Unfortunately, they came up short.
McDonald's, which has been trying to stage a sales turnaround by taking to the TV airwaves to emphasize its food quality and slicing off weaker-selling items from its vast menu, reported total revenue of $6.57 billion. Wall Street expected $6.68 billion. Traffic to McDonald's restaurants declined in every region as the burger chain battled perception issues regarding its brand from Asia to the United States. EPS, adjusted by $0.09 a share to account for the sales and profit impact from previously disclosed food quality issues being discovered at a supplier in China last year, came in line with analyst estimates of $1.22.
U.S. same-restaurant sales declined for the fifth consecutive quarter, falling by 1.7% due to "sustained competitive pressure" that mostly reflects diners preferring the healthier fast food and quicker lines at the likes of burrito king Chipotle (CMG) - Get Report or purveyors of "better burgers" such as Sonic (SONC) . McDonald's U.S. sales results in the quarter were not as bad as Wall Street feared -- the Street was bracing for a 2.1% drop in same store sales. The showing in the U.S. was also improved from the 3.3% sales decline notched in the third quarter.
The relative performance in the U.S. sparked some early optimism in pre-market trading that turnaround efforts at McDonald's were working. But that enthusiasm reversed quickly as execs spoke on an afternoon earnings call with analysts.
"It will take time for people to notice the comprehensive changes underway," said McDonald's President and CEO Don Thompson. Although McDonald's said there were signs of progress from a more tailored menu, as well as interest in its new create-your-own-burger initiative, it warned that operating profits would remain under pressure in the first half of 2015. McDonald's also signaled it may not be through reducing the number of items on its menu.
McDonald's started to trim its menu this month as a means to simplify the ordering process and speed up chaotic lines. Eight items will be cut from the menu. The number of Extra Value Meals will go from 16 to 11.
Similar to the U.S., a sales improvement overseas from dreadful trends in the early part of 2014 wound up not being enough for investors. Japan was a particular cause for concern months after a food quality issue involving a Chinese meat supplier sparked consumer outrage. "New perception issues have emerged," said McDonald's CFO Peter Bensen on the earnings call.
McDonald's Europe and Asia delivered same-restaurant sales declines of 1.1% and 4.8%, respectively, to end the year. In the third quarter, those decreases were 1.4% and 9.9%, respectively.
Adding insult to injury is the fact that 2015 has not begun well for McDonald's. Thompson noted that January same restaurant sales are expected to be negative, and overall performance pressured.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.