McDonald’s revenue growth to moderate as menu prices ease

July 27 (Reuters) – McDonald’s (MCD.N) said on Thursday that revenue growth was expected to moderate in the second half of the year as signs of easing inflation prompt the burger giant to temper menu prices.

Shares of the company were, however, up 1.5% in morning trading after the burger chain posted better-than-expected quarterly profit and sales as it continued to attract consumers to its outlets.

“As we head into the back half of the year … (and) as inflation begins to come down, I would certainly expect our pricing levels to also start to come down,” Chief Financial Officer Ian Borden said on a post-earnings call.

Major U.S. restaurants have had to raise prices to offset a hit to profit from higher costs tied to labor as well as commodities like beef and dairy, helping propel their revenue over the past several months.

However, with costs of ingredients like chicken, cheese and pork now easing, restaurants have hit pause on further price hikes. Burrito chain Chipotle Mexican Grill (CMG.N) on Wednesday also missed quarterly sales estimates as pricing benefits faded.

“(As costs come down) restaurants can afford not to push price quite as aggressively and still maintain margins,” M Science Senior Research analyst Matthew Goodman said.

Consumer sentiment in the United States was improving, McDonald’s CEO Chris Kempczinski said, adding that even though some consumers were opting for cheaper items or cutting down on order sizes, traffic remained strong.

McDonald’s has attracted more diners to its more than 13,000 U.S. outlets with promotional deals such as the Grimace Birthday Meal, a popular limited-time launch featuring purple milkshakes, created in honor of the Grimace character in McDonald’s ads.

Promotions, new launches as well as improving staffing levels helped drive a 11.7% jump in McDonald’s global comparable sales in the second quarter, beating estimates of an 8.88% increase, according to Refinitiv IBES data.

Excluding items, McDonald’s earned $3.17 per share, topping estimates of $2.79.

Quarterly U.S. comparable sales climbed a better-than-expected 10.3%, while those in its internationally operated markets also topped estimates with 11.9% growth.

McDonald’s international developmental licensed markets segment, which includes countries like China and Brazil, posted a better-than-expected 14% increase.

Reporting by Deborah Sophia in Bengaluru and Kailyn Rhone in New York; Editing by Anil D’Silva

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