McDonald’s global growth defies a volatile economy


Sun, Oct 23, 2011 - Page 11

McDonald’s Corp reported a higher-than-expected third-quarter profit on Friday as new menu items and renovations lifted sales during a summer of extreme economic volatility, and its shares rose nearly 3 percent.

The world’s biggest restaurant company and its franchisees have been investing in the business at a time when diners are reacting to economic volatility by carefully managing their spending. The strategy has helped McDonald’s win market share from smaller rivals with less financial heft.

By adding “Dollar Menu” items and introducing high-margin beverages such as coffee and fruit smoothies, McDonald’s has broadened its appeal beyond the young men who account for the biggest share of sales at most other fast-food chains.

The company, which has also accelerated its global expansion, has been making its restaurants in Europe and the US more modern and inviting. That effort is boosting sales and making service faster and more efficient.

Sales at established restaurants rose 6.6 percent last month. That was nearly twice the gain analysts expected and landed amid debt woes in Europe, stubbornly high unemployment in the US and worries about slower growth in China.

US same-restaurant sales rose 5 percent, while Europe was up 6.9 percent and Asia/Pacific, Middle East and Africa had a 6.8 percent increase.

The company forecast a 4 to 5 percent increase in sales at established restaurants for this month.

McDonald’s said sales at established restaurants in China were up 11.3 percent for the third quarter. KFC parent Yum Brands Inc, which is the No. 1 US restaurant brand in the world’s fastest-growing major economy, recently reported a 19 percent gain in same-restaurant sales.

Strong results for last month from Europe, especially Germany, helped allay fears that austerity measures would pummel demand in the region, Lazard Capital Markets analyst Matthew DiFrisco said.

McDonald’s “continues to evolve into more of a staple than a discretionary brand,” DiFrisco said, adding that the company also turned in solid results from the US.

The company nudged up its forecast for food and other costs, but DiFrisco said this was no cause for concern.

“They are managing their costs and margins in an environment where commodity costs are still heady,” he said.

“Consumers everywhere continue to be cautious and hesitant to spend,” McDonald’s chief executive Jim Skinner said in a conference call with analysts.

Restaurant operators of all stripes are grappling with higher costs for beef and other ingredients. McDonald’s has raised menu prices to take some of the sting out of that hit, but said it would weigh future increases carefully.

“We are very judicious about price increases because maintaining everyday affordability, particularly in the environment that we are in today, is paramount,” McDonald’s chief financial officer Peter Bensen said on the conference call.

Third-quarter net income rose to US$1.51 billion, or US$1.45 per share, from US$1.39 billion, or US$1.29 per share, a year ago.

Analysts on average had forecast US$1.43 a share, according to Thomson Reuters I/B/E/S.

Earnings per share rose more than 12 percent, but were up only about 6 percent excluding foreign currency benefits.

Revenue rose 13.8 percent to US$7.17 billion.

McDonald’s shares were up 2.9 percent at US$91.57 in afternoon trading on the New York Stock exchange on Friday.