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'Slowing global economy' hits McDonald's too: Profit slides 4.5%

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McDonald’s investors aren’t used to being disappointed. The powerhouse fast-food chain regularly turns in strong earnings, successful expansion efforts and new innovations that keep customers – even the cash-strapped ones – coming.

But not this time. The “slowing global economy” and “persistent economic headwinds” described by the company Monday showed that even the burger behemoth isn’t immune to the forces wreaking havoc with the rest of Wall Street.

There’s more competition in the U.S., the company said. Austerity measures in the Euro zone are tamping down sales. Fragile consumer confidence in parts of Asia and economic deceleration in China aren’t helping.

During its second quarter, which ended June 30, McDonald’s suffered a rare profit slide. Net income fell 4.5% to $1.35 billion, or $1.32 a share, from $1.41 billion, or $1.35 a share, during the same period a year earlier.

Same-store sales at restaurants open more than a year are still good – up 3.7% internationally. But they’re growing slower than in the first quarter, when the measure rose 7.3%. Total revenue increased 0.2% to $6.92 billion.

In the U.S., where several new beef and chicken products are en route and other menu items adapted from around the world are in testing, same-store sales are up 3.6%.

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Sales are up 3.8% in Europe, where McDonald’s is a key sponsor of the upcoming Olympics in London.

Analysts, however, are worried about the Asia-Pacific, Middle East and Africa, which saw same-store sales increase just 0.9% overall. Enthusiasm in China and Australia were offset by a poor showing in Japan.

The regions are considered by many fast-food companies to be hotbeds for growth and have recently commanded huge amounts of development resources from the likes of McDonald’s and KFC-owner Yum Brands Inc.

The weak quarter is a disappointing way for Jim Skinner to exit after nearly eight years as McDonald’s chief executive. During Skinner’s tenure, McDonald’s stock value more than tripled from about $25 a share to nearly $90.

Former McDonald’s President Don Thompson succeeded him on July 1. Already, it’s not looking great.

“As we begin the third quarter, global comparable sales for July are expected to be positive, but less than second quarter," Thompson said in a statement.

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Copyright © 2014, Los Angeles Times
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