McDonald's U.S. sales revive amid stiff competition

October 21, 2016 8:33 AM EDT

Customers using mobile phones, are seen through the windows of a McDonald's store in Tokyo, Japan July 22, 2016. REUTERS/Toru Hanai

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By Lisa Baertlein and Sruthi Ramakrishnan

(Reuters) - McDonald's Corp's (NYSE: MCD) turnaround remained on track in the latest quarter despite intense competition in the United States, helped by all-day breakfast, "McPick" value promotions and chicken McNuggets with simpler ingredients, the company said on Friday.

Sales at established U.S. restaurants rose 1.3 percent, amid industry softness that executives partly blamed on lower grocery prices that encouraged some diners to cook at home.

The result from the United States, which accounts for about 40 percent of overall profit at McDonald's, just exceeded analysts' lowered expectations, and was not as robust as the 2 percent U.S. same-store sales gain reported by rival Dunkin' Brands Group Inc (NASDAQ: DNKN) on Thursday.

McDonald's international restaurants easily beat expectations on same-store sales growth in Britain, Australia, Canada and Germany.

As a result, global sales at restaurants open at least 13 months rose 3.5 percent for the third quarter, handily beating the 1.5 percent average gain expected by analysts.

McDonald's Chief Executive Officer Steve Easterbrook has vowed to transform the 60-year-old chain into a "modern, progressive burger company." He has introduced the all-day breakfast, banned the use of medically important antibiotics in U.S. chicken, and has been working to speed up service and make it friendlier.

Shares of McDonald's closed up 3 percent to $113.93, despite analyst warnings that fourth-quarter U.S. same-store sales could drop 2 percent due to the high bar set by the debut of the all-day breakfast in October 2015.

RBC Capital Markets analyst David Palmer pressed executives on the conference call about what they will do next, given the "common perception" that all-day breakfast and McPick "are running out of gas as sales drivers" in the United States.

Easterbrook said international restaurants' "experience of the future" efforts, including digital kiosks and mobile apps, could bolster domestic operations.

The world's largest fast-food chain's net income increased 2.6 percent to $1.28 billion, or $1.50 per share, helped by lower food costs, cost cuts such as workforce reductions and better-than-expected global restaurant sales. McDonald's had 9.3 percent fewer shares outstanding versus the year earlier, which lifted earnings per share results.

Excluding items, the company earned $1.62 per share, beating the average analyst estimate of $1.48, according to Thomson Reuters I/B/E/S.

Total revenue fell almost 3 percent to $6.42 billion. That was down for a ninth straight quarter, largely due to the sale of restaurants to franchisees. Nevertheless, the result still exceeded the average analyst estimate of $6.28 billion.

(Reporting by Lisa Baertlein in Los Angeles and Sruthi Ramakrishnan in Bengaluru; Editing by Bernadette Baum and Lisa Shumaker)

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