McDonald’s reports strong earnings, helped by all-day breakfast

PHOTOGRAPHER: COURTESY PHOTO

A McDonald's sign in Wendover, Nev.

McDonald’s surprised even the most bullish investors Monday, reporting stronger-than-expected quarterly gains in earnings thanks to its introduction of all-day breakfast.

Same-store sales, the numbers for stores open at least a year, rose 5.7 percent in the United States in the quarter that ended Dec. 31, and 5 percent on a global basis. It was the strongest gain in such sales in almost four years for McDonald’s.

“We begin 2016 in a much better place than we were 12 months ago,” Steve Easterbrook, chief executive of McDonald’s, said during a conference call with investment analysts.

Mark Kalinowski, an investment analyst at Nomura, said offering some items from McDonald’s breakfast menu all day and night was the biggest driver of the company’s sales at the end of the year.

“Clearly, all-day breakfast is helping bring back lapsed customers and may even be bringing in new customers who wouldn’t normally be going to McDonald’s,” Kalinowski said before earnings were announced. “I’m hearing that from franchisees — and from friends, too.”

McDonald’s has been in a turnaround that Easterbrook started when he became chief executive in March. The company changed its structure to try to encourage the exchange of ideas around the globe, and it announced it would sell 3,500 of its company-owned stores. Such steps are expected to reduce its costs by $300 million by 2018.

Profit in the fourth quarter climbed 10 percent to $1.2 billion, or $1.31 a share, from $1.1 billion, or $1.13 a share, in the same quarter in 2014. The company also benefited from raising its prices and cutting costs, as well as unseasonably warm weather at the end of last year.

The effect of higher wages the company is paying employees in the stores it operates were offset by lower commodity prices, according to Kevin Ozan, chief financial officer.

Customer traffic in the United States, the company’s biggest market, continued to decline, however. “Guest counts” dropped 3 percent last year after falling 4.1 percent the year before.

“We need to do more to increase loyalty in our existing customers and win back customers,” Easterbrook said.

McDonald’s shares ended the day at $119.20, a gain of about 0.7 percent.

Easterbrook said the bump from all-day breakfast gave the company some room to work on other things, such as improving food quality, developing new promotional programs, and improving the experience customers have in the drive-through lanes. He said those initiatives would help the company sustain growth as the enthusiasm over the breakfast program eventually subsides.

On the conference call Monday, analysts sought insight into how the McDonald’s app, which became available for downloading in July but wasn’t advertised until October, was affecting business. Easterbrook said 7 million people had downloaded the app, although fewer went on to register. Those who register, sharing their information with McDonald’s, become eligible for special deals, such as getting a sixth coffee free after buying five.