General Industry

McDonald's Overseas Business Affected by Middle East Conflict

By Reuters
McDonald's Overseas Business Affected by Middle East Conflict

McDonald's reported its first quarterly sales miss in nearly four years on Monday on weak sales growth at its international business division, partly due to the conflict in the Middle East, sending the company's shares down about 4%.

The burger giant is among several Western brands that have seen protests and boycott campaigns against them over their perceived pro-Israeli stance in the Israel-Hamas conflict.

'Meaningfully Impacted'

McDonald's said the war had 'meaningfully impacted' performance in some overseas markets in the fourth quarter.

With the most pronounced hit in the Middle East, the company also saw an impact to business in countries such as Malaysia and Indonesia, as well as in France, CEO Chris Kempczinski said on a post-earnings call.

"So long as this war is going on ... we're not expecting to see any significant improvement (in these markets)."


'Biggest Concern'

Comparable sales in McDonald's International Developmental Licensed Markets segment rose 0.7% in the fourth quarter, widely missing estimates of 5.5% growth, according to LSEG data. The business accounted for 10% of McDonald's total revenue in 2023.

"The effects (of the war) on earnings durability would be our biggest concern ... it looks like this is going to be an issue that persists past the next quarter or maybe even two," said Brian Mulberry, client portfolio manager at Zacks Investment Management, which holds McDonald's shares.

Starbucks last week also cut its annual sales forecast, partly due to a hit to sales and traffic at stores in the Middle East.

China Market

Consumer spending in China, McDonald's second-largest market, has also remained weak despite government support measures.

While McDonald's does not provide a breakup of sales in individual international markets, it noted industry-wide promotions picked up in China during the quarter as restaurants rush to revive flagging demand.


McDonald's US business also showed signs of weakness, particularly with low-income consumers reducing order sizes or trading down to cheaper items.

US Market

That resulted in US comparable sales rising 4.3% in the quarter, just shy of estimates of a 4.4% rise.

Still, McDonald's reported an adjusted per-share profit of $2.95, beating estimates of $2.82.

Tricky Macroenvironment

"It's going to take some time for the results to bounce back (in the Middle East)," Stephens analyst Joshua Long said, but added he was still positive on McDonald's stock as it is "one of the best positioned brands" to navigate a tricky macroenvironment.

McDonald's forecast 2024 operating margin to be in the mid-to-high 40% range and expects more than 1,600 net restaurant additions this year. It reported an operating margin of 45.7% for 2023.

Global same-store sales rose 3.4% in the quarter, missing estimates of a 4.9% rise, in what was its slowest sales growth in about three years.