San Francisco Frontiers - McDonald's profits rise as fast-food giant lifts prices carefully

Facing elevated costs for paper, food and labor, the restaurant chain lifted prices "a little over six percent" in the United States last year without seeing consumer pushback, said Chief Financial Officer Kevin Ozan.

We "generally try and take small increments of pricing at various times versus take a lot at one time," Ozan said on a conference call with analysts, adding that the fast-food giant continues to receive good scores on value from surveys of customers.

McDonald's also cited a successful menu and marketing blitz around the McRib and Crispy Chicken Sandwich in the United States, as well as a broadly improving Covid-19 situation in some leading markets.

But at a time when consumer inflation is a concern, McDonald's executives argued that the chain is well positioned.

"As we go into 2022, we are in a share-taking mentality," said Chief Executive Chris Kempczinski, who added that the company has had "several years" of outperforming the industry by key sales benchmarks.

- Tight labor market -

Net profit in the fourth quarter was $1.6 billion, up 19 percent from the year-ago period.

The company reported comparable sales growth across its divisions, with the United States jumping 7.5 percent and its two international divisions posting increases of around twice that level.

But ongoing Covid-19 restrictions in Australia resulted in "relatively flat" comparable sales, while China's results were dented by a resurgence of the virus, the company said.

Markets such as France and Germany that were strong early in the quarter had "stops and starts" near the end of the period as the Omicron variant of Covid-19 spread, Ozan said.

McDonald's also contended with a drag from higher costs, which rose 14 percent to $3.6 billion, a bit bigger than the 13 percent rise in revenues to $6 billion.

Profits per-share lagged analyst expectations, pressuring the company's stock.

Ozan said costs for food and paper were up about four percent in the United States last year and three percent in international markets.

In both cases, McDonald's expects "about double" that rate of inflation in 2022, with more of it occurring earlier in the year, Ozan said.

The chain also said the labor market remains tight. Last May, McDonald's announced a 10-percent wage hike for thousands of US hourly workers.

Company officials have not planned a similar step at this point, but said they would ensure pay is competitive in the industry in 2022.

Ozan said even with its higher menu prices, McDonald's food compares well to other options in an item-by-item comparison of value.

"What helps us from a research standpoint is the way consumers view value and the perspective of value," Ozan said. "And I think in 2022, that will continue to be really important as inflation is hitting customers potentially harder than it has in a long time."

Shares slipped 0.2 percent to $249.30 in afternoon trading.

T.Rivera--SFF