McDonald’s Earnings Fall Short, But Stock Rises on Optimism for Value Meals
McDonald’s (MCD) reported disappointing second-quarter earnings on Monday, with both profit and revenue falling short of expectations. Despite this, the fast-food giant’s stock rose 3.3% to $260.38, marking its best post-earnings performance in more than five years.
The company’s adjusted earnings per share came in at $2.97, missing Wall Street’s estimate of $3.07, according to FactSet. Revenue also fell short, totaling $6.49 billion compared to the expected $6.62 billion. This marks McDonald’s first year-over-year decline in quarterly earnings since the third quarter of 2022, with earnings down 6.3% from a year ago.
McDonald’s CEO Chris Kempczinski acknowledged the challenging economic environment, stating that inflationary pressures have made consumers, particularly those from lower-income households, more selective with their spending. “Consumers still recognize us as the value leader versus our key competitors, but it’s clear that our value leadership gap has recently shrunk,” Kempczinski said.
Value Meal Strategy
Despite the earnings miss, McDonald’s management expressed optimism about the potential of their value meal strategyto drive growth in the second half of the year. The company recently launched a $5 value meal deal on June 25, aimed at attracting budget-conscious customers. Joe Erlinger, president of McDonald’s USA, noted that the deal has been well-received, with sales exceeding expectations.
“We’ve seen a lot of enthusiasm and the number of $5 meal deals sold are above expectations,” Erlinger said. “Traffic and guest counts [growth] usually come before sales.”
Sales and Growth Prospects
The $5 value meal deal is part of McDonald’s broader strategy to re-establish its value proposition. On launch day, the company saw an 8% increase in visits compared to the average for that day, making it the busiest Tuesday of the year, according to Placer.ai. July 2 set another record for the company.
TD Cowen analysts maintained a Buy rating on McDonald’s stock with a $285 price target, expressing confidence that the company’s focus on value would resonate with consumers and drive traffic in the coming months.
Global Expansion and Innovation
In addition to its value meal strategy, McDonald’s continues to expand its global footprint. The company plans to open 10,000 new restaurants by 2027, increasing its total to 50,000 worldwide. It has also launched a new drink-focused chain, CosMc’s, and signed an exclusive deal to sell Krispy Kreme doughnuts, aiming to dominate the breakfast market.
