McDonald's Revenue, EPS Fall Short in Q4
Iconic fast-food restaurant chain McDonald's (NYSE:MCD) reported fourth-quarter and full-year 2024 earnings results on Monday, Feb. 10, that fell short of analysts' consensus estimates for revenue and earnings. Revenue reached $6.39 billion, missing the expected $6.45 billion and slightly declining from $6.41 billion in the same period last year. Meanwhile, adjusted earnings per share (EPS) fell 4.1% year over year to $2.83, just below the expected $2.85.
Overall, the quarter reflected operational challenges, with international markets performing better than domestic ones.
| Metric | Q4 2024 | Analysts' Estimate | Q4 2023 | Change (YOY) |
|---|---|---|---|---|
| Adjusted EPS | $2.83 | $2.85 | $2.95 | (4.1%) |
| Revenue | $6.39 billion | $6.45 billion | $6.41 billion | (0.3%) |
| Operating income | $2.87 billion | -- | $2.80 billion | 2.4% |
| Global comparable sales | 0.4% | (1.1%) | 3.4% | (3 pps) |
| U.S. comparable sales | (1.4%) | -- | 4.3% | (5.7 pps) |
Source: McDonald's. Note: Analyst consensus estimates for the quarter provided by FactSet. YOY = Year over year. pps = Percentage points.
Understanding McDonald's Business
McDonald's operates as a leading global food service retailer with a massive network of restaurants in over 100 countries. The company primarily generates revenue through franchise fees, royalties, and sales at company-owned restaurants. The franchise model, which accounts for the majority of its locations, provides a stable income and allows rapid expansion with less capital expenditure.
Recently, McDonald's has focused on enhancing digital engagement and expanding its menu to attract more customers. Its successful loyalty program and initiatives in digital ordering have become critical to its business strategy. The company aims to maintain strong customer connections while adjusting its menu offerings to meet evolving tastes and preferences, including healthier options and technology-driven services like app-based ordering.
Quarterly Highlights
For Q4 2024, McDonald's saw a mixed performance across different regions. Global comparable sales rose 0.4%, with growth mainly driven by international developmental markets, which saw a 4.1% increase, thanks to successful campaigns in Japan and the Middle East. However, sales in the U.S. decreased by 1.4%, attributed to rising competition and changing consumer preferences.
Operating income improved 2.4% to $2.87 billion, helped by cost control measures and restructuring efforts. Despite this, net income experienced a decline, down to $2.02 billion from $2.04 billion the year before. This decline was driven by lower revenue and increased expenses in company-owned restaurant operations.
McDonald's has been enhancing its menu with value offerings and product innovations, although these strategies have not yet fully offset sales challenges in some regions. Its loyalty program, boasting 175 million active users, contributed significantly with $8 billion in sales in Q4, indicating a robust digital strategy aligning with current consumer behaviors.
Among the factors affecting McDonald’s performance were market conditions in key regions like the U.K., where the fast-food industry is feeling the pressure from economical fast-casual competitors that are reshaping consumer dining choices. These issues reflect broader macroeconomic trends, affecting customer spending habits and influencing McDonald’s promotional efforts to capture the value segment effectively.
Looking Ahead
Looking forward, McDonald's management didn't provide any specific forward guidance in its report. In other settings, management has said that it plans to continue leveraging the company's strengths in digital ordering and consumer loyalty. The focus will remain on menu innovation, including potential expansions of successful international products into domestic markets, alongside ongoing value meal promotions.
The company expects the economic pressures and competitive landscape to remain challenging. As such, the enhancement of its digital platforms and cost efficiencies are anticipated to drive future growth. Investors should watch McDonald's ability to sustain growth in its U.S. market and its strategic moves to improve performance across underperforming regions, especially in response to shifting consumer spending patterns and the competitive fast-casual sector.
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