McDonald’s Fourth-quarter Operating margin Shortfalls

McDonald’s Fourth-quarter Operating margin Shortfalls

Bloomberg McDonald s Corp. shares fell after the company's fourth-quarter operating margin and its projection for 2023 fell short of analyst estimates.

The profitability measure came in at 43.6% for the most recent quarter, which is less than the average estimate of 45.5% compiled by Bloomberg. The fast-food giant expects its operating margin to be around 45% in 2023, which is less than the consensus estimate of 46.5%.

The forecast shows the difficult balance between 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. The inflation for commodities, labor and utilities is continuing to pressure the company and its franchisees across the globe.

McDonald s predicted to save $100 million to $150 million of costs this year for its franchisees, especially in Europe, whose cash flows have been hit by inflation.

Chief Financial Officer Ian Borden said on a conference call that macro-related pressures will continue to weigh on both our consumers and our business.

The stock fell 1.7% at 9: 48 a.m. in New York trading. The shares had gone up 2.8% so far this year, less than 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 December 31, surpassing the average estimate for 8% growth compiled by Bloomberg.

Chief Executive Officer Chris Kempczinski said that the consumer is resilient and that's why we're seeing it. He still believes that short-term inflationary pressures will continue in 2023. Kempczinski said McDonald s is highly confident in a revamped operational plan that includes a greater focus on opening new locations. The company said earlier this month it was reducing corporate jobs as part of the new strategy.

Location growth will be focused on the US and the chain's international markets division that includes European countries such as the UK and Germany. Kempczinski said 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.

The Chicago-based company earned $2.59 a share, topping the average estimate of $2.44.

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