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McDonald's (MCD +5%) is trading nicely higher following its Q4 results this morning despite missing on both EPS and revs. Recall from our preview on Friday that the key issue here was the E. coli outbreak in Q4 for its Quarter Pounders. We think a key reason the stock is higher today because the impact was not as bad as feared. Yes, MCD missed but it was a pretty modest miss and could have been much worse. Even after outbreaks are contained, some consumers stay away for a long time out of fear.

• Global comps came in at +0.4%, not a huge number but it is notable because MCD returned to positive territory following back-to-back negative global comps (-1.5% in Q3 and -1.0% in Q2). It was lapping decent +3.4% comps in 4Q23. Comp sales performance saw mixed results across individual markets, including negative comps in the UK, while QSR industry traffic was positive in only two of MCD's big five markets.
• Its IDL (Intl Developmental Licensed) segment comps were a notable bright spot at +4.1%, largely driven by positive results in the Middle East and Japan. In the Middle East, MCD was lapping the impact of the war that began in October 2023, and in China, MCD is seeing encouraging signs of stabilization.
• US comps were more pressured at -1.4% in Q4, down from +0.3% in Q3. But again, given the E. coli outbreak, we think investors are reacting positively to this US comps for not being worse. MCD says it hit its low point in Q4 in early November, followed by sequential improvement through the balance of the quarter, which has now continued into Q1. As MCD transitions into 2025, it noted several factors that give it confidence that its performance will return to proper form over the next several quarters. The US food safety issue is now largely behind it and MCD expects to have fully recovered by the beginning of Q2.
• MCD says that pressure on spending persists and this is particularly true for two of MCD's significant cohorts: low income and families, particularly in Europe. In the US, MCD has rolled out its McValue menu. It includes its popular $5 meal deal, which was launched earlier this year. However, it now also includes Buy One, Add One for $1 option, including breakfast. The new McValue menu also includes additional app-exclusive offers and is being promoted by wrestler/actor John Cena. MCD is pleased with its early performance. The thing about it is that while the $5 meal is a compelling value, it's driving other purchases. So the average check on a $5 meal deal in the US is north of $10. So it's doing what MCD hoped it would.

Overall, we see MCD making a nice move today despite the EPS miss for several reasons: 1) most importantly, the impact E. coli outbreak in the US was not as bad as feared, 2) the issue is now largely behind it, 3) global comps returned to positive territory, and 4) MCD is seeing encouraging signs of stabilization in China, which is a big deal. Investors can now put the outbreak in the rearview mirror as that cloud has dissipated and focus on the future. The consumer remains challenged, but MCD has smartly turned up the dial on value offerings, which should help.