McDonald’s reported strong third quarter earnings last week, beating expectations on both revenue and earnings per share.
Global comparable sales grew nearly 9% in the quarter, a robust number but reflecting the continued moderation of growth seen in recent quarters as the business laps unusual COVID-related trends.
The U.S. and international operated markets segments both posted comps in the 6-7% range, driven by menu price increases of 10%+ in the U.S.
Traffic was slightly negative in the U.S. amidst an increasingly challenging consumer environment, particularly for lower income consumers. International markets saw positive traffic, benefiting from value menu offerings and customization through digital channels.
Margins remain pressured by inflation but McDonald’s scale and pricing power positions it better than competitors.
Despite the slowing growth, McDonald’s continues to fire on all cylinders operationally, gaining share and outpacing competitors globally.
The stock hit an all-time high following the earnings beat and remains in a long-term uptrend. Options activity has been bullish, with call buying outweighing puts by a wide margin. Short-term traders should look to buy dips given McDonald’s recession-resistant business and consistency executing its strategic plan. Key support is around $240, near the 21-day moving average.
The deceleration in comps will persist in coming quarters as inflation moderates, but McDonald’s should continue to gain share. Management is focused on menu innovation, digital engagement and modernizing the customer experience to drive sustainable growth. The dividend was raised 10% and McDonald’s has an exceptional history of returning cash to shareholders. The company is well positioned to navigate uncertain macro conditions. Long-term investors should take advantage of any broader market weakness to accumulate shares.
Team of Elite CurrenSea