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McDonald's tracking inflation impact as Russia exit hits profits

·2-min read

McDonald's reported lower profits Tuesday following the hit from its Russia withdrawal, as it keeps a close eye on restaurant traffic amid rising consumer inflation.

The US restaurant chain scored higher comparable sales in most major markets except China, where Covid-19 restrictions hit sales.

This included a strong performance in Europe, where the chain highlighted France and Germany as especially robust markets.

However, Chief Executive Chris Kempczinski cited surveys showing weakening consumer sentiment as a source of unease.

"The headline is Europe is doing very well for us," Kempczinski told analysts on a conference call.

"What is weighing on our mind is consumer sentiment," he said, adding that the company is pondering how heavily to "lean in" to value offerings in Europe.

"Because of this uncertainty around consumer sentiment, we're having to plan for more scenarios," he said.

McDonald's reported profits of $1.2 billion, down 46 percent from the year-ago period on a three percent drop in revenues to $5.7 billion.

Results were dented by $1.2 billion in costs connected to McDonald's sudden sale of its Russia business in the wake of the country's invasion of Ukraine.

As a more affordable restaurant chain, McDonald's is potentially positioned to pick up sales from lower-income consumers.

But the company is also seeing cost pressures.

In the United States, McDonald's expects about 12-14 percent inflation on food and paper in 2022 and a little over 10 percent on labor, said Chief Financial Officer Kevin Ozan.

McDonald's expects a moderation in US inflation in the fourth quarter. Such an ebbing in pressure is not expected in overseas markets.

"In general, on the inflation side it will hit a little bit harder than in the US and little bit longer than in the US," Ozan said.

McDonald's shares edged down 0.2 percent to $249.77 in early trading.

jmb/sw

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