Global fast-food chain McDonald’s (NYSE: MCD) announced fiscal 2019 fourth quarter results that BEAT expectations.

Revenue came in at $5.35 billion, slightly ahead of the consensus estimate of $5.3 billion. The performance marked a 4% increase over the same period a year ago when revenues were $5.16 billion.

Same store sales growth was an impressive 5.9% whereas the Street was looking for 5%. This was the highest same-store sales growth that McDonald’s has posted in over 10 years.

Adjusted earnings per share of $1.97 (excluding a tax benefit from new regulations) beat the consensus estimate of $1.96 by a penny. The company also reported EPS of $1.97 in the same quarter of last year.

The results show that McDonald’s emphasis on digital development and overseas expansion are bearing fruit. The fourth quarter performance ends a three quarter streak of earnings misses for the company.

 

Price Hikes, International Drive Growth

A strong performance in international markets drove the positive result. The International Operated and International Developmental segments achieved same-store sales growth of 6.2% and 6.6%, respectively.

U.S. same store sales were up 5.1%. Despite a decline in U.S. customer traffic, price increases helped drive the performance.

McDonald’s has been challenged by decreasing foot traffic in the U.S. due to changing customers tastes away from fast food and towards more healthy but still affordable alternatives.

Competition in the breakfast space is also heating up. Companies are following the all-day breakfast menu trend and chains like Wendy’s are entering the breakfast battle.

Full-year revenue topped the $100 billion mark and increased 4% in 2019 over 2018. Same store sales growth was also 5.9% for the full-year. Reported earnings per share of $7.88 were 5% higher than the prior year.

 

Chicken, Meatless are the Latest Battlefronts

Investors are looking for signs that McDonald’s has the catalysts to drive growth in 2020. The company had been staying on the sidelines during the so-called “chicken wars” whereby Restaurant Brands International, Wendy’s, Chick-fil-A, and others have competed with new chicken sandwiches.

Earlier this week, McDonald’s announced the addition of two chicken sandwiches to its breakfast menu. Will customers flock to chicken for breakfast?

The fast-food restaurant industry has produced earnings growth of around 6% over the last five years while McDonald’s has outperformed with 8% growth.

The meatless burger is another industry trend that the company has just recently joined by testing a Beyond Meat alternative in Canada. Is that trend here to stay?

The staying power of plant-based burgers is likely to impact industry results. The winners could be those with a clear first mover advantage. It could also be companies that astutely treaded carefully if the popularity of meatless alternatives fades or becomes less economical.

The fast-food restaurant industry has produced earnings growth of around 6% over the last five years while McDonald’s has outperformed with 8% growth. Profits are forecast to be up 8% next year after a relatively flat 2019.

After rising 14% in 2019, McDonald’s stock is already up 6% this year while the industry is up 1%. This compares to a flat year-to-date return in the S&P 500 index.

Management has executed well on its Velocity Growth Plan responding to consumer preferences and the value they place on convenience. It maintained its long-term earnings growth forecast in the high-single digits and expects systemwide sales growth of 3% to 5%. It also plans to add about 1,000 new locations this year.

McDonald’s is always discovering new ways to attract customers despite the trend away from fast food. It will have to continue to manage changing consumer tastes and successfully navigate pricing to deliver on its 2020 growth targets.

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