McDonald's posts rare profit miss, shares drop

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By Aishwarya Venugopal

(Reuters) – McDonald’s Corp (N:) missed Wall Street estimates for profit for the first time in two years on Tuesday as more investment to spruce up U.S. restaurants and speed up delivery weighed on the world’s biggest fast food chain, sending its shares down 3%.

The company has been battling competition in the United States as rival fast-food chains challenge its dominance with value meals and a range of new menu items.

McDonald’s has also come late to the game in looking at reintroducing chicken sandwiches and beginning to test plant-based burgers, missing out on some of the hype around launches by rivals Burger King and KFC.

“Our gut tells us that McDonald’s was outcompeted in the third quarter by Wendy’s and Burger King,” Cowen analyst Andrew Charles said.

In a bid to reverse declining customer traffic and tackle competition, McDonald’s has been remodeling its 14,000 U.S. restaurants to include digital ordering kiosks, mobile ordering as well as pay and pickup services, while partnering with app-based delivery services GrubHub (N:), Uber (NYSE:) Eats and DoorDash.

Those investment led to a 2% rise in operating costs to about $3 billion, leading McDonald’s to post a smaller-than-expected profit of $2.11 per share.

Sales at U.S. restaurants open for at least 13 months rose 4.8% in the third quarter ended Sept. 30, below the 5.17% growth expected by analysts, according to IBES data from Refinitiv.

Keybanc analyst Eric Gonzalez said the same-store sales number implies that hamburger or sandwich peers are narrowing the gap with McDonald’s.

Globally, the company reported better-than-expected comparable sales growth of 5.9% on strong sales in markets such as the UK and France.

Net income fell 2% to $1.61 billion in the quarter from $1.64 billion a year earlier.

Total revenue, including both U.S. and overseas operations, rose to $5.43 billion, slightly below analysts’ expectations of $5.49 billion.

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