OAK BROOK, Ill. – Earnings for McDonald’s Corp. during the second quarter of fiscal 2016 may be described as flat. From a sales perspective, every one of the company’s business segments, including the US, International Lead Markets, High Growth Markets, and Foundation Markets & Corporate, experienced a sales decline during the quarter.
A key issue facing the company’s US operations and the rest of the foodservice industry in the United States is what appears to be a deceleration in the number of consumers eating out. In a conference call with financial analysts on July 26, Steve Easterbrook, president and CEO of McDonald’s, attributed the slowing to two issues.
|Steve Easterbrook, president and CEO of McDonald's|
“First of all there is a widening gap between food away from home and food at home, where the commodity decreases have been passed through by the grocers so the food at home is — there is value to be had for families there; whereas eating out, there is a price inflation environment. So that’s a small part of it.
“I think generally there’s just a broader level of uncertainty in consumers’ minds at the moment, both trying to gauge their financial security going forward, whether through elections or through global events. People are certainly mindful of an unsettled world. And when people are uncertain, when families are uncertain, caution starts to prevail and they start to hold back on spend.
“And for a business like us, clearly we generate a lot of our own business directly, but also we do benefit from people moving around, going to the malls, driving around going on vacations. And if people are reining in their spend across broader categories, that will have a little bit of a flow through to us as well.”
Easterbrook added that while macroeconomic trends may have affected McDonald’s quarterly results, he and his management team are focused on the long term versus quarter performance.
“We are mindful of the short term, but we have our eye-line on the long term,” he said. “We believe we’ve got a number of the right drivers in place to give us sustained, long-term growth here in the US.”
Despite the slowdown, Easterbrook said McDonald’s is continuing to win against its competition.
“In the US, our comparable sales versus the across all sandwich segment was consistently positive and average 130 basis points for the quarter, despite softer industry growth,” he said. “Our balanced focus on All Day Breakfast value and relevant promotions, including Monopoly, attributed to top-line performance.”
To improve the performance of the company’s All Day Breakfast program, McDonald’s is in the process of building flexibility into the effort.
“Over the past few quarters we’ve heard from customers looking for more choice in the All Day Breakfast menu,” Easterbrook said. “Those with McMuffin sandwiches on the menu offer biscuits and those with biscuits asked for muffins. We listened, worked with the operational challenges, and this fall will begin offering muffins, biscuits, and McGriddles all day in all US restaurants.”
Looking to the future, Easterbrook said McDonald’s would focus on the key trends currently shaping the food and beverage marketplace, including clean label and transparency.
“Clearly, continuing the journey we are around food and food quality, both investing in the ingredients, the recipes, and the items in the restaurants as well as the perception of better explaining what’s in our food, where it comes from,” he said.
For the first six months of the fiscal year, McDonald’s recorded net income of $2.22 billion, or $2.51 per share, compared with net income of $2.01 billion, or $2.09 per share, during the same period of the previous year.
Sales for the period were $12.17 billion, a decline compared with the first six months of fiscal 2015 when sales totaled $12.46 billion.