Investors were already expecting good news from McDonald's (MCD -0.05%) in its third-quarter earnings report. The fast-food titan issued a rare mid-quarter update last month that revealed that sales growth had returned to positive territory in the core U.S. market after plunging amid COVID-19 disruptions earlier in 2020.
The burger chain's full results added context to that headline sales figure, including in key metrics like customer traffic, promotional spending, and market share.
Let's dive right in.
Image source: Getty Images.
Getting back to growth
At a glance, investors might see McDonald's Q3 revenue trends as a return to normal. Comparable-store sales rose 4.6% in the U.S. geography, or roughly the same pace as a year earlier.
Yet there were plenty of signs of continued COVID-19 stresses on the business. The international segment shrank by more than 4% to pull overall sales lower. And in the U.S., McDonald's relied entirely on higher average spending to offset a continued drop in customer traffic.
Executives credited the company's digital sales channel -- and its massive drive-thru platform -- for helping sales rise in the U.S. during each of the three months in the quarter. CFO Kevin Ozan said in a press release that the period represented a "significant global comparable sales recovery," with worldwide comps landing at a 2.2% decline compared to the prior quarter's 24% plunge.
Modest profit rebound
McDonald's had to spend aggressively to support that growth rebound. The company ramped up advertising and promotions, especially around home delivery, in Q3. That strategy pressured earnings, as it did with rivals including Chipotle Mexican Grill and Starbucks over the last few months. But the chain still managed to increase operating income by 3% after accounting for currency exchange rate shifts.
That marked a small but important step toward a profit rebound. But Mickey D's still has a long way to go. Operating income is down 23% through the first three quarters of 2020.
MCD Operating Margin (TTM) data by YCharts.
Looking ahead
Management didn't comment on the sales trends for the final quarter of 2020 that started on Sept. 31. But executives did note that growth rates were strong throughout Q3 in the U.S. and improved in the international segment despite continued slumps in places like France, Spain, and Germany.
Those trends suggest McDonald's could return to customer traffic growth at home by the end of the year even as the international division edges back into positive comps territory. The earnings picture might strengthen further if the chain raises prices for its delivery channel, as Chipotle is considering right now.
There are some major risks to that outlook, especially internationally as major markets in places like Europe contemplate another round of COVID-19 restrictions to contain outbreaks.
But McDonald's has demonstrated that it can quickly bounce back from temporary hits like these, since fast-food fans are attached to the brand despite historic disruption in the industry.
"Our teams around the world remain focused on running great restaurants," Ozan said, "and continuing to provide a safe environment for customers to enjoy great tasting food."
