By Heather Haddon 

McDonald's Corp. needed promotions and price increases to help boost sales in the third quarter as the world's biggest burger chain by revenue works to lure more customers.

Shares of McDonald's, up 18% over the past year through Monday's close, slid nearly 3% as third-quarter sales and earnings from the world's biggest burger chain fell short of expectations.

The company Tuesday said same-store sales grew 5.9% globally in the third quarter, above the 5.4% analysts polled by FactSet were expecting. But U.S., growing by 4.8%, were down from the previous quarter and below analyst expectations.

It stillm took offerings and promotions, along with menu price increases, to boost sales, the Chicago-based company said. McDonald's Chief Executive Steve Easterbrook said in prepared remarks Tuesday that renovated stores are also contributing to more sales and visits.

Earnings of $1.6 billion were down 2% from a year earlier when accounting for currency fluctuations. The company reported earnings per share of $2.11 and sales of $5.4 billion. Analysts polled by FactSet expected earnings per share of $2.21 adjusting for one-time items, and $5.5 billion in sales.

Company executives said the income miss was minimal, while they chalked up differing ways of calculating margins to the gap with analysts on earnings. Lower gains in sales of company-owned stores in the U.S. contributed to the miss, McDonald's said.

Restaurants across the industry have increased menu prices to help boost sales as labor and other expenses grow. Consumer prices for food served at restaurants have grown recently by 3.2%, an increase not seen since 2009, Labor Department data shows.

Fast-food competition continues to be intense, particularly for burger-focused chains.

Visits to U.S. fast-food burger restaurants were down 1% in the year ending in August, according to research firm NPD Group Inc. That was weaker than the average for fast-food restaurants, which saw a 1% increase during the period.

McDonald's has been fighting for years to boost customer visits. Customer transactions continued to be flat in the quarter ending in September.

"Traffic is still negative. For me as president of the U.S., it's not satisfactory," said McDonald's USA President Chris Kempczinski at The Wall Street Journal Global Food Forum in New York earlier this month.

Mr. Kempczinski pointed to competitors adding more locations and demographic shifts in the U.S. as weighing on customer visits for McDonald's. An aging population has resulted in more Americans eating at home generally, analysts say.

McDonald's has struck a number of technology deals this year to try to boost sales and improve operations. But those deals are driving up expenses. The company said Tuesday that administrative expenses grew 6% during the quarter, and McDonald's now expects those costs to grow by 1% to 2% during the fiscal year. Previously, the company expected those costs to be flat for the year.

The burger chain acquired Silicon Valley-based tech startup Apprente last month to tap the company's voice-activated technology to try to speed up service in its drive-throughs. McDonald's acquired Israeli startup Dynamic Yield earlier this year to use AI in suggestive ordering, and has quickly expanded it to thousands of U.S. restaurants.

And it has placed increasing emphasis on delivery, striking deals with DoorDash Inc. and Grubhub Inc. to bolster its existing to-go business with Uber Technologies Inc.'s Uber Eats division.

Delivery comes with a hit on restaurant margins, something McDonald's franchisees have pushed back on and the company has sought to address through its negotiations with third-party operators.

Write to Heather Haddon at heather.haddon@wsj.com

 

(END) Dow Jones Newswires

October 22, 2019 10:39 ET (14:39 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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