McDonald’s profits hit by inflation, boycotts over Israel-Hamas war

McDonald’s earnings fell short of expectations as its inflation-weary menu prices and boycotts at its Middle Eastern franchises hurt profits.

McDonald’s reported first-quarter net income of $1.93 billion, or $2.66 per share on Tuesday.

Excluding restructuring charges, the Golden Arches earned $2.70 per share. Though it was up from the year-ago period, it missed Wall Street’s $2.72-per-share expectations.

Net sales, meanwhile, rose 5% to $6.17 billion — a tick above the $6.16 billion expected, CNBC earlier reported.

The company recorded a pre-tax charge of $35 million tied to its reorganization, which was announced more than a year ago and has since included a number of corporate layoffs under a strategy dubbed “Accelerating the Organization.”

The scale of the layoffs remains unclear, though the headcount reduction came at a time when labor in the US was becoming increasingly expensive.

At the start of this year, states in half the country hiked their minimum wage, including in New York and California, where hourly earnings were lifted to $16. The Golden State, however, also implemented a rule on April 1 that requires fast-food workers to be paid $20 hourly.

Thus, in the first three months of this year, McDonald’s US same-store sales saw growth of 2.5%, missing expectations of 2.6%, as reports of eye-popping prices flooded in.

To offset rising labor costs, multiple franchisees across the country hiked menu prices, including at one location in Connecticut where a Big Mac goes for $18, an Egg McMuffin is a whopping $7.29 and a single side of hash browns will run hungry patrons $5.69.

Overall, the Chicago-based burger joint has jacket its menu prices by 100% over the course of the last decade 00 more than three times the rate of US inflation, according to a study by FinanceBuzz, which cited average prices nationwide.

FinanceBuzz reported that a Quarter Pounder with Cheese meal goes for $11.99 — more than double the $5.39 it cost in 2014.

McDonald’s, however, has claimed that the research report is inaccurate.

Across the world, meanwhile, McDonald’s isn’t faring much better, McDonald’s also reported Tuesday that global same-store experienced a 1.9% rise in the quarter — again falling short of estimates of 2.1%.

The disappointing earnings report comes as the fast-food chain has been subject to boycotts and protests since franchisee Alonyal Ltd. announced shortly after the Oct. 7 attack by Palestinian Islamist group Hamas that it would be donating free meals to the Israeli military.

McDonald’s CEO Chris Kempczinski said in January the company has seen a “meaningful impact” in several markets in the Middle East and some outside the region due to the Israel-Hamas conflict.

Specifically in the Middle Estern market, McDonald’s said its same-store sales fell 0.2%, marking the first time since the pandemic that one of the company’s divisions reported a same-store sales decline, CNBC reported.

However, in other licensed markets like Japan, Latin America and the United Kingdom, McDonald’s repoorted growth in the first quarter.

The chain has since said it’s buying back its 30-year-old Israel franchise from Alonyal, taking back ownership of 225 restaurants in the country that employs more than 5,000 people in an effort to get it back on track.

The companies did not disclose the terms of the transaction.