UPDATE:McDonald's 2Q Held Back On Weak Sales;Profit Down 8%
July 23 2009 - 10:13AM
Dow Jones News
McDonald's Corp. (MCD) second-quarter was held back on weak June
sales, even as the company met earnings expectations with an 8%
decline due to unfavorable exchange rates and a prior-year sales
gain.
Fast-food demand has been slowing in the U.S. as unemployment
takes a toll and falling grocery-store prices provide a stronger
incentive to eat at home. McDonald's, while gaining market share
from competitors like Burger King Holdings Inc. (BKC) and
Wendy's/Arby's Group Inc. (WEN), felt the pinch too, as its June
global same-store sales increase of 2.6%, including a 1.8% rise in
the U.S., was below expectations.
McDonald's shares fell 3.83% in early trading to $56.57.
McDonald's remained confident in its full-year outlook, and the
world's largest hamburger chain expects July sales to be similar to
or better than June figures.
Consumers continue to hunt out lower prices for meals when they
do go out to eat, which leave McDonald's in a good position with
its low prices. McDonald's, however, has also focused on rolling
out higher-priced products in the recent quarter, most notably
promoting its premium coffee products heavily. It also introduced
its $4 Angus Burger in the quarter. Such items may have drawn some
attention from its value products, leading to weaker sales.
"McCafe is a long-term home run for them, but given the high
price of some items, it might not provide that sales jolt," Telsey
Advisory Group restaurant analyst Tom Forte said. "Given the
prolonged recession, some of these higher items may not be
ideal."
McDonald's second-quarter profit came in at $1.09 billion or 98
cents a share, including a one cent benefit from an asset sale,
down from $1.19 billion, or 1.04 a share, a year earlier.
Revenue decreased 7% to $5.65 billion, though it was up 4% on a
constant-currency basis.
Analysts had been looking for earnings of 97 cents a share on
$5.72 billion in sales.
For the quarter, McDonald's posted global same-store sales
rising 4.8%, with a 3.5% gain in the U.S. on strong sales of
classics like the Big Mac as well as value drinks like $1 sweet
tea.
Same-store sales rose 6.9% in Europe, with strong results in the
U.K., France and Russia. Same-store sales in the Asia/Pacific,
Middle East and Africa region rose 4.4%, bolstered by strength in
Australia.
McDonald's expects a lighter grocery bill for the remainder of
the year, as falling commodity prices offer a relief. The company
said that its ingredient costs are expected to rise 3% to 3.5% in
the U.S. and Europe, compared to increases of up to 5.5% in the
U.S. and 4.5% in Europe the company forecast last quarter.
-By Paul Ziobro, Dow Jones Newswires; 212-416-2194;
paul.ziobro@dowjones.com
(Tess Stynes contributed to this report.)