McDonald's profit climbs as consumers digest price hikes

McDonald's reported another strong quarter of profits on Tuesday, as affordability concerns boosted sales while the chain gingerly increased prices.

The fast-food giant pointed to a policy of "strategic menu price increases" that resulted in modest pushback in some cases, executives said, while diners continued buying from the restaurant as they grapple with cost-of-living pressures.

"We have to be very disciplined on where we take pricing," chief executive Chris Kempczinski said on a conference call with analysts.

McDonald's works with outside experts to identify – by item and restaurant – where to lift prices, said Kempczinski.

"When you go off-script and you start to take pricing in areas that would not be suggested" by models, the company can see "more resistance," he said.

But profits in the first quarter jumped 63% to US$1.8 billion (about RM8 billion) on a 4% increase in revenues to US$5.9 billion.

Comparable store sales surged 12.6%.

Chief financial officer Ian Frederick Borden said cost pressures are on a "downward trend" in the US, although inflation remains elevated.

While inflation in Europe has not yet moderated in a meaningful way, he added, some improvement is expected in the second half of the year.

Kempczinski said the company's base-case expectation calls for a "mild recession" in the US, with a slightly weaker outlook in Europe.

As guests confront higher prices, the chain is seeing modest changes in consumer behaviour, such as skipping french fries or ordering fewer items.

"We perform well in good times and in bad and so that's what gives us optimism as we go through the rest of the year," Kempczinski said.

Shares dipped 1.0% to US$290.16 in afternoon trading.