Britain, Japan sales boost McDonald's as US growth slows

With more customers in Europe and elsewhere choosing to eat fast food, McDonald's reported unexpectedly strong third quarter results Friday, despite sluggish growth its US restaurants.

The fast-food giant pointed to especially strong sales in Britain and Japan, as well as positive results in Australia, Canada and Germany. 

That compensated for declines in some other markets, including France, where a steep drop in tourist activity pinched sales.

McDonald's scored a 3.5 percent gain in comparable global sales in the quarter, much better than the 1.5 percent seen by some analysts. About two-thirds of the company's revenues come from outside the US.

The results "are a testament to the progress we are making to satisfy the needs of today's dynamic customers," said McDonald's chief executive Steve Easterbrook, who has led the overhaul of the company's global structure that led to the strong performance in international restaurants .

Net income for the third quarter dipped 4.4 percent to $1.3 billion. That translated into $1.50 a share, a penny above analyst expectations.

Net sales declined 3 percent to $6.42 billion, better than the $6.28 billion projected by analysts.

Easterbrook was tapped in January 2015 to turn around McDonald's fortunes after a lengthy slump saw the home of the Big Mac lose ground to other fast-food chains like Wendy's and high-end brands such as Shake Shack.

He shifted the global organization from region-based to one structured around comparative growth potential, with countries split into groups such as "high growth" and "foundational."

Easterbrook also sold restaurants to franchisees and introduced new menu options, including the very popular all-day breakfast in the US. 

He has spoken of the need to transform McDonald's into a "modern, progressive burger company," in part by focusing on better ingredients, boosting mobile technology capacities and improving customer service.

Challenging countries include France, which is struggling with a steep dropoff in tourist activity after the violent attacks in Paris and Nice in the past year. 

Among locals in France, "there's a slight reticence to go into tourist areas," he said. 

"I think some of these things are temporary and some might be more permanent. But it certainly means our management teams must be much more agile and responsive to act in accordance with customer concerns."

Another problem area was China, where protests against McDonald's and other US companies hit sales after an international court in July ruled invalid China's claims to a vast swathe of the South China Sea.

McDonald's is seeking a franchise buyer for some 2,000 restaurants in China that could fetch as much as $2 billion, according to US press reports.

McDonald's chief financial officer Kevin Ozan said, "We are currently in the process of vetting a select number of qualified bidders."

Ozan also said McDonald's had "made meaningful progress" in an effort to find partners in Malaysia and Singapore, where there are currently 400 restaurants, mostly company-owned.

- Uncertain US outlook -

McDonald's performance overseas was "resilient," even with the stronger dollar, said Neil Saunders, chief executive of Conlumino, a research and consultancy firm.

Saunders was less enthused over the restaurant's prospects in the United States, writing that the "company's recovery has lost some of its initial momentum." 

In the US market, comparable sales rose 1.3 percent, slower than the 1.8 percent growth in the prior quarter.

Saunders agreed the overall US restaurant sector was "remarkably soft" in the third quarter, but said McDonald's also faces challenges as it tries to  attract more young consumers who prefer Chipotle and other brands. 

"The blunt truth is that McDonald's brand image is not one that naturally supports a more premium offering, especially in a market like the US where much work on the design and ambience of restaurants is still needed," Saunders said.

The company's share price rose 3 percent to $113.89 in afternoon trading.