Sun, Oct 21, 2012 - Page 13 News List

McDonald’s income drops nearly 4 percent


Tough competition in the US and the weakening economy abroad was a double whammy for McDonald’s in the third-quarter, sending the burger chain’s net income down nearly 4 percent.

McDonald’s said on Friday it was adjusting some of its plans to deal with the pressures, including stepping up advertising for its dollar menu and bringing back the popular McRib sandwich nationally in December to entice traffic into US stores.

The world’s largest hamburger chain, with 33,000 locations worldwide, has thrived in boom and bust times by selling cheap eats and constantly updating its menu. However, global economic pressures and intensifying competition are wearing at the company, which does two-thirds of its business overseas.

“When economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today,” CEO Don Thompson said in a call with analysts. “It is clear however that this operating environment is the new normal. As such our near-term focus is on stabilizing and growing traffic and market share.”

Thompson said revenue in stores open at least 13 months, a key restaurant metric, is trending negative so far this month.

“McDonald’s is facing a lot of pressure,” Morningstar analyst R.J. Hottovy said. “They’re seeing more competition from their quick-service restaurants and fast-casual peers in the US and facing austerity measures and macro-economic pressures in Europe and Asia.”

Oak Brook, Illinois-based McDonald’s said its net income fell to US$1.46 billion, or US$1.43 per share. That compares with net income of US$1.51 billion, or US$1.45 per share last year. Analysts expected net income of US$1.47 per share, according to Fact Set.

The stronger dollar hurt net income by US$0.08 per share. Revenue was nearly flat at US$7.15 billion from US$7.17 billion last year. Analysts expected revenue of US$7.17 billion.

Revenue in stores open at least 13 months rose 1.9 percent globally, including a 1.2 percent rise in the US, where the company said it faced “broad competitive activity.”

McDonald’s is facing stiffer competition from newer chains like Panera Bread Co, which offers higher-end food in a fast casual atmosphere. Long-time rivals such as Wendy’s Inc and Burger King Worldwide Inc are also reworking their menus, renovating restaurants and launching new ad campaigns to win back customers.

McDonald’s said it will step up advertising around its dollar menu rather than its more profitable extra value menu that includes items more expensive than US$1.

Hottovy, the Morningstar analyst, said focusing on the value menu was a good move for McDonald’s: “In this environment you have to give customers what they want, and across the globe consumers are squarely focused on value.”

In Europe, where McDonald’s does 40 percent of its business, revenue in stores open at least 13 months rose 1.8 percent, hurt by negative guest traffic.

In the Asia-Pacific region, the Middle East and Africa, the measure rose 1.4 percent as the company promoted limited-time offers and traffic increased.

In China, the measure rose 3.6 percent. Many US companies are focusing on China for growth, but there is concern of a slowdown in the country.

Janney Capital Markets analyst Mark Kalinowski said he expects tougher comparisons with a year ago will weigh on sales trends and lowered his estimates on McDonald’s for the current fiscal year as well as the next fiscal year and fiscal 2014. He kept his “Neutral” rating on the stock.

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