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Published: Wed, July 26, 2017
Economy | By Melissa Porter

McDonald's shares surge on strong beat, new products fueling sales

McDonald's shares surge on strong beat, new products fueling sales

The company said Tuesday that discounted drinks and a new line of pricier burgers helped boost sales in its flagship USA market by 3.9 percent at existing locations during the second quarter. RBC Capital Markets, which expects more than 1,000 McDonald's in the U.S.to change hands, says the move could prove to be a "powerful sales driver".

During two recent tests in Dallas and Tulsa, customers surveyed favored the fast-food giant's Quarter Pounder burgers made with 100% fresh beef, which they said was "tastier and juicier", than those made with preservatives-laden frozen beef, McDonald's CEO Steve Easterbrook said on a second-quarter earnings call with analysts on Tuesday, July 25. "Our relentless commitment to running great restaurants and keeping the customer at the centre of everything we do is generating broad-based strength and momentum across our entire business". "For the quarter, we delivered our strongest global comparable sales and guest count results in more than five years". The US accounts for about one-third of McDonald's revenue. The gap between the cost of food-at-home and away widened considerably past year as a number of key commodities prices dropped. "Value is overdone", stated another franchise owner about the dollar drinks and McPick value items. "It's very hard operationally", wrote a franchisee in the survey. It did not specify how much customer visits contributed to the sales increase, but Easterbrook has repeatedly laid out plans to get the figure climbing again by making McDonald's more convenient. Those burgers, while more expensive than its Big Macs, are a lot cheaper than the ones sold by "better burger" restaurants such as Five Guys. "Outlook from where I sit is very scary".

Sales at restaurants in the USA opened a minimum of 13 months were up 3.9% during the recently ended second quarter, beating the increase of 3.2% estimated by Wall Street.

In addition, McDonald's has been testing loaded bacon and cheese fries in locations in Kentucky, Ohio, Pennsylvania and West Virginia, although success in these markets may not lead to a national rollout.

In the meantime, the US store count is falling. China also benefitted from preparations for selling the McDonald's operations there. lower depreciation expense, primarily in China and Hong Kong, that in accordance with Held for Sale accounting rules, ceased recording depreciation.

Easterbrook concluded, "Whilst we're encouraged by our results from the first half of 2017, we're not complacent".

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