Business

McDonald’s first-quarter earnings and revenue topped Wall Street’s estimates, fueled by higher prices in the U.S. and strong international sales growth.
The company said the suspension of operations in Ukraine and Russia cost $127 million, or 13 cents per share, in the quarter.
In the United States, same-store sales increased 3.5%, surpassing StreetAccount estimates of 3.3%.

McDonalds and other local stores remain shuttered due to COVID-19 at Times Square on April 13, 2020 in New York, NY.
Eduardo Munoz | Getty Images

McDonald’s on Thursday reported better-than-expected earnings and revenue, fueled by price hikes in the U.S. and strong international sales growth.
But the war in Ukraine and inflation in the fast-food giant’s home market loomed large over its quarterly report. CEO Chris Kempczinski said that the conflict hasn’t affected consumer behavior across the rest of Europe yet, but some U.S. consumers are shrinking their orders or buying cheaper items.

Shares of the company rose more than 1% in premarket trading.
Here’s what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

Earnings per share: $2.28 adjusted vs. $2.17 expected
Revenue: $5.67 billion vs. $5.59 billion expected

The fast-food giant reported first-quarter net income of $1.1 billion, or $1.48 per share, down from $1.54 billion, or $2.05 per share, a year earlier. 
The company spent $27 million to pay for leases, employee wages and supplier costs in Russia and Ukraine after suspending its operations in both of those countries due to the war. McDonald’s reported an additional $100 million charge for inventory in its supply chain that will likely spoil because of the temporary closures of its restaurants in Ukraine and Russia. Altogether, those costs dragged its earnings down by 13 cents per share.
The company also said that it has reserved $500 million, or 67 cents per share, for a potential settlement related to an international tax matter, but it did not share more details.

Excluding costs related to the tax settlement, its restaurants in Ukraine and Russia and other items, McDonald’s earned $2.28 per share, topping the $2.17 per share expected by analysts surveyed by Refinitiv.
Like the broader restaurant industry, McDonald’s has been facing higher commodity and labor costs, leading the company and its franchisees to raise prices. CFO Kevin Ozan said the company expects elevated inflation to continue throughout 2022, given macroeconomic conditions.
Net sales rose 11% to $5.67 billion, beating expectations of $5.59 billion. Global same-store sales climbed 11.8% in the quarter, fueled by strong growth in markets like France and the United Kingdom. Digital system-wide sales surpassed $5 billion in the quarter.
In the United States, same-store sales increased 3.5%, surpassing StreetAccount estimates of 3.3%. The company credited price increases and marketing promotions for growth in its home market. A year ago, the fast-food chain reported U.S. same-store sales growth of 13.6% as it lapped the weak demand of the early pandemic lockdowns.
In the first quarter, McDonald’s U.S. menu prices were up about 8% compared with the year-ago period. Executives said that consumers are starting to trade down to cheaper menu items or having smaller orders.
Ozan said consumers are worried about inflation, particularly gas prices.
“We are certainly keeping a close watch on lower-end consumers, just to make sure that we’re still providing the right value for our lower-end consumers,” he said. “But one of the things that’s probably helpful right now, as you know, is food at home is has been increasing even more than food away from home.”
In March, prices for food at home were up 10% compared with a year ago, while food away from home had risen just 6.9%, according to the Bureau of Labor Statistics.
McDonald’s international operated markets segment, which includes France, the U.K. and Australia, reported same-store sales growth of 20.4%. The company said the reduction of Covid-19 measures boosted sales in the quarter. Sales in the U.K. also got a lift from the limited-time Chicken Big Mac, which Kempczinski called the market’s most successful food promotion.
In the company’s international developmental licensed markets segment, same-store sales rose 14.7%, driven by strong demand in Japan and Brazil. However, China saw same-store sales shrink during the quarter as Covid’s resurgence resulted in renewed lockdowns.
Read the full earnings report here.

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RESTORING THE supremacy of America’s First Amendment on Twitter seems priority number one for Elon Musk. Inconveniently, his acquisition of Twitter comes as several countries are passing laws to regulate how social-media firms should moderate content.The European Union’s Digital Services Act (DSA), which was agreed on April 23rd, will do most to stymie Mr Musk’s plans to turn Twitter back into a place where almost anything goes. “Be it cars or social media, any company operating in Europe needs to comply with our rules—regardless of their shareholding,” Thierry Breton, the EU’s commissioner for the internal market, warned (on Twitter, naturally) hours after the buy-out was announced.Bureaucrats in Brussels will not now tell Twitter and other social-media firms which type of speech they should take down, explains Julian Jaursch of SNV, a think-tank based in Berlin. Instead, the thrust of the DSA, which is set to apply fully on January 1st 2024, is to push services to systematise and strengthen their content moderation. For instance, Twitter will have to be more transparent over how it polices its platform, follow regulators’ advice on how to improve things, provide a way for users to flag bad content easily and give vetted researchers access to key data. Repeated violations can lead to hefty fines: up to 6% of global annual sales.Surprisingly, given Britain’s long tradition of protecting free speech, its Online Safety Bill, which was recently introduced in Parliament, goes further. Details still need to be hammered out but the bill will require internet platforms, among other things, to go after not only illegal content, such as child pornography, but “legal but harmful” abuses such as racism or bullying. Fines are higher, too: up to 10% of global revenues.Other countries, including Australia and India, have recently passed their versions of such laws. Even in America there is a big debate about how to reform Section 230, the provision in the Communications Decency Act that shields online services from liability for content published on their platforms. Yet it is unlikely to result in legislation in the foreseeable future. Democrats want stricter rules whereas Republicans fear censorship—and Congress is paralysed.Yet even without all these laws, Mr Musk may soon come to realise some content moderation is needed. After years of debate and experiment, even a few free-speech advocates argue that, while tricky, if done well it “actually enables more free speech”, in the words of Mike Masnick of Techdirt, a blog. “What content moderation does,” he recently wrote, “is create spaces where more people can feel free to talk.”For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Moderating power” More

HAVE YOU ever actually read a terms-and-conditions document? WordPress, a service for building websites whose clients include the White House and Disney, thinks anyone who has deserves congratulations. Its terms of service are the usual endless scroll of legalese, until you reach section 14, on disclaimers. Buried in the verbiage about warranties and non-infringement is a short, odd sentence: “If you’re reading this, here’s a treat.” Click on the link, and you see a picture of some appetising Texas brisket. Suitably revived, you can then move on to the stuff about jurisdictions and applicable law.Coming across an Easter egg, the name given to unexpected messages or features hidden somewhere in a product, is not like seeing funny advertising or following a humorous corporate social-media account. Easter eggs are winks, not gags; asides rather than stand-up. A new paper on their use in software, by Matthew Lakier and Daniel Vogel of the University of Waterloo in Canada, describes various motivations for them, from rewarding users’ curiosity and acknowledging the work of developers to building hype and recruiting employees. But their defining characteristic is that they are playful.On Google’s search engine, treats famously abound: if you search for the word “askew”, for example, the results page is somewhat off-kilter. Tesla cars are jampacked with references to pop culture: entering 007 into a text box on the car’s console, for example, will change the image of the car to one used by James Bond in “The Spy Who Loved Me”. Tapping repeatedly on the software version number in the settings menu of an Android phone will usually open up a game (on version 11, the game is unlocked by repeatedly turning a dial that goes all the way up to that number, an in-joke nestled within an in-joke).Not everyone likes playfulness in their products. Microsoft got rid of Easter eggs from its software in 2002, when it launched an initiative called Trustworthy Computing. It worried that they might introduce vulnerabilities, prompt questions among users about what else might be lurking in its code, or simply get people asking why its engineers did not have anything better to do. “It’s about trust. It’s about being professional,” explained a blog by one of its developers in 2005.Obviously, playfulness has limits, particularly when applied to products that must not go wrong or to services whose reputation rests on sobriety. You probably don’t want engineers at Airbus or Boeing to spend too much time on giggles. The idea of a frisky auditor sounds more like a fetish than a recipe for commercial success. Giving rein to employees’ creativity has risks: jokes can easily backfire. But Easter eggs do not have to be embedded in code to have an impact: playfulness is a mindset which can show up in design choices or tweaks to wording. And in many contexts, irreverence can foster loyalty rather than weaken it.Making references that rely on users’ knowledge of a product is a way of adding to a sense of community. Hit a broken page on the Marvel website and you’ll be taken to one of a series of quirky 404 pages; one shows Captain America grimacing and the tagline “ HYDRA is currently attacking this page!” Elon Musk routinely uses playfulness to signal his anti-establishment credentials to his army of fans: by including the number “420” in his recent offer price for Twitter, he appeared to be making a reference to marijuana. (If you find this funny, you’ll be thrilled to know that Tesla vehicles can also make fart noises.)In-jokes can be used to reinforce brands. While readers of the New Yorker wait for their app to load, messages like “Captioning cartoons” and “Checking facts” appear at the bottom of the screen. On an iPhone’s web browser, Apple uses circular-rimmed glasses as the icon for its reading-list feature, in an apparent tribute to Steve Jobs.Showing playfulness is above all a way of bestowing humanity on companies and their products. Slack, a messaging platform, offers users a chance to pick various notification sounds. The explanation for the one marked “hummus” is that a British employee said this word in a way that tickled colleagues: it is her voice you can hear.There is no utility at all to this feature, or to knowing the story behind it. But far from eroding trust, the decision to include this sound in the product creates a sense that a group of actual humans is behind it. Playfulness may sound unprofessional. It can be seriously useful.Read more from Bartleby, our columnist on management and work:Startups for the modern workplace (Apr 23rd)How to sign off an email (Apr 16th)How to make hybrid work a success (Apr 9th)This article appeared in the Business section of the print edition under the headline “Easter eggs and other treats” More

INFLATION IS MAKING up for lost time. A word that many thought had gone the way of peroxide hair and trench coats in the early 1980s is now back on almost every CEO’s lips as they run through a barrage of compounding shocks—war, commodity crisis, supply-chain disruption and labour shortages—in their companies’ first-quarter results. From December to March, almost three-quarters of firms in the S&P 500 mentioned inflation in earnings calls, according to FactSet, a data gatherer. Such is the novelty, it runs the risk of making such turgid occasions almost riveting.In rich countries, producer prices are surging at their fastest rate in 40 years. That sounds bad. On the ground some say it feels awful. Thierry Piéton, chief financial officer of Renault, said the French carmaker initially predicted raw-material costs would double this year. Now it thinks they will triple. Elon Musk says Tesla’s suppliers are requesting 20-30% increases in parts for electric cars compared to this time last year. Others talk of five-fold increases in the costs of sending containers between Europe and Asia, a dearth of truck drivers in America, and a scramble for everything from corn syrup to coffee beans and lithium.Amid such a maelstrom, the perils of getting inflation wrong are obvious. You only need to look at Netflix, trying to raise prices in the midst of a brutally expensive streaming war, to get a sense of the risks involved. Yet in general, some of the world’s best-known companies are coping. After years of negligible increases, they have managed to push up prices without alienating their consumers. How long they can continue to do so is one of the biggest questions in business today.In some cases, as Mark Schneider, boss of Nestlé, the world’s biggest food company, puts it, the public understands that “something has to give.” War, after all, is on the TV, and the pandemic is still fresh in people’s minds. Inflation is less alien by the day. In other cases, pricing is done more sneakily: offering premium products to those who are still able to splash out, or cutting costs for those for whom affordability is the overriding concern. Many of the biggest firms do both.The immediate advantage goes to those with the strongest brands and market shares. That gives them more flexibility to raise prices. Coca-Cola, with almost half of the world’s $180bn fizzy-drinks market, used price and volume increases to deliver bumper earnings, which one analyst described as a “masterclass in pricing power.” Nestlé, which has barely increased prices for years, raised them by 5.2% year on year in the first quarter, its biggest increase since 2008. There may be more to come, it reckons. Mr Musk said Tesla’s price increases were high enough to cover the full amount of cost increases he expects this year. Yet still the vehicles continue to fly out the door.Such firms benefit from another factor associated with brand power: premiumisation, or their ability to raise the cost of already pricey products. The trend appears to be holding fast. In Nestlé’s case there are, as yet, few signs that well-heeled consumers are trading down from, say, Nespresso pods to Starbucks capsules to (heaven forbid) spoonfuls of Nescafé.Pet owners are the most bounteous. Nestlé’s Purina pet-care division, with telltale products like “Fancy Feast”, achieved the largest price increases across all categories during the quarter. Parents are far more parsimonious; they are much less willing to pay a high price for baby formula—though Kimberly-Clark, another consumer-goods company, has high hopes for premiumisation of nappies in China. As Michael Hsu, its CEO, put it, “the value per baby is less than half of what it is in developed markets like the United States”. Consumers in rich countries are also better able to cope with price rises than those in poorer ones. Firms like Coca-Cola offer better-packaged premium products in America and Europe, and more value-conscious ones in emerging markets.So much for the haves. What about the have-nots? If firms can’t raise prices, why not shrink the products they sell instead. This tactic, baptised in Britain in 2013 as shrinkflation, dates back a lot further. Hershey’s, an American confectioner, proudly recalls how in the 1950s it responded to fluctuations in cocoa-bean prices by regularly changing the weight of the bar, rather than the five-cent price. No one admits to shrinkflation these days. But they are rebranding it in ways that are cool, thrifty—and in some cases even environmentally virtuous.Renault, whose executives describe Dacia, a subsidiary making its cheapest cars, as an “everyday-low-price sort of brand”—somewhat like a soap powder—is hot on the trend. It is slashing the number of different parts across its models; that means more leverage with suppliers since fewer parts are bought but in larger volumes. Likewise, there’s plenty of talk among snack producers about reducing packaging sizes of cheap products, not just to cut costs but to save on waste. Coca-Cola is selling drinks by the cupful in India. In Latin America it is expanding its use of refillable bottles. In America’s south-west, it is piloting a scheme for use of returnable glass bottles. Rather like hotels asking guests to use fewer towels to spare the environment, it will surely be good for the bottom line, too.ElastoplastThe good news is that consumers have, by and large, taken the inflationary shock in their stride so far. As chief executives have repeated in recent weeks, the sensitivity of shoppers to rising prices, or what they (and economists) call price elasticity, is not as bad as they had feared. But it is still only early days. Many consumers may not know yet how convulsive an inflationary environment can be. If prices continue to increase, and outpace growth in incomes, eventually the shock will sink in. Then the biggest question will not be how price-elastic people are, but whether spending snaps altogether. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.Read more from Schumpeter, our columnist on global business:Elon Musk’s Twitter saga is capitalism gone rogue (Apr 23rd)How much of a risk is opacity for China’s Shein? (Apr 16th)Save globalisation! Buy a Chinese EV (Apr 9th)This article appeared in the Business section of the print edition under the headline “Top dogs and babies’ bottoms” More

Consumers notice spiking gasoline prices every time they drive to the pump. But energy industry analysts say the current spike in diesel prices is historic — and is pushing up the cost of all kinds of goods.
Diesel prices are hovering around all-time highs, forced upward by the same circumstances that have fueled gasoline’s rise.

“The price of diesel is probably the bigger headline here,” said Patrick De Haan, head of petroleum analysis for GasBuddy.
Nearly everything people buy is at some point freighted in a vehicle powered by a diesel engine. Ships and barges, trains, trucks and even some airplanes run on diesel fuel.
Diesel hit an all-time high of $5.135 on March 12, according to AAA. As of April 27, the price was only slightly lower at $5.093.
That increase is hitting consumer prices hard, says Moody’s Analytics chief economist Mark Zandi, who notes that diesel has had a significant factor in rising inflation.
It is also hitting truckers hard. Truckers who used to spend about $10,000 a week on fuel now are spending closer to $18,000 a week.

Freight industry analysts suspect the very fragmented and volatile trucking industry will likely experience another severe recession. Some are even calling it a “bloodbath.”
“We see when fuel surges as much as it has over the past couple of months, that’s usually when we see a lot of trucking bankruptcies follow,” said Craig Fuller, founder and CEO of Freightwaves, an industry data tracker.
That amounts to bad news for the nearly 2 million trucking companies in America, the vast majority of which are small businesses with just a handful of trucks.
“These small operators that live essentially on the cash flow of their trucking operations are not prepared and don’t have the balance sheets or the cash position to absorb these instantaneous shocks to their cash flow,” Fuller said.
Watch the video to learn more.

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Southwest Airlines posted a net loss in the first quarter.
The airline expects second-quarter revenue to top 2019 even though it will fly less.
Southwest expects higher fares to outpace a jump in labor, airport and fuel costs.

A Southwest Airlines jet lands at Midway International Airport on January 28, 2021 in Chicago, Illinois.
Scott Olson | Getty Images

Southwest Airlines reiterated its forecast for second-quarter and 2022 profits as bookings and fares outpace a jump in labor, fuel and airport costs.
The Dallas-based carrier expects second-quarter revenue growth of 8% to 12% over the $5.9 billion it brought in during the same quarter of 2019, even though it plans to fly 7% less than three years ago.

Southwest’s shares rose more than 3% in premarket trading.
The profit forecast echoes outlooks from United Airlines, Delta Air Lines and American Airlines earlier this month and points to strong travel demand and a willingness among consumers to pay up for seats despite the sharpest spike in consumer prices since the early 1980s.
For the full year, Southwest said it is maintaining plans to fly 4% less than in 2019. Airlines have compared results with 2019 to show progress in their pandemic recoveries.
Carriers have been forced to pull back capacity as staffing shortages exacerbated flight cancellations and delays over the past year. JetBlue Airways, for example, on Tuesday said it was slashing its growth plan for 2022 by as much as 5% from a previous plan to expand flying up to 15%, sending shares tumbling.
Southwest swung to a $278 million net loss for the first quarter, down from a $116 million profit a year earlier, on $4.7 billion in revenue as it struggled with a surge in omicron infections.

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The two-dose vaccine was about 51% effective against infection from the omicron variant in children under 2 years old and about 37% effective among 2- to 5-year-old kids, according to Moderna.
Dr. Paul Burton, Moderna’s chief medical officer, said the vaccines induced high levels of antibodies in the kids, which should correlate to a high level of protection against severe illness.
The FDA has promised to move quickly to authorize shots for infants, toddlers and preschoolers once the vaccine makers submit complete applications.

With her husband Stephen by her side Erin Shih hugs her children Avery 6, and Aidan, 11, after they got their second Moderna COVID-19 vaccines at Kaiser Permanente Los Angeles Medical Center on Friday, June 25, 2021.
Sarah Reingewirtz | MediaNews Group | Getty Images

Moderna on Thursday asked the Food and Drug Administration to authorize its Covid vaccine for children ages 6 months to 5 years old.
The vaccine was about 51% effective against infection from the omicron variant in children under 2 years old and about 37% effective among 2- to 5-year-old kids, according to a company press release. Dr. Paul Burton, Moderna’s chief medical officer, said those levels are similar to two-dose protection for adults.

The protection Moderna’s vaccine provides against infection has declined substantially from the high-water mark of 90% effectiveness when the shots first rolled out. The omicron variant, which has more than 30 mutations, is adept at evading the antibodies that block the virus from invading human cells.
However, Burton said children under 6 years old who receive two doses should have high levels of protection against severe illness. Adults have about 1,000 units of antibody after two shots with at least 70% protection against severe disease, while children in the study had 1,400 to 1,800 units of antibody after two doses, he said.
“What we know is that those levels of antibody will translate into very high protection against severe disease and hospitalization,” Burton said. None of the children in the study were hospitalized with Covid, he added.
Moderna plans to study a booster dose for children under age 6 with a redesigned shot that targets omicron as well as the original strain of the virus that emerged in Wuhan, China. One of the reasons vaccine effectiveness against infection has declined so steeply is because the current shots are still targeting the Wuhan strain, even though the virus has evolved dramatically since it was first discovered in late 2019.
If authorized by the FDA, children under age 6 would receive two 25-microgram shots, a much smaller dose than the 100 microgram shots currently approved by the FDA as a primary vaccination series for adults. Burton said the safety profile for kids is reassuring, with 0.2% of the children developing fevers of 103 degrees Fahrenheit, or 40 degrees Celsius. About 17% of kids under 2 years old developed a fever of 100 degrees Fahrenheit while slightly more than 14% of kids from 2 to 6 years old developed such a fever, according to a press release Moderna issued in March on its study results.

Kids under 6 years old are in the only age group in the U.S. that is not yet eligible for vaccination. The FDA has promised to move quickly to authorize shots for infants, toddlers and preschoolers once the vaccine makers submit complete applications.
Dr. Peter Marks, who heads the FDA office responsible for vaccines, told the Senate health committee this week that the drug regulator’s committee of independent advisors will meet to fully review the data.
“We will proceed with all due speed once we have complete applications,” Marks said. He told the committee that the FDA will publish a timeline in the next week for advisory committee meetings on several emergency-use applications. The FDA is in the process of clearing several potential dates for the committee to meet in June, according to a person familiar with matter.
Parents have been waiting for months for a way to protect their children against the virus. During the winter omicron wave, children younger than 5-years-old were hospitalized with Covid at five times the rate of the pandemic’s peak, when delta was dominant, according to the Centers for Disease Control and Prevention. About 75% of children under 11 years old had been infected with Covid as of February, according to data released by the CDC this week.
The FDA had originally sought to fast track authorization of Pfizer’s Covid vaccine for children under age 5 in February by clearing the first two doses of the three-shot vaccine. However, Pfizer decided to postpone its application and wait for data on the third shot, because the results from the first two doses weren’t good enough.
Pfizer CEO Albert Bourla, in a podcast interview, said the first two shots only had 30% to 40% efficacy, but he expects the third dose to significantly improve protection. The vaccine has a three-microgram dosing level, much smaller than the 30-micrograms used for adults.
Bourla said he hopes Pfizer’s vaccine will receive FDA authorization in June.

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Merck beat Wall Street estimates for its top and bottom lines, reporting earnings of $2.14 per share on $15.9 billion in revenue.
The company raised its 2022 earnings guidance to between $7.24 and $7.36 per share on $56.9 billion to $58.1 billion in revenue.
Merck’s growth was driven by its Covid treatment molnupiravir, its cancer treatment Keytruda, and its HPV vaccine Gardasil.

Medicine pill is seen with Merck logo and words ‘Molnupiravir’ and ‘COVID-19′ displayed on a screen in the background in this illustration photo taken in Poland on November 5, 2021.
Jakub Porzycki | NurPhoto | Getty Images

Merck sold $3.2 billion of its oral antiviral treatment for Covid in the first quarter, fueling the company’s strong revenue growth.
Merck soundly beat Wall Street profit and revenue forecasts, reporting earnings of $2.14 per share on $15.9 billion in revenue. The company raised its 2022 earnings guidance to between $7.24 and $7.36 per share on $56.9 billion to $58.1 billion in revenue. It previously projected earnings per share between $7.12 to $7.27 on revenue of between $56.1 to $57.6 billion.

Merck’s stock rose nearly 2% in premarket trading.
Here’s how Merck performed compared with what Wall Street expected, based on analysts’ average estimates compiled by Refinitiv:

Adjusted earnings: $2.14 per share vs. $1.83 expected
Revenue: $15.9 billion vs. $14.68 billion

Merck’s Covid treatment, molnupiravir, has sold well since the Food and Drug Administration authorized the pill in December. It made up 20% of the company’s first-quarter revenue. However, Merck lowered its 2022 sales guidance for molnupiravir to between $5 billion and $5.5 billion, down from its previous outlook of $5 billion to $6 billion. Merck splits profits from the pill equally with its partner Ridgeback Therapeutics.
Overall, pharmaceutical sales grew 50% to $14.1 billion compared to first quarter 2021. Keytruda, an antibody treatment used against several types of cancer, booked sales of $4.8 billion, 23% growth over the same quarter last year. Gardasil, Merck’s HPV vaccine, grew 59% to $1.46 billion compared to 2021.
This is a developing story. Please check back for updates.

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