McDonald's global sales fall on muted demand; E. coli outbreak fallout looms

McDonald's posted a steeper-than-expected drop in quarterly global sales, hurt by muted demand across key markets, including Europe and the United States where it is expected to face more weakness as the burger giant reels from a deadly E. coli outbreak.

Shares of the company were down 2.4 percent before the bell on Tuesday even as it beat profit estimates.

Global sales fell 1.5 percent in the third quarter, the biggest decline in four years, compared with analysts' average estimate of a 0.72 percent fall, according to data compiled by LSEG.

Last week, McDonald's temporarily paused serving Quarter Pounders in a fifth of its 14,000 US restaurants in an E. coli outbreak that has killed at least one person. Shares declined nearly 7 percent last week as infections rose to 75 people. Quarter Pounders were being added back to the menu this week.

Slivered onions used in the hamburgers are likely to be the source of the infection, with the Colorado Department of Agriculture over the weekend ruling out beef patties as the possible cause.

Customer visits in the US fell 6.4 percent, 9.1 percent and 9.5 percent year-over-year on October 23, 24 and 25, respectively, according to a Gordon Haskett note. The company's conference call on earnings is expected to focus on any fallout from the outbreak.

The outbreak likely has thrown a near term "monkey wrench" into the US sales recovery when coupled with mixed third-quarter results, Citi analyst Jon Tower said.

The fast-food chain has been hit by slowing customer visits across the US, France, UK, Middle East and China as price-conscious shoppers looked for cheaper meals and cooked more at home.

Sales in international markets fell 2.1 percent, driven by weakness in France and Britain, compared with estimates of a 1.21 percent drop.

Weaker consumer spending in China and impacts of the Middle East conflict have dented McDonald's business segment where restaurants are operated by local partners, with sales dipping 3.5 percent compared with a 10.5 percent rise a year earlier.

"We believe European economies remain under pressure with potential for softer traffic from concerns with war in the Middle East, especially in urban markets, and some pressure on costs from a stronger dollar," Jim Sanderson, analyst with Northcoast Research.

Western fast-food chains such as McDonald's and Starbucks have seen boycott campaigns over their perceived pro-Israeli stance and alleged financial ties to Israel.

US comparable sales grew 0.3 percent, reversing the previous quarter's drop, aided by promotions .

Overall sluggish demand has prompted fast-food chains including McDonald's, Wendy's, Burger King and Taco Bell to lean into meal bundles and limited-time offers in a bid to revive traffic, especially among lower-income customers.

McDonald's CEO Chris Kempczinski said the company was focused on affordability as customers continue to be mindful about spending.

The Chicago-based company earned $3.23 per share on an adjusted basis, above analysts' estimates of $3.20. (Reuters)