Industry News | October 24, 2017 | By Alex Dixon | QSR Exclusive Brief

McDonald's Beats Wall Street's Q3 Expectations

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McDonald’s continued its streak of positive comparable U.S. sales growth in the third quarter of 2017, posting a 4.1 percent increase thanks to its beverage and McPick 2 value performance along with the continued success of its Signature Crafted premium sandwich platform.

The quick-serve giant reported third quarter net profit of $1.88 billion, beating Wall Street expectations with a nearly 48 percent profit increase since the same period last year. Revenues for the quarter fell 10 percent to $5.75 billion, primarily due to the company’s refranchising initiative.

During the quarter, McDonald’s reached its target of refranchising 4,000 restaurants more than a year ahead of schedule after refranchising locations in China and Hong Kong. Over the past three years, McDonald’s has increased its franchised unit ratio from 81 percent to 91 percent of all units.

“Completing this transaction brings us closer to the customers and communities we serve in these markets and creates a better opportunity to unlock their full growth potential,” McDonald’s CFO Kevin Ozan said in a statement. “Our more heavily franchised structure will continue to drive shareholder value by providing a more stable revenue and income stream with higher returns on invested capital."

During the second quarter of this year, McDonald’s U.S. comparable sales rose 3.9 percent after rising 1.7 percent during Q1. Guest traffic has increased for the past two quarters.

Earlier this year, McDonald’s introduced its Velocity Growth Plan to bring mobile order and pay to 20,000 restaurants by the end of 2017 and to accelerate delivery growth. The plan also aims to raise the bar on value, quality, and convenience with moves in the U.S. like the $1 beverage promotion, the Signature Crafted sandwich offerings, and the commitment to serve fresh beef in quarter-pound burgers by mid-2018.

“When we improve the taste and quality of our products to meet customers’ rising expectations, they reward us with more business,” McDonald’s U.S. president Chris Kempczinski said in a conference call.

Kempczinski said during the call that the company is on track to offer delivery through UberEATS to 5,000 U.S. locations by the end of this year. Delivery has proven popular in dense urban metro areas such as New York, Miami, Boston, and Los Angeles, and Kempczinski said McDonald’s is only “beginning to scratch the surface of this opportunity.”

About 6,000 U.S. locations offer mobile order and pay, and McDonald’s expects the platform to reach all 14,000 units by the end of the year. McDonald’s units with the Experience of the Future store design comprise about 13 percent of all U.S. restaurants though Kempczinski said that number will increase significantly in the coming years.

"Our Velocity Growth Plan is the right strategy for McDonald's to achieve long-term, profitable growth and we are on track to succeed with our commitment and focus on execution,” CEO Steve Easterbrook said in a statement. “We've made progress in many areas of our business already, including optimizing our restaurant ownership mix and running better restaurants. At the same time, we also are making strides with initiatives such as delivery, mobile order and pay, as well as the Experience of the Future transformation of our restaurants that will make the experience more convenient, personalized and enjoyable for our customers."