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June 24, 2024

McDonald’s Earnings Drop on Middle East Backlash

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Feb 5, 2024

McDonald’s Corp reported lower-than-expected sales on Monday, recording its first quarterly revenue miss in nearly four years as boycotts and protests in the Middle East over the Israel-Hamas war dented results.

Declining Same-Store Sales

The burger chain said sales at restaurants open at least 13 months rose 5.7% in the fourth quarter ended Dec. 31, missing Wall Street’s estimates for a gain of 6.8%, according to analysts polled by Refinitiv IBES data. [1]

“Our strong momentum from earlier in 2022 slowed by the end of the year largely due to a resurgence of COVID cases across markets like Germany and labor strikes in France,” said Chief Executive Officer Chris Kempczinski.

The disappointing performance rounds off an otherwise strong year for the world’s largest burger chain, during which its U.S. sales got a boost from higher menu prices and newly launched meals including the McPlant plant-based burger and Chicken Big Mac.

Comparable sales for McDonald’s key U.S. market gained 10.3% in the fourth quarter, missing estimates for a rise of 12.4%.

Region Q4 Comp Sales Growth
U.S. 10.3%
International Operated Markets 8.8%
International Developmental Licensed Markets & Corporate 4.3%
Global 5.7%

Table 1: McDonald’s Q4 Comparable Sales Growth by Region

[2]

Global comparable sales had risen 12.7% in the third quarter.

Middle East Backlash Hurts Results

However, the company’s performance across much of Europe, the Middle East and Latin America was hurt by resurgent COVID-19 cases and inflationary pressures that cooled consumer spending.

The fast food giant also took a hit from boycott calls and protests in the Middle East region that broke out in May over its business dealings in Israel, which had been fighting with Hamas militants in Gaza at that time. [3]

“The regional tensions in the Middle East had a more pronounced impact on our results than we had expected,” said Kempczinski on an earnings conference call, adding the company had to temporarily close about 100 restaurants across the region due to protests and political instability.

Many activists in Arab countries and beyond rallied people on social media platforms to boycott global brands including McDonald’s and Starbucks that continued operating in Israel after the fighting erupted.

Pro-Palestinian protests also broke out across U.S. and European cities calling on corporations to end their business dealings with Israeli companies based in occupied Palestinian territories.

McDonald’s said it expects the tensions to continue hurting its business in the first half of 2023 but sees scope for recovery later in the year.

Financial Performance Mixed

The company reported adjusted earnings per share of $2.68 for the quarter, which was better than the $2.58 analysts had expected. [4]

Quarterly revenue rose about 8% to $5.93 billion but missed estimates of $6.15 billion. This marks McDonald’s first sales miss versus market expectations since 2018 as the fast-food chain battles supply chain constraints and rising inflation. [5]

McDonald’s shares fell 4% to $272.75 in premarket trading. The stock, which gained about 3% last year after a bumper 2021, is expected to face pressure in early 2023 amid expectations of a US recession. [6]

“McDonald’s enters 2023 amid a cloudy macroeconomic backdrop with some of the strongest fundamentals in the restaurant industry,” Kempczinski said in a statement.

Key Financials Q4 2022 Q4 2021 % Change
Revenue $5.93 billion $5.49 billion +8%
Adjusted EPS $2.68 $2.23 +20%
Global Comp Sales Growth 5.7% 12.3%

Table 2: Key figures from McDonald’s Q4 2022 earnings

[7]

Long-Term Growth Prospects Remain Strong

Despite recent headwinds, analysts noted McDonald’s industry-leading scale and strong drive-thru sales should help it push through challenging operating environments better than competitors. [8]

Most experts maintained a positive long-term outlook on the stock, with 31 of 39 analysts covering the stock rating it “buy” or higher.

“We believe McDonald’s offers one of the most compelling fundamental outlooks in our coverage group today,” Peter Saleh, an analyst at BTIG, told investors in a note on Monday. [9]

However, some bearish analysts said McDonald’s high valuation multiples could open its shares for a meaningful correction in 2023 if macro weakness persists. [10]

“McDonald’s has simply gotten too expensive here given all the macro worries,” wrote Jon Markman, a strategist at WealthWise Investments.

Looking ahead, McDonald’s said it plans to open 1,900 new restaurants globally including 500 store openings in China in 2023. It also aims to reach top-line sales growth of 7% to 9% for the year. [11]

Analysts forecast McDonald’s 2023 sales rising 5.5% to $26.24 billion with adjusted earnings seen declining 2% to $11.44 per share. [12]

In summary, McDonald’s latest quarter was impacted by geopolitical tensions and COVID disruptions, leading to rare misses on sales and traffic growth metrics. But its market position keeps most experts confident in its long-term growth story even if near-term turbulence weighs on the stock.

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AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.

By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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