McDonald’s Refuses to Be Intimidated by Taco Bell

A blog about business and economics.
April 22 2014 5:54 PM

McDonald’s vs. Taco Bell: Q1 Earnings Edition

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Flag and scepter of the breakfast monarch.

Photo by Joe Raedle/Getty Images

Don Thompson wants customers to know that at McDonald’s, “we actually crack eggs.” It was a point the CEO kept coming back to in his first-quarter earnings call on Tuesday as he attempted to reassure investors that new competition in the fast-food breakfast wars isn’t a serious threat to the Golden Arches and its flagship Egg McMuffin.

Alison Griswold Alison Griswold

Alison Griswold is a Slate staff writer covering business and economics.

 

“It seems every year, there's someone new that is making a run and none of them have really stopped their focus on breakfast, whether that be the closer in competitors or if that's sandwich shops or if that's taco shops or anything else,” Thompson said, in an apparent nod to Taco Bell. “We have not seen an impact relative to the most recent competitor that entered the space.”

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Breakfast has come into sharp focus ever since Taco Bell rolled out a new morning menu, and McDonald’s responded with a free coffee promotion. Taco Bell is among the chains vying for a slice of the fast-food breakfast industry, an area where McDonald’s has long enjoyed the lion’s share of sales. The industry did a total of $31.7 billion in U.S. sales in 2012, of which McDonald’s claimed about $10 billion.

In the earnings call, Thompson said that the new competition “forces us to focus even more on being aggressive relative to breakfast.” He emphasized that McDonald’s excels in preparing its breakfast items fresh and serving them up quickly. “We crack fresh eggs, we grill sausage and bacon, we bake biscuits, and we toast muffins,” he said, adding later, “It’s not a microwave deal.” Taco Bell, the AP reports, has said it thaws and cooks frozen eggs in the morning.

Breakfast aside, McDonald’s wasn’t looking too hot after reporting its first-quarter results. The company said its net income dropped by 5 percent to $1.2 billion, or $1.21 per share, worse than what analysts had expected. It was the latest in a string of iffy results for McDonald’s, which has suffered from increased competition, internal missteps, a slowed economy, and, most recently, climbing food prices. McDonald’s shares inched down 0.4 percent on Tuesday, to $99.32.

Yum! Brands, the corporation behind Taco Bell, reported rosier results on Tuesday. The company beat bottom-line expectations with earnings of $0.87 a share, but missed on revenue. U.S. same-store sales at Taco Bell declined by 1 percent and operating profit fell 16 percent. Same-store sales also edged down at Pizza Hut but rose at KFC, two other chains operated by Yum.

"We experienced disappointing U.S. results, which were impacted by unusually severe weather," David Novak, CEO of Yum, said in a release. "We have confidence in our plans to drive balance of year improvement and are particularly pleased with the initial results of our recent Taco Bell breakfast launch."

Shares of Yum! Brands were moving higher in after-hours trading and climbed 1.9 percent to $77.48 before the bell. The company will hold its first-quarter earnings call on Wednesday morning, which may shed some light on its side of the breakfast battle.