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McDonald's (MCD) is trading roughly flat following its Q3 results this morning. After back-to-back EPS misses in Q1-Q2, it was good to see MCD get back to reporting EPS upside in Q3, albeit modest upside. Also, after MCD reported its first yr/yr revenue decline last quarter since 4Q22, it was good to see MCD post top line growth in Q3. Revenue rose 2.7% yr/yr to $6.87 bln, slightly better than expected.

• As we said in our preview, the E. coli issue was going to be front and center and it was. The good news is that MCD said the situation appears to be contained. It was able to quickly link the cases to slivered onions from one facility and it has stopped sourcing from this facility indefinitely. Importantly, the Colorado Dept of Ag confirmed that they did not detect E. coli in beef patties and there are no further plans to test. MCD is confident it can return quarter pounders to menus soon.
• MCD has now posted back-to-back negative global comps. In Q3, the -1.5% comp were roughly similar to Q2's -1.0%. But that is down from +1.9% in Q1 and +3.4% in Q4, so not a great trend. In fairness, MCD was lapping robust +8.8% comps in 3Q23. The main problem was international markets. IOM comps were -2.1%, driven by weakness in France and the UK. IDL comps were -3.5% as the war in the Middle East and negative comps in China more than offset positive comps in Latin America.
• US comps were a bit of a bright spot as they edged up +0.3%. Not huge comps, but better than the -0.7% comp in Q2. MCD says the $5 value meal has drawn customers back into its restaurants, particularly lower income consumers. MCD also noted it launched the Collectors Edition campaign in Q3. That drove customers to its restaurants, especially in the US, where the promotion ran alongside the $5 meal deal. The Chicken Big Mac was also successful.

We think MCD deserves credit for pivoting more to value in recent quarters after being caught flat-footed and a bit late as peers turned to value more quickly. MCD has committed to extending the $5 meal deal into December and it plans to introduce more value options in 1Q25 as value has been at the forefront of conversations. And not just in the US. MCD launched free Euro Happy Meals in France, three for three pounds in the UK and in Canada, MCD is providing value through coffee starting at just $1.

Overall, investors seem to like the quarter. Getting the E. coli issue contained was top of mind for investors and it seems MCD has done that. The Q3 results were decent but not great with modest upside to EPS and revs. Also, comps remain weak, but it was good to see US comps return to positive territory. Looking ahead, we are a bit worried about the E.coli impact on Q4 results. This all started after Q3 had wrapped, but Q4 will see an impact. It is one thing to contain the issue, and it looks like MCD has done that, but it will be another thing for consumer to feel safe returning. That will take time. Hopefully, it is just a one quarter impact.