McDonald’s shares pop as investors cheer third-quarter beat

McDonald’s shares jumped more than 2 percent Friday after it reported third-quarter earnings that topped Wall Street estimates, fueled by global same-store sales growth.

McDonald’s reported earnings of $1.28 billion, or $1.50 per share, on revenue of $6.42 billion. Analysts expected the burger chain to earn about $1.48 a share on $6.27 billion in revenue, according to a consensus estimate from Thomson Reuters.

Still earnings were down from the $1.31 billion the company earned in last year’s third quarter, and revenue slipped 3 percent from $6.62 billion in the year-ago period, hurt by refranchising efforts.

McDonald’s shares surged, trading up 2.5 percent at $113.39.

“Our third quarter results, including our fifth consecutive quarter of positive comparable sales across all segments as well as improved restaurant profitability, are a testament to the progress we are making to satisfy the needs of today’s dynamic customers,” President and CEOSteve Easterbrook said in a press release.

Analysts had been viewing the quarter as a test of how solid McDonald’s turnaround efforts were going. While same-store sales rose 3.5 percent, with across-the-board improvement in all its global sectors, U.S. growth was more tepid.

The U.S. restaurant industry has been grappling with persistently soft traffic, and McDonald’s proved it wasn’t immune. Sales within the United States gained 1.3 percent, aided by its al-day breakfast and McPick 2 promotions and its new Chicken McNuggets recipe that uses no artificial preservatives.

“The good news is that the company remains in growth,” Neil Saunders, CEO of Conlumino, said in a research note. “The bad news is that the growth rate is now on a firm downward trajectory and a long way below the mid-single digit figures McDonald’s posted earlier in this fiscal.”

Looking ahead, McDonald’s will be up against tougher comparisons, as promotions such as the all-day breakfast have been running for more than a year.

Saunders said given the comparisons only get tougher over the next few quarters, it “looks like McDonald’s future growth will be somewhat lackluster.”

The company said it would continue to emphasize “food quality and the customer experience” in the fourth quarter.

Morningstar’s R.J. Hottovy told CNBC’s “Squawk Box” that McDonald’s efforts to improve operations were successful in the areas of service speed and order accuracy, but that it would be wise for the company to redirect its energies elsewhere moving forward.

The restaurant analyst said the franchise still trails competitors likePanera Bread and Starbucks in mobile ordering and finding ways to reach consumers outside the restaurants.

Hottovy added that small-scale product tests the company is implementing, like using fresh instead of frozen beef at certain Texas locations, can drive excitement among consumers and garner more positive results.

“The market’s going to be looking for that next catalyst, whether it be another big product innovation or an update on the refranchising efforts which is going to transform their income statement and make it a much more asset-light and higher-margin company,” the analyst said.

In the latest period, refranchising efforts and cost cuts also helped widen McDonald’s profit margin.

Growth in Japan and its other high-growth markets also helped offset a decline in China, where operations were hurt by temporary protests in the country over a controversy surrounding the South China Sea.

— Sarah Whitten contributed to this report.

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