McDonald’s earnings surpassed Wall Street expectations even amid a challenging environment for restaurants that has increased costs for the industry.
McDonald’s (ticker: MCD) reported $2.55 per share on revenue of $5.72 billion for its second quarter. Analysts were expecting earnings per share of $2.47 on revenue of $5.8 billion. This contrasts with earnings of $2.37 a share and revenue of $5.89 billion in the previous year’s period.
According to FactSet, global comparable sales for the quarter gained by 9.7%, which surpassed analyst estimates of 6.8%.
“The operating environment across the competitive landscape remains challenging,” said chief executive Chris Kempczinski. “While we are planning for a range of scenarios, I am confident that our plans and people position McDonald’s to weather this environment better than others.”
McDonald’s stock increased 0.7% to $252.19 in premarket trading on Tuesday. McDonald’s has dropped 6.6% this year so far, better than the S&P 500’s 16% decline. The company’s size and scale and generous 2.2% dividend yield indicate that it is a relatively safe bet among restaurant stocks.
Restaurants have faced strong headwinds over the past couple of years- and might be in store for more challenges in the months ahead. While pent-up demand boosted restaurant sales in recent months, dining out is one of the first “luxuries” consumers expect to cut back on in the face of a recession. At the same time, restaurants face higher labour and input costs, all this while international chains are hurt by a strong dollar, which weighs heavily on their overseas operations.
Despite this, dominant players such as McDonald’s have often performed better than others during economic downtowns, given their scalability and capital reserves to increase marketing, weather promotional storms, and eventually gain market share. Fast food also usually does better than casual dining during recessions, given their lower price points.
The company will need to demonstrate that it can manage through these difficult times in order for it to continue to outperform. Investors will be paying close attention during the earnings call for hints that the company is beginning to experience signs of cooling wages or commodity costs, as well as whether demand can keep up in the second half of the year.
Investors might set the same expectations for other restaurants depending on what McDonald’s says. Wendy’s (ticker: WEN) and Yum! Brands (ticker: YUM), among others, are expected to report in the coming weeks. Domino’s Pizza (ticker: DPZ), on the other hand, delivered disappointing results last week.