New York
CNN Business
—
McDonald’s stock hit an all time high Friday as Wall Street cheered the company’s third quarter results.
The share price hit about $274 on Friday, a jump of roughly 3% for the day.
On Thursday, McDonald’s reported consolidated revenues of about $5.87 billion for the third quarter, a year-over-year decline not adjusting for currency fluctuations, which beat Wall Street’s expectations and started the stock moving to new levels. The company went public in 1965.
Cowen raised its price target from $280 to $293 following the results. In a note Thursday, Cowen restaurant analyst Andrew Charles wrote that “we are encouraged by [McDonald’s] proven playbook to drive US outperformance.”
The burger chain has had success with recent promotions focusing on its core products, like adult Happy Meals and celebrity meals. In the third quarter, sales at McDonald’s US stores open at least 13 months popped 6.1%.
The burger chain has been able to drive sales in part by raising its prices. In the third quarter, McDonald’s US prices were up about 10% year-over-year on average.
As companies across the board raise prices for their products, they have to take care not to scare too many customers away. Companies like Coca-Cola
(KO) and PepsiCo
(PEP) are offering food and drinks in smaller packages, to give customers less expensive options (even if they get a worse deal on those items). PepsiCo
(PEP)’s share price also hit an all-time high Friday.
Another way to hold onto customers while raising prices is to focus on value.
“Consumers are willing to tolerate” price increases because they still see McDonald’s as an affordable brand, noted CEO Chris Kempczinski during an analyst call discussing third-quarter results Thursday.
In fact, McDonald’s has been increasing its share “among low-income consumers,” said CFO Ian Borden during the call.
McDonald’s is “positioned as the leading brand in terms of value for money and affordability,” said Borden, noting that some customers are shifting from buying meals to purchasing value items as a way to save. The company has been using its rewards program to help create more loyal customers. “Our loyalty program is driving growth and exceeding expectations,” Kempczinski noted.
And McDonald’s has a track record of doing well when the economy is flailing.
“Our business performed well in that last downturn,” Borden said, referring to the financial crisis of 2008 and 2009. “Our expectation is that we are going to perform well in this environment, certainly on a relative basis to our competitors.”
— CNN Business’s Paul R. La Monica contributed to this report.
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