CEO credits speedier service, order accuracy as well as all-day breakfast for rebound.

By Julie Jargon 

All-day breakfast and a new value menu helped McDonald's Corp. beat profit and sales expectations for a third straight quarter, signaling that a turnaround that began last year is sustainable.

Evidence that Chief Executive Steve Easterbrook's turnaround plan was gaining traction first emerged in the third quarter of last year, when McDonald's U.S. division posted its first quarterly same-store sales increase in two years.

It has been just over a year since Mr. Easterbrook took the reins at McDonald's, and in that time he has pushed the company to enhance operations, simplify the menu and improve the food. When McDonald's introduced all-day breakfast in October in response to customer requests -- the biggest menu change at McDonald's in years -- company and industry watchers expected demand for Egg McMuffins at lunchtime to eventually wane, but it is still driving sales.

Mr. Easterbrook said efforts to get the basics right, such as improving order accuracy and speeding up drive-through service, deserve as much credit for the turnaround as the all-day breakfast. The management team, he said, has delved into details, such as increasing the font size on order tickets so that crew members can better see customers' special orders.

He also noted that higher wages for employees at company-operated restaurants and tuition assistance for all workers has resulted in lower crew turnover and, in turn, better customer service. The company also has been developing new training for employees in an effort to motivate them to deliver faster, friendlier service.

"Customers in the U.S. are noticing a difference," Mr. Easterbrook told investors on Friday, explaining that customer satisfaction scores improved by 6% versus the year-ago period.

After stumbling with a two-for-$2 menu in January, McDonald's changed its new value offering to two for $5, which it pointed to as another sales driver in the quarter. Analysts caution that the effort to arrive at the right price point and product mix for a national value menu remains a work in progress. Some markets are testing 2-for-$3.50 and 2-for-$4 deals, and some locations' value menus include breakfast items.

Sales at McDonald's U.S. restaurants open at least 13 months rose 5.4%, topping the 4.6% growth analysts had expected and slowing just slightly from the fourth quarter's 5.7% pace. Sales in high-growth markets including China, where the chain has previously struggled, also posted greater-than-expected growth for the first quarter. Globally, same-store sales rose 6.2%.

Mr. Easterbrook said McDonald's later this year will transition from its turnaround plan to a longer-term strategic plan intended to sustain the company's growth.

"The continued momentum in the U.S. business was encouraging, and the company's other markets all came in above expectations," Citi Research analyst Gregory Badishkanian said in a note to investors. "Maintaining the momentum will be key...especially as the company laps the all-day breakfast introduction later this year."

For the first quarter, McDonald's reported a profit of $1.1 billion, up from $811.5 million. Per-share earnings rose to $1.23 from 84 cents, topping analysts' expectations of $1.16.

Revenue fell 0.9% to $5.9 billion in the face of the strong dollar, though it still topped Wall Street's forecasts of $5.82 billion.

Write to Julie Jargon at julie.jargon@wsj.com

 

(END) Dow Jones Newswires

April 23, 2016 02:48 ET (06:48 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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