McDonald’s Faces Decline in Earnings Due to Hamas-Israel Conflict and Middle East Boycott

McDonald’s Corp. faced a disappointing first quarter, with results falling short of expectations due to slowing growth in the US and the impact of the Israel-Hamas war. The fast-food giant reported a 1.9% growth in comparable sales, which was lower than what analysts had predicted.

The US market, a key segment for McDonald’s, also saw a slight miss in sales performance. Additionally, the business unit that includes the Middle East recorded a decline in sales, attributed to boycotts related to the war in the region. The company warned of revenue weakness as long as the conflict continues.

To address the challenges in the US market, McDonald’s plans to focus on affordability. Executives hinted at the possibility of introducing a nationwide value menu to attract low-income consumers, who are pulling back on spending. The success of offers like the McSmart bundle in other countries has encouraged the company to explore similar strategies in the US.

Despite efforts to boost sales through deals and promotions, McDonald’s shares fell by as much as 4% following the earnings report. The company’s stock price hit its lowest level since November, reflecting investor concerns about the company’s performance.

Analysts had already lowered their expectations for comparable sales growth, citing moderating traffic and weakened demand. McDonald’s, which had outperformed the industry in recent years, is now facing challenges as it expands its global footprint.

While comparable sales growth is slowing, McDonald’s reported a 3% expansion in systemwide sales, which includes revenue from new restaurants. The company is banking on new menu items like the Bacon Cajun Ranch McCrispy to attract customers and drive sales.

However, analysts like Peter Saleh from BTIG LLC remain cautious about the company’s outlook. Saleh predicts that traffic may not improve significantly in the first half of the year, with discounts likely to remain prevalent and potentially impacting profitability.

In terms of earnings, McDonald’s reported $2.70 per share, falling short of analysts’ expectations of $2.72. The company’s performance in the first quarter reflects the challenges it faces in a competitive market environment.

As McDonald’s navigates through these challenges, the company is looking to innovate and adapt its strategies to drive growth and attract customers. With a focus on affordability and new menu offerings, McDonald’s is working to regain momentum and improve its financial performance in the coming quarters.