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McDonald's has Wall Street lovin' it

Changes at McDonald's

McDonald's (MCD) is producing some tasty returns for investors. That's thanks to improving results as consumers are drawn to both the iconic burger chain's cheap fare and new menu items such as fancy burgers with kale, guacamole or crispy onions designed to appeal to more sophisticated palettes.

The fast-food company on Tuesday reported a better-than-expected 4.1 percent quarterly gain in same-store sales, a closely watched metric of activity at locations that have been opened for at least a year. Fueling the growth were promotions such as $1 soft drinks. Buoyed by its success, McDonald's plans to offer even more value menu items next year priced at $1, $2 and $3.

Under CEO Steve Easterbrook, the company has trimmed back its menu, which franchisees had complained had become bloated with poorly selling items. Instead, it will focus on its value offerings that appeal to the chain's most loyal customers -- those interested in finding a cheap meal.

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McDonald's also is betting on technology, adding mobile ordering along with a delivery service through UberEats that's expected to be available at 5,000 of McDonald's nearly 14,000 U.S. locations by year-end.

"We've talked before about the extensive research we conducted that gave us a much greater appreciation for who our customers are and what appeals most to them," Easterbrook told Wall Street analysts during Tuesday's conference call. "Guided by that insight, we're taking purposeful actions to retain customers who visit us today. We've gained lapsed customers and converted casual customers to committed customers."

McDonald's also is improving the quality of its fare to attract diners who abandoned it in recent years for so-called better burger chains such as Smash Burger and Five Guys. To that end, McDonald's has announced several initiatives, including a plan unveiled earlier this year to begin reducing the use of human antibiotics in chicken.

The company also is in the process of switching to cage-free eggs and has quit using artificial preservatives in Chicken McNuggets and other menu items to appeal to consumers who have become increasingly uneasy about processed foods. 

In addition, Quarter Pounders will be made with fresh beef instead of frozen at most of its restaurants starting next year. Several of its rivals including Wendy's (WEN) have touted the fresh beef in their burgers for years.

During the three-months ended Sept. 30, McDonald's net income rose to $1.88 billion, or $2.32 per share. When one-time items are excluded, per-share profit was $1.76, a penny better than Wall Street analysts had expected. Revenue fell a worse-than-expected 10 percent to $5.75 billion as the chain produced less sales after it converted more company-owned stores to franchises, especially in China and Hong Kong.

Shares of McDonald's rose 0.33 percent, or 54 cents, to close at $163.88 on Tuesday. For the year so far, the stock price has been sizzling -- up nearly 35 percent.

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