McDonald's investors hungry for more growth after comeback

[CHICAGO] McDonald's Corp, three years into a dramatic turnaround effort, has left investors hungry for more.

Though the company matched Wall Street estimates for US comparable sales growth last quarter, the shares slipped as much as 1.9 per cent in trading Tuesday - a sign the bar has been raised for the fast-food giant.

After kicking off a rally in 2015, McDonald's now carries a rich valuation compared with its peers, Bloomberg Intelligence analyst Mike Halen said. Investors also have grown accustomed to seeing McDonald's beat estimates, rather than merely matching them. The last time the company didn't exceed US comparable sales projections was July 2016.

"Momentum slowed a little bit in the fourth quarter on a two-year basis," he said. "The stock is down because it's been on an absolute tear. Stocks don't go up forever."

McDonald's US strategy also has increasingly become a race to the bottom. The world's largest restaurant chain relied more heavily on a discounting push to maintain sales in its latest quarter. The Oak Brook, Illinois-based company has touted drink specials and sandwich promotions, and more recently revamped its Dollar Menu. That move is showing early signs of attracting more customers.

The question now is how long McDonald's can fuel growth by appealing to Americans' penny-pinching instincts - especially as competitors fight back. Taco Bell and other rivals are rolling out their own items for as little as US$1, making the fast-food industry even more cutthroat.

The stock had been up 3.3 per cent this year through Monday's close. And it gained in each of the three previous years, fuelled by chief executive officer Steve Easterbrook's comeback bid. On Tuesday, the shares fell as low as US$174.41, marking the biggest intraday drop since November.

The Golden Arches are still outshining most of the restaurant industry. Last quarter, US comparable sales climbed 4.5 per cent - a result most chains would envy.

Globally, McDonald's exceeded estimates. Its lead international markets - a category that includes the UK and Canada - gained 6 per cent on that basis, compared with a 5 per cent prediction. Overall, the sales climbed 5.5 per cent, beating the 5 per cent projection.

McDonald's profit also handily beat analysts' estimates. Excluding some items, earnings came in at US$1.71 a share, compared with the US$1.59 estimate.

Mr Easterbrook believes the company can stay on track by touting convenience, menu variety and affordable prices. He's also betting that a new mobile app and the rollout of delivery service can keep customers loyal.

"We are confident that we will accelerate our momentum by capitalising on our strong business model," he said in a statement.

BLOOMBERG