McDonald’s Quarterly Sales Outperform On Pent-Up Drive-Thru Demand

Shares of McDonald’s rose 1.7% in Monday’s early market trading as increased demand at its drive-thru outlets during the pandemic helped the burger chain giant outpace quarterly sales and profit expectations.

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In the third quarter ended September 30, McDonald’s (MCD) comparable sales retreated 2.2% year-on-year, but saw a recovery in the US with a 4.6% increase. Analysts had expected a 2.6% global decline. Monthly comparable sales results improved sequentially for all segments throughout the third quarter, the company said.

Total revenue dropped about 2% to $5.42 billion in the reported quarter compared to the $5.40 billion forecasted by analysts. McDonald’s earned an adjusted $2.22 per share, exceeding analysts’ estimates of $1.90.

In addition, the company declared a 3% increase in its quarterly cash dividend rising to $1.29 per share, payable on Dec. 15, this year with a dividend yield of 2.38%.

“The resilience of the McDonald’s system was on display during the third quarter as the competitive strength of our business and the 3 D’s – Digital, Delivery and Drive Thru – led to significant global comparable sales recovery,” said McDonald’s CFO Kevin Ozan. “Our franchisees and restaurant teams around the world remain focused on running great restaurants and continuing to provide a safe environment for customers to enjoy our great tasting food.”

However, McDonald’s cautioned that since September its business was again being affected by the resurgence of pandemic cases in main markets outside the US including France, Germany and the United Kingdom as new lockdown-related restrictions are being put in place. “There have been numerous instances of government restrictions on operating hours, limited dine-in capacity in most countries and, in some cases, mandated dining room closures,” the company stated.

Shares in McDonald’s, which have been hit hard earlier this year, have now more than recouped all of their losses and are currently trading up almost 10% year-to-date. (See MCD stock analysis on TipRanks)

Ahead of the earnings results, Tigress Financial analyst Ivan Feinseth reiterated a Buy rating on the stock, saying that MCD continues to experience improving business trends driven by a recovery in customer traffic, returns from ongoing digital initiatives, and new promotions.

“Quick service restaurants are seeing a greater drive to demand during the COVID-19 pandemic than even pre-pandemic periods as consumers increasingly engage with restaurants through drive-through and pick up as the fastest, most convenient, and safest alternative to cooking at home,” Feinseth commented in a note to investors. “New marketing partnerships with rapper Travis Scott and Latin pop superstar Jay Balvin drive increasing demand for existing products repackaged under the new partnership label and attract younger consumers.”

“MCD continues to reinvest its cash flow in new growth initiatives and enhancing shareholder returns through ongoing dividend increases and share repurchases. We believe further upside exists from current levels and continue to recommend purchase,” the analyst summed up.

The rest of the Street has a bullish outlook on the stock. The Strong Buy analyst consensus breaks down into 20 Buy ratings versus 4 Hold ratings. The $235.86 average price target implies 8.9% upside potential over the coming 12 months.