January 25, 2016 / 1:09 PM / 2 years ago

McDonald's wins with all-day breakfast, China back on track

4 Min Read

The sign for the U.S. fast food restaurant chain McDonald's is shown outside one of their restaurants in central Brussels, Belgium December 3, 2015.Yves Herman

(Reuters) - McDonald's Corp (MCD.N) smashed analyst expectations for quarterly same-restaurant sales as the launch of all-day breakfasts proved a hit with diners in the United States and demand continued to recover in China.

The performance adds fuel to McDonald's revival, after the chain had seen its U.S. sales fall for two years up to the third quarter of 2015 following a series of missteps under former chief executive Don Thompson, who left the world's biggest restaurant chain last year.

"Once upon a time, under previous leadership, it seemed like McDonald's became a less nimble company where it took a really long time to roll out new products and innovations," said Morningstar analyst R.J. Hottovy.

New Chief Executive Steve Easterbrook implemented a turnaround plan last year that involved making the menu simpler, improving service times and raising worker wages.

McDonald's also launched all-day breakfasts in October in the United States, a move aimed at countering increasing competition from chains such as Wendy's Co (WEN.O), Starbucks Corp (SBUX.O) and Burger King (QSR.TO).

"All-day breakfast positions us to regain market share we had given up in recent years," Easterbrook said on a post-earnings conference call, adding it would take at least six more months of positive sales to cement a more sustained turnaround.

Sales at U.S. outlets open at least 13 months rose 5.7 percent in the quarter ended Dec. 31 - the best quarterly growth in nearly four years and far ahead of forecasts of 2.7 percent.

Shares rose 3 percent to a record of $121.90 on Monday.

China Back on Track

In China, where McDonald's and rival Yum Brands Inc (YUM.N) are still recovering from a July 2014 food safety scandal, same-store sales rose 4 percent, the second straight quarter of growth after four quarters of falling sales.

The growth, however, was slower than the 26.8 percent jump in the July-September quarter, when sales ticked up sharply against a steep drop in the same period in 2014 immediately following the food scare at key supplier OSI Group.

McDonald's and Yum, the parent of KFC and Pizza Hut, are slowly turning things around in China, although same-restaurant sales for both firms remain below pre-scandal levels, according to a Reuters analysis of available data.

"It's back to par rather than getting ahead too much, but it's good for them to see stable sales," said Ben Cavender, Shanghai-based principal at China Market Research Group.

He added it would be tough for the firm to re-ignite the kind of rapid growth it enjoyed before 2012, as Chinese diners now had far greater choice and often looked for more healthy options.

What's more, the recovery comes as the world's second-biggest economy faces its weakest growth in 25 years, a slowdown that has roiled global markets in the past few months.

Globally, McDonald's same-restaurant sales rose 5 percent, above the 3.2 percent expected by analysts polled by research firm Consensus Metrix.

Fourth-quarter net income rose 9.9 percent to $1.21 billion, or $1.31 per share, on revenue of $6.34 billion, handily beating analysts' estimates.

The company also said it was exploring a sale of a portion of its Japan business, confirming earlier reports on the move.

Reporting by Sruthi Ramakrishnan in BENGALURU and Adam Jourdan in SHANGHAI; Editing by Saumyadeb Chakrabarty and Kenneth Maxwell

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