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Wed, Jul 16, 2003 - Page 12 News List

Advertising bites into McDonald's earnings for Q2

BLOOMBERG

McDonald's Corp, the world's largest hamburger chain, said second-quarter earnings probably fell to US$0.37 a share because of an increase in advertising spending that helped boost sales in the US for the third month in a row.

The company earned US$0.39 a share in the year-earlier period.

Profit matched the average forecast of analysts surveyed by Thomson Financial. Complete results will be released July 29, Oak Brook, Illinois-based McDonald's said in a statement.

Demand for Finding Nemo Happy Meals and new salads with Newman's Own dressings helped US sales at restaurants open at least 13 months rise 4.9 percent in the quarter, including a 7 percent gain last month. McDonald's spent about US$50 million to advertise the salads and sell some real estate.

Chief executive James Cantalupo's turnaround plan is still in its early stages, McDonald's said.

"The business is doing well in the US," said Eric Jemetz, an analyst with New Amsterdam Partners, which owns 825,000 McDonald's shares.

"The strength is coming from the introduction of new pro-ducts," he said.

McDonald's shares fell US$0.66 to US$21.92 on Monday in New York Stock Exchange composite trading. They've risen 36 percent this year.

Investors are wondering "why aren't we seeing an upward revision in earnings given the underlying strength of the business," Jemetz said.

Total same-store sales increased 1.2 percent, hurt by a 1.8 percent drop in Europe.

Last month's increase in same-store sales in the US, the company's largest market, was the third-straight monthly gain in sales after more than a year of declines. Same-store sales are a key retail indicator because they exclude results from new and closed locations.

McDonald's benefited in the quarter from the sale of Happy Meals featuring toys from Pixar Animation Studios and Walt Disney Co's animated undersea adventure Finding Nemo.

The hamburger chain had its first quarterly loss in the fourth quarter since going public in 1965 because of costs to close restaurants.

Cantalupo was brought out of retirement in January to replace Jack Greenberg, whose expansion strategy hurt sales by shifting McDonald's attention away from quality control at existing restaurants, investors have said.

The company began using salad dressings by actor Paul Newman, added fruit and yogurt to children's Happy Meals and simplified procedures to speed up service in an effort to reverse a two-year sales slowdown.

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