McDonald’s Corp. shares slipped after the company’s fourth-quarter operating margin and its projection for 2023 both fell short of analyst estimates.
(Bloomberg) — McDonald’s Corp. shares slipped after the company’s fourth-quarter operating margin and its projection for 2023 both fell short of analyst estimates.
The measure of profitability came in at 43.6% for the most recent quarter, below the average estimate of 45.5% compiled by Bloomberg. Looking ahead, the fast-food giant expects its operating margin to be about 45% in 2023, below the consensus estimate of 46.5%.
The forecast shows the difficult balance of raising menu prices to keep up with higher expenses — but without driving away customers. The chain said that lower-income customers are still coming in, but ordering less when they do. Meanwhile, inflation for commodities, labor and utilities are continuing to pressure the company and its franchisees across the globe.
McDonald’s predicted $100 million to $150 million of costs this year related to supporting its franchisees, especially those in Europe, whose cash flows have been hit by inflation.
“We anticipate macro-related pressures will continue to weigh on both our consumers and our business,” Chief Financial Officer Ian Borden said on a conference call.
The stock fell 1.7% at 9:48 a.m. in New York trading. The shares had risen 2.8% so far this year through Monday’s close, below the 4.6% increase of the S&P 500 Index.
McDonald’s reported fourth-quarter sales that exceeded expectations as consumers proved willing to pay higher prices. Comparable sales rose 12.6% in the quarter ended Dec. 31, surpassing the average estimate for 8% growth compiled by Bloomberg.
“We’re still seeing the consumer is resilient,” Chief Executive Officer Chris Kempczinski said. Yet, he still expects “short-term inflationary pressures to continue in 2023.”
Meanwhile, McDonald’s is “highly confident” in a revamped operational plan that includes a greater focus on opening new locations, Kempczinski said. Earlier this month, the company said it was trimming corporate jobs as part of the new strategy.
Location growth will be focused on the US and the chain’s international operated markets division that includes European countries such as the UK and Germany. McDonald’s unit growth has stagnated in the US over the past eight years, and the company plans to share more on its plan to add new locations later this year, Kempczinski said.
The Chicago-based company earned $2.59 a share in the quarter, topping analysts’ average estimate of $2.44.
(Updates with conference call commentary starting in third paragraph, shares in sixth paragraph)
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