowest growth in a year and a half. The extra ongoing investment helped reduce total operating income by 21 percent.

“The U.S. team and our franchisees are taking on a lot all at once,” Chief Executive Officer Steve Easterbrook told a post-earnings call.

“We’re still confident (in the U.S. business) ... the international business provides a good signpost for that,” Easterbrook said.

Overall revenue at McDonald’s also fell 7 percent to $5.37 billion in the quarter, although that was chiefly due to the company’s sale of more company-owned restaurants to franchisees.

Net income, down 13 percent to $1.64 billion, came in at $2.10 per share, beating expectations of $1.99 per share, leaving shares up 6.2 percent at $176.95.

Bernstein analyst Sara Senatore said U.S. comparable sales in the quarter had defied her worst fears. “These results underscore the persistent strength of the MCD model,” she said.

Reporting by Aishwarya Venugopal in Bengaluru; Editing by Arun Koyyur and Patrick Graham

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