Arcos Dorados Holdings Inc. (ARCO) shares ticked higher on Thursday after the company, which runs McDonald's restaurants across Latin America, posted second-quarter results that came in ahead of what Wall Street was expecting. The beat was fueled by more customers walking through the doors, a continued shift to digital ordering, and particularly strong performance in Brazil.

The company reported earnings of 22 cents per share, comfortably above the 15 cents analysts had penciled in. Revenue came in at $1.306 billion, also topping the $1.290 billion consensus estimate. That revenue figure represents a 14.3% jump from the same period last year and marks the highest quarterly revenue in the company's history. Earnings per share doubled from 11 cents a year earlier.

Guest Traffic, Digital Sales Drive Growth

Systemwide comparable sales rose 15.3%, with higher guest traffic across all three divisions and bigger average checks in Brazil and SLAD (South Latin America Division). The company noted that guest traffic was the strongest it's been in six quarters.

Digital sales climbed about 25% and now account for 66% of systemwide sales. Self-order kiosks, delivery, and the loyalty program all performed well. Kiosk sales got a boost from restaurant modernization efforts and growing customer adoption, while delivery continued to be a growth driver as its reach expands across the region.

The loyalty program now has 34.3 million registered members. Active members who redeemed points visited restaurants roughly five times as often as non-members, which shows how the program is driving repeat business.

The company's FIFA World Cup sponsorship also helped, with tournament-themed products and digital campaigns supporting both traffic and sales. During the earnings call, CEO Luis Raganato said these campaigns helped push digital sales penetration and identified sales to record levels while supporting market share gains across the region.

Profitability Improves

Adjusted EBITDA rose 15.2% year over year to $126.8 million, a second-quarter record. The adjusted EBITDA margin expanded by 10 basis points to 9.7%. If you strip out a gain from sub-franchisee restaurant transactions in Mexico that was in the year-ago quarter, the margin expansion was even more impressive at 70 basis points. Lower food and paper costs, along with general and administrative expenses as a percentage of revenue, helped support the improvement.

Net income nearly doubled to $45 million from $22.6 million, with the net income margin climbing to 3.4% from 2%.

Brazil was the clear standout. Revenue there jumped 25.3% to $520.6 million, while adjusted EBITDA surged 43.2% to $75.8 million. NOLAD (North Latin America Division) revenue increased 9.3%, but adjusted EBITDA declined 18.3%. SLAD revenue rose 7%, with adjusted EBITDA up 6.6%.

On a comparable sales basis, Brazil was up 5.4%, SLAD soared 42.9%, but NOLAD saw a decline of 2.2%.

Cash Flow And Restaurant Expansion

Arcos Dorados opened 16 restaurants during the quarter, including 10 freestanding locations, bringing its total to 2,548 by the end of June. The company also noted that 77% of its systemwide restaurant portfolio now offers its most modernized restaurant experience in the Latin American and Caribbean quick-service restaurant industry.

Capital expenditures for the quarter totaled $49.1 million. For the first half of the year, the company opened 35 restaurants and invested nearly $86 million in capex.

Net cash provided by operating activities came to $362.1 million for the 12 months ended June 30. Adjusted free cash flow surged to $143.4 million from just $16.1 million in the comparable prior-year period.

The company ended June with $260 million in cash and cash equivalents, or about $270 million including short-term investments. Net leverage improved to 1.1 times adjusted EBITDA from 1.2 times at the end of 2025.

What's Next

Management said it expects conditions to remain dynamic through the second half of 2026 but remains confident in its operating plans and financial discipline. Executives also pointed to encouraging early third-quarter trends in Brazil and said the country's quick-service restaurant industry appears to be returning to volume growth.

Raganato said the company plans to remain prudent on pricing while leaning on value offerings, digital campaigns, and operational execution to sustain traffic and market share gains.

ARCO Price Action: Arcos Dorados Holdings shares were up 3.67% at $8.19 at the time of publication on Thursday, according to market data.