McDonald’s posts weak quarterly results as higher fast food prices hurt demand

McDonald’s (MCD.N) reported a surprise drop in sales and missed Wall Street estimates for quarterly profit on Monday, as the burger giant struggled to draw in cash-strapped customers opting to eat at home due to higher menu prices.

Global sales fell 1 per cent in the second quarter, its first decline in 13 quarters, compared with analysts’ average estimate of a 0.53 per cent rise, according to LSEG data.

Persistent inflation has forced lower-income group to shift to affordable food options at home, leading to fast food chains including McDonald’s and Burger King to launch several value bundles and limited offers to boost customer traffic.

Value meal wars have ramped up as rivals Burger King (QSR.TO), Wendy’s (WEN.O) and Starbucks rolled out meal deals in recent months.

McDonald’s was set to extend its $5 meal offer into August at most US locations after its launch on June 25.

“The biggest hit for McDonald’s is the low-income consumer has really cut back on visits and that is more than offsetting the typical trade down McD normally sees in tougher economic times,” said Edward Jones analyst Brian Yarbrough.

CEO Chris Kempczinski said consumers were more discriminating with their spend. Still, McDonald’s kept its 2024 operating margin forecast unchanged in the mid-to-high 40 per cent range.

Its shares, which are down 15 per cent this year, were up marginally in premarket trading as the company also kept its capital expenditure budget of up to $2.7 billion.

More than half of the amount will be used to start new restaurants in the US and international markets.

US comparable sales fell 0.7 per cent in the quarter ended June 30, compared with a 10.3 per cent jump a year ago. Sales in international markets dropped 1.1 per cent, driven by weakness in France.

A slower-than-expected recovery in China and the Middle East conflict impacted performance at McDonald’s business segment where restaurants are operated by its local partners, as sales declined 1.3 per cent compared with a 14 per cent jump a year earlier.

Companies like McDonald’s and Starbucks (SBUX.O) have suffered from consumer boycotts linked to the Gaza war, which hit their sales in the Middle East markets.

McDonald’s earned $2.97 per share on an adjusted basis in the second quarter, missing expectations of $3.07.