McDonald's surges on strong earnings, growth plans

McDonald's enjoyed a fat day on Wall Street Tuesday after wowing investors with better-than-expected earnings and progress in efforts to grow sales through delivery and other tech-oriented services.

Results in the key US market were boosted by a discounted soda promotion and the launch of premium sandwich offerings. Sales also were strong in Britain, Canada, Germany and China.

Investors were impressed with the company's progress ramping up mobile order and mobile pay at more restaurants, and with its expansion of a delivery service, which has been launched at 4,000 restaurants in the US and other markets.

"We're building a better McDonald's and more customers are noticing," said chief executive Steve Easterbrook.

"Our relentless commitment to running great restaurants and keeping the customer at the center of everything we do is generating broad-based strength and momentum across our entire business."

The fast-food chain saw its share price jump just under 5.0 percent to close at $159.07.

Net income for the quarter ending June 30 surged 28 percent, a $1.4 billion jump and easily topping analyst expectations.

However, revenues dipped three percent to $6.0 billion, partly due to the strong dollar and the refranchising of restaurants.

Sales rose 3.9 percent in same-store US restaurants following a push to offer soft drinks in all sizes at just $1, and the launch of "Signature Crafted" sandwiches, which feature applewood smoked bacon, Dijon sauce and other premium ingredients.

Easterbrook, hired in 2015 to turn around the slumping business, said initiatives like the soda promotions are helpful in winning back customers who wrote off the chain.

Under Easterbrook, the company also has invested in restaurant beautification and higher pay for workers.

"It's great just to have more customers visit your restaurant to actually notice the investments we've made," he said on a conference call.

Neil Saunders, managing director of GlobalData Retail, praised the results as a sign the fast-food giant has become "more entrepreneurial and nimble" compared with a few years ago.

"Although the measures may seem piecemeal, they are now part of a wider strategy to deepen McDonald's relevance to modern diners," Saunders said.

"The company has rightly recognised that a one-dimensional fast-food offering will no longer deliver growth.

"It is stepping up its efforts in premium offerings, family dining occasions such as breakfast, quick snacking and coffee stops, and a host of other areas. We believe that, as a whole, these things give McDonald's plenty of firepower for future growth."

Delivery service

McDonald's is on track to install mobile pay and ordering at 20,000 restaurants by the end of 2017, including 14,000 in the US, where curbside pickup is popular.

Delivery also offers a potential avenue for reaching new customers. The program, unveiled in partnership with UberEats and other food delivery services, is boosting sales with college students, people watching live sporting events at home and some inner-city neighbourhoods.

People are ordering food delivered in "some of the slightly tougher parts of town" late at night "where people are much more comfortable having (meals) delivered to them and not necessarily venturing out," Easterbrook said.

Morningstar analyst RJ Hottovy said delivery fees could be a hurdle for restaurants like McDonald's, but noted 75 percent of the population in the chain's five biggest markets live within three miles of a restaurant.

"We believe the framework may be in place for a successful delivery program," Hottovy said.

CFRA analyst Tuna Amobi said the growth initiatives could be a winner over the long term.

"However, in the near term, continued investments in those initiatives are expected to pressure operating margins," he said.