McDonalds finished 2021 strong but costs hit profits

McDonald’s ended 2021 on a high note with U.S. customers spending more and fewer restaurant closures in Europe from coronavirus restrictions.

But higher costs for food and labor weighed on profits, and the company said it expects that pressure to continue this year.

McDonald’s reported adjusted earnings of $2.23 per share, 11 cents short of Wall Street expectations, according to analysts polled by FactSet.

Global same-store sales – or sales at restaurants open at least a year – rose 12.3% in the quarter, the Chicago burger giant said Thursday.

That’s better than the 10.5% increase that Wall Street was expecting.

In the U.S., same-store sales rose 7.5% as limited-time products like the McRib and new options like a revamped chicken sandwich drew customers despite higher menu prices.

McDonald’s said U.S. prices climbed just over 6% in 2021.

A rapidly growing U.S. loyalty program also help draw in customers. My McDonald’s Rewards, which launched nationwide in July, now has 21 million active members, the company said.

Revenue rose 13% to $6.01 billion, which was just shy of Wall Street expectations, with sales crimped by coronavirus restrictions in Australia and China.

McDonald’s was stung by rising prices and higher labor costs.

U.S. costs for food and paper products rose 4% in 2021, and 3% internationally in 2021, Chief Financial Officer Kevin Ozan said.

Those costs are expected to double globally in 2022, with inflation more pronounced in the first half of the year, he said.

“We certainly don’t expect it to wipe away what we gained either in 2021 or prior to that,” Ozan said Thursday in a conference call with investors. “But it certainly will pressure both margins and cash flow.”

McDonald’s raised hourly pay for 36,000 U.S. employees at its company-owned restaurants last year.

Franchisees own 93% of McDonald’s 40,000 restaurants worldwide, but several thousand stores are owned by McDonald’s.

Southwest Airlines posts fourth quarter profit

DALLAS – Southwest Airlines posted a narrow $68 million profit for the fourth quarter, aided by full flights during the holidays, but the airline warned Thursday that it expects to lose money in the first three months of 2022.

The rise of the omicron variant of COVID-19 and continuing weak business travel will cut revenue by $330 million and lead to losses in January and February, Southwest said.

But the airline predicted it will be profitable for the remainder of the year.

Southwest said large numbers of employees missed work early this month because of COVID-19, contributing to the roughly 5,700 flights it has canceled so far in January, according to data from FlightAware.

The Dallas-based airline said absenteeism has recently declined.

Robert Jordan, who will take over as CEO on Feb. 1, said the omicron variant of the virus has also delayed an improvement in ticket sales that Southwest had expected in early 2022.

New reported cases of COVID-19 cases remain extremely high, but began to decline last week.

Citing that trend, Jordan said, “the worst appears to be behind us, and we are optimistic about current bookings and revenue trends for March.”

The CEOs of JetBlue and Alaska Airlines gave similar upbeat outlooks Thursday that virus numbers will come down and travel will rise by spring and summer.

Delta, United and American all previously warned that omicron will delay the recovery of travel demand, with Delta forecasting this month that bookings will pick up around the Presidents Day holiday weekend in late February.

Airline leaders said the recovery won’t be even, however – it will go through peaks and valleys and could drop if other variants cause the virus to surge again.

From wire reports

Southwest attempted to grow faster than other U.S. airlines as travel rebounded last year, but the strategy backfired, as staffing shortages contributed to high numbers of canceled flights last summer and fall.

When other airlines started canceling flights around Christmas because of employees being out with COVID-19, Southwest was not hit as hard. Helane Becker, an analyst for financial-services firm Cowen, said Southwest seemed to have been prepared – it trimmed the December schedule to a more manageable size after its own struggles with cancellations and delays earlier in 2021.

At an investor event last month, Southwest executives pledged to improve reliability and return the company to growth, which has been crimped the last couple years because of the grounding of its Boeing 737 Max planes and the pandemic.

Southwest’s fourth-quarter profit was a reverse from a loss of $908 million a year earlier.

Excluding special costs, Southwest earned 14 cents per share.

Analysts expected adjusted earnings of 7 cents per share, according to a FactSet survey.

Revenue more than doubled to $5.05 billion, topping analysts’ forecast of $4.97 billion.