McDonald’s profit exceeded estimates due to higher prices on the menu

McDonald's earnings results for the third quarter of the year were released on Thursday and exceeded analysts’ expectations due to the company’s marketing strategy and higher prices on the menu. According to this report, McDonald's revenue was $5.87 billion instead of $5.70 billion estimated. Adjusted Earnings Per Share (EPS) were $2.68 instead of $2.57. As a result, the company’s stock has grown by 2%.

McDonald's CEO and President, Chris Kempczinski, expressed his confidence in the chosen operating strategy, which has already shown great results. Besides higher menu prices, the sales growth was also caused by a greater amount of customers and increased delivery demand.

However, the company’s massive foreign exposure had a negative impact on its results due to the weakening of all major currencies against the U.S. dollar.

On the other side, it helped McDonald's to balance out overall earnings results because a strong operating performance in internationally operated (e.g., Germany, Australia, France) and developing (e.g., Brazil, Japan) markets boosted the sales growth and compensated low sales recorded in China in the background of continuing COVID-19 restrictions.

According to Cowen analysts, McDonald's exposure in Europe is significant, and consequently, it depends on the euro, pound sterling and Australian dollar. Cowen gave the company’s stock an “outperform” rating and a target price of $280 per share.

Jared Garber, analyst at Goldman Sachs, has recently announced that the firm considered the possibility of taking into account updated estimates, which have been decreased in the light of unfavorable economic situation in Europe and high inflation. Goldman Sachs gave the stock a “buy” rating, but declined its price target from $278 to $270 per share.