McDonald’s Turns In Mixed Earnings as Middle East Boycotts Hit Sales; Stock Tumbles

Despite a fourth-quarter earnings beat from McDonald’s Corp. (MCD) Monday, investors focused on the company missing its revenue estimates, sending the company’s stock sharply lower.

The international fast-food giant posted better-than-expected diluted earnings per share of $2.95 as revenue rose 8% from the year-ago period to $6.41 billion, which was slightly shy of expectations.

The big concern for investors was the impact on sales from boycotts tied to the Israel-Hamas war. The company’s International Developmental Licensed (IDL) markets segment, which includes Middle Eastern franchisees, posted comparable sales growth of just 0.7%.

During the company’s earnings call, Chief Financial Officer Ian Borden said that “the war has meaningfully impacted our IDL segment performance.”

Chief Executive Officer Chris Kempczinski said that, while “the most pronounced impact (from the boycotts) is in the Middle East, we are seeing some impact in other Muslim countries like Malaysia (and) Indonesia.” He added, as long as the war continues, “we’re not expecting to see any significant improvement in this.”

The controversy over McDonald’s business in the region was spurred when a McDonald’s franchisee in Israel began offering discounts or free food to Israeli soldiers following the Oct. 7 attacks by Hamas militants. This prompted several other franchisees in the broader region to issue statements distancing themselves from this action.

At the beginning of January, Kempczinski, in a letter posted to LinkedIn, attributed the company’s Middle East business decline to “misinformation,” calling boycotts “disheartening and ill-founded.”

While individual operators don’t represent McDonald’s as a whole, the distinction has been largely irrelevant to some consumers, including those in Indonesia, the world’s most populous Muslim nation, who have also targeted Starbucks (SBUX) franchisees operating under a similar business model.

McDonald’s shares were down 4% at $285.11 around 3:25 p.m. ET Monday.