McDonald's (NYSE:MCD) recovery is still chugging along, and the fast-food titan continues to post market-thumping sales and profit gains. Yet its expansion isn't looking as robust as it has in past quarters.

Let's jump right into the latest earnings numbers.

 Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$5.35 billion

$6.05 billion

(12%)

Net income

$1.5 billion

$1.4 billion

7%

Earnings per share

$1.90

1.70

17%

Data source: McDonald's financial filings.

What happened this quarter?

After holding steady in the prior two quarters, sales growth slowed, but McDonald's still extended  its streak of sales gains to 12 consecutive quarters. Meanwhile, profitability continued to benefit from the company's aggressive refranchising initiative.

Highlights of the period include: 

A man about to take a bite out of a burger.

Image source: Getty Images.

  • Comparable-store sales increased 4% compared to nearly 6% in each of the past two quarters. That expansion translated into a 12% revenue decrease after accounting for Mickey D's dwindling base of company-owned locations. It has shed 2,190 of these restaurants in the past year.
  • Customer traffic stayed slightly negative for the second straight quarter in the U.S. market but improved in each of McDonald's other geographies. That success, plus higher average spending per visit, ensured that comps improved by 4.7% through the first six months of the year, compared to a 5% uptick in the prior-year period.
  • Operating income fell 1% but rose by 1% after stripping out the impact of the chain's restructuring charges. On that basis, operating margin is up to 42.9% of sales this year compared to 37.1% a year ago. The biggest contributor to this growth has been the shift toward an almost fully franchised model, as the portion of company-owned locations dove to 7.7% from 13.7%.
  • The chain spent $2.5 billion on direct returns to shareholders through dividend payments and stock repurchases.

What management had to say

CEO Steve Easterbrook described the results in positive terms. "We're seeing good performance across our business as our customers tell us that they value and appreciate the moves we're making to elevate the McDonald's experience," he said in a press release. "We're pleased with the results of our international business," Easterbrook continued, "and the progress we're making in the U.S. on executing our [growth] priorities."

Looking ahead 

Mickey D's isn't growing as quickly as it has in past quarters, but it continues to snatch market share from peers. Rival Dunkin' Brands, for example, managed just a 1.4% comps uptick in the same period.

That outperformance suggests more good news for sales ahead, although investors will want to keep an eye on customer traffic levels for signs that they're deteriorating further in the U.S. segment or moving into negative territory in the company's other geographies.

In the meantime, profitability has room to expand further as McDonald's gets its proportion of company-owned stores down to 5% over the next few quarters. While this move will push earnings higher, investors can expect to see only modest direct cash returns, especially stock repurchases, as executives prioritize investing into the business. The chain is spending $2.4 billion on upgrading and modernizing its stores this year, including $1.5 billion just on its U.S. locations. These improvements will give McDonald's its best shot at holding on to, and ideally expanding, its recently recaptured leadership spot in the industry.

Demitrios Kalogeropoulos owns shares of Dunkin' Brands Group and McDonald's. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.