McDonald's tracking inflation impact as Russia exit hits profits

McDonald's reported lower profits Tuesday following the hit from its Russia withdrawal, as it keeps a close eye on restaurant traffic amid rising consumer inflation.

The US restaurant chain scored higher comparable sales in most major markets except China, where Covid-19 restrictions hit sales.

This included a strong performance in Europe, where the chain highlighted France and Germany as especially robust markets.

However, Chief Executive Chris Kempczinski cited surveys showing weakening consumer sentiment as a source of unease.

"The headline is Europe is doing very well for us," Kempczinski told analysts on a conference call.

"What is weighing on our mind is consumer sentiment," he said, adding that the company is pondering how heavily to "lean in" to value offerings in Europe.

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"Because of this uncertainty around consumer sentiment, we're having to plan for more scenarios," he said.

McDonald's reported profits of $1.2 billion, down 46 percent from the year-ago period on a three percent drop in revenues to $5.7 billion.

Results were dented by $1.2 billion in costs connected to McDonald's sudden sale of its Russia business in the wake of the country's invasion of Ukraine.

As a more affordable restaurant chain, McDonald's is potentially positioned to pick up sales from lower-income consumers.

But the company is also seeing cost pressures.

In the United States, McDonald's expects about 12-14 percent inflation on food and paper in 2022 and a little over 10 percent on labor, said Chief Financial Officer Kevin Ozan.

McDonald's expects a moderation in US inflation in the fourth quarter. Such an ebbing in pressure is not expected in overseas markets.

"In general, on the inflation side it will hit a little bit harder than in the US and little bit longer than in the US," Ozan said.

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McDonald's shares edged down 0.2 percent to $249.77 in early trading.

Source: AFP