McDonald's total revenue in the second quarter was $6.5bn, with like-for-like sales up 11.7%, ahead of market estimates of 9.2%. Double-digit growth was seen in the US and overseas, both in operated and licensed markets.
Operating profits were $3.1bn, up 20% when excluding certain non-operating items.
Full year operating margins are still expected to land at about 45%, with free cash flow conversion of over 90%.
Earlier in the week, McDonald's announced a first-quarter dividend of $1.52 per share, an increase of 10.1%.
The shares were up 1.9% in pre-market trading.
View the latest McDonald's share price and how to deal
Our view
There's no obvious sign that embattled consumers are willing to cut back on Big Macs and Happy Meals as they examine their spending habits. Once again McDonald's is showing its ability to thrive in difficult economic conditions.
The Group's largely franchised model is an efficient operation, with McDonald's off the hook for many of the typical restaurant running costs. Cash conversion in excess of 90% means the vast majority of profits feeds into cash for the business to either spend or return to shareholders.
McDonald's' strong cash flows give it the headroom to cope with bumps in the road and continue its expansion plans, with 1,500 net restaurant openings expected this year. The bias in openings towards franchised operations should help margins once the stores are running at full pelt. It's also been spending on revitalising stores, whilst continuing to improve the digital presence.
Underlying operating margins have been robust so far. And the Group is hopeful it can achieve an operating margin of about 45%, which represents a small increase over 2022. If inflation continues to moderate we think there is potential to build this out a little further.
McDonald's is also lugging around a hefty debt pile. It expects 2023 interest costs to grow in the region of 10 to 12%, driven by the higher debt balances and interest rates. The group enjoys strong cash generation but given the increasing cost of debt we think debt reduction should be a priority.
The fast food chain's convenience transformation is thriving, with improvements in the online service, delivery and drive thru. We think the brand strength remains as strong as ever and recent social media campaigns underline its ability to connect with today's generation. Markets share the optimism though, and the group trades above its long-term average price/earnings ratio. We're of the view that this is well deserved, but it does raise the pressure for McDonalds to keep serving up impressive levels of profit growth.
McDonald's key facts
All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
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