McDonald's earnings surge as CEO hails turnaround

All-day breakfast and the "McPick2" value promotion lifted McDonald's US sales in the first quarter, enabling the fast food company to score a big jump in earnings released Friday.
The burger chain, which installed Steve Easterbrook as chief executive a year ago with a mission to turn around its sagging business, scored net income of $1.1 billion, up 35.4 percent from the year-ago period.

The results mark the third straight quarter of earnings growth under Easterbrook, who has put improved customer service at the center of efforts to reinvigorate the 61-year-old restaurant chain.

"I'm pleased to report that our turnaround is taking hold," he said in a statement Friday. "The ongoing investments we're making in running great restaurants and delivering what matters most to our customers are beginning to yield sustained positive results."

The company's solid performance in the US market, which typically garners about a third of McDonald's revenues, was propelled by the launch of the popular "all day breakfast" menu, which gives customers free rein on when to order pancakes, Egg McMuffins and other popular items that were previously only available in the morning.

Easterbrook told analysts Friday that the goal now was to take advantage of that momentum. The restaurant chain has experimented with various value-oriented propositions with mixed success, he said.

McDonald's believes it may have found a promising proposition in the month-long McPick 2 value promotion, which charged $5 for any two from a list of popular offerings that includes the Big Mac, Chicken McNuggets and a Quarter Pounder with Cheese. These items generally sell for between $3 and $5 each.

- Bullish on China -

For the quarter, global comparable sales rose 6.2 percent, with the US up 5.4 percent. But total revenues dipped 1.0 percent to $5.9 billion.

Especially strong overseas markets included Britain, Australia, Canada, China and Japan. Better sales in China and Japan marked a recovery from 2014 when the company wa hit hard by a scandal involving a supplier who sold contaminated meat and who was photographed picking up food off the floor.

That sent Asian customers fleeing the chain and pushed regional sales lower.
McDonald's announced plans in March to open more than 1,500 restaurants in China, Hong Kong and South Korea over the next five years and said it was seeking partners in the Asia expansion.

"China is a wonderful opportunity," Easterbrook said. "The aim is to accelerate growth there."

The burger chain has also launched all day breakfast in Australia, in response to demand, a spokeswoman said. The company hasn't said whether it plans the program in other overseas markets.

"We'll continue to listen to our customers to provide them with great choices and variety from McDonald's," she said.

McDonald's shares have risen about 30 percent since Easterbrook unveiled a turnaround plan in May 2015, and are up 6.2 percent since the beginning of the year. They lost 0.2 percent Friday to $125.50.

The chain had been slumping amid popular worries about fast food diets and obesity, and intensifying competition from other chains, including more upscale brands like Shake Shack and Panera Bread.

Key steps have included selling off more company-owned restaurants to franchisees, radically restructuring its international operations and initiating menu tweaks, such as promising to use eggs from cage-free chickens.

Despite the moves, "they have a long way to go to improve their quality perception," said David Palmer, an analyst at RBC Capital.

"Now comes the next part," Palmer told CNBC. "Can they extend the all-day breakfast lift? Can they find some other wins?"