Middle East War Hurts McDonald’s

When McDonald’s Corp. (NYSE: MCD | MCD Price Prediction) announced earnings, the fine print said business in the Middle East had hurt its results: “International Developmental Licensed Markets segment increased 0.7%, reflecting the impact of the war in the Middle East.” This segment posted a 16.5% improvement in the same quarter a year ago, the best of any region. Middle East problems could hit earnings across many companies in the coming months.

McDonald’s worldwide growth was 3.4% on a comparable store basis. U.S. growth was 4.3%. McDonald’s President and CEO Chris Kempczinski said global comparable store sales were up 30% since 2019. Globally, McDonald’s revenue rose 8% to $6.4 billion. Net income rose 7% to $2 billion.

McDonald’s is the largest fast-food chain in the world, which means regional events can either help or hurt its numbers. Its store count is just over 40,200. That is followed by Subway at around 37,000 and Starbucks at just over 36,000. McDonald’s most direct competitor, Burger King, has more than 19,200 locations. (These 16 countries have unique McDonald’s menus.)

McDonald’s is not unique. The Middle East conflicts hurt companies in at least two ways. The first is those with physical operations in the region. The second is global inflation.

The Panama Canal only operates at 50% of capacity because of drought. About 3% of global shipping moves through it. The Suez Canal has closer to 10% of shipping. Yemen’s Houthi militia have made rocket attacks on container ships and tankers on the way to Suez. These ships need to change course to a route that takes them around the Cape of Good Hope. That can add 10 days of travel and increase fuel prices for the ships by $300,000.

McDonald’s Middle East problems were made clear by recent earnings. Watch for that effect to spread.