McDonald’s Profit Increases by 29%
McDonald’s Corp. reported Monday that profit increased 29% in the first quarter under new Chief Executive Jim Cantalupo despite sluggish sales, benefiting from a weaker dollar overseas.
The earnings slightly exceeded Wall Street’s lowered expectations and McDonald’s stock climbed 7% to a three-month high after having lost half its value since last summer. Shares rose $1.12 to $16.93 on the New York Stock Exchange.
McDonald’s sales have been languishing for the last two years in a slump that also has affected other fast-food eateries. Three months ago, the company reported its first-ever net loss of $344 million for the fourth quarter of 2002 -- the result of heavy restructuring charges and restaurant-closing costs.
For the first three months of 2003, net income was $327.4 million, or 26 cents a share, up from $253.1 million, or 20 cents, a year earlier.
Excluding an accounting change totaling $38 million, earnings were 29 cents a share -- a penny better than the consensus estimate of analysts polled by Thomson First Call.
Revenue increased 6% to $3.8 billion and systemwide sales, which include both company-operated and franchised restaurants, climbed 5% to $10.2 billion. Much of the improvement was the result of the strong euro and British pound boosting sales totals in Europe, its No. 2 market.
Excluding currency benefits, sales at restaurants open at least 13 months -- a key barometer of performance -- were down 2% in the United States and 3.6% worldwide.
Morningstar analyst Carl Sibilski called McDonald’s latest results “not too shabby” within the context of the struggling fast-food industry, although investors shouldn’t expect a recovery to happen overnight.
“The telltale is going to be how fast the service is and how clean the stores are,” he said, referring to two categories where McDonald’s has slipped in recent years. “The problems are fixable -- it’s just going to take some time.”
Cantalupo said first-quarter results were weighed down by a combination of factors: world events including the SARS virus in Asia, weak economic conditions in many nations, severe winter weather and the shift in Easter school holidays from March to April in Europe.
“I certainly am not satisfied with our results this quarter,” he said. “Yet I am confident we are getting the business back on track.”
While providing few new specific details Monday, Cantalupo already has outlined much of his strategy in recent weeks.
Earlier this month Cantalupo said he was slashing McDonald’s capital spending by $800 million or 40% -- news that prompted a 9% run-up in the company’s stock price that day. He also is moving to slow expansion from the breakneck pace established by his predecessor Jack Greenberg, whom he replaced on Jan. 1.
The company said it plans to increase its total of more than 31,000 restaurants by 360 in 2003, down from a net increase of 1,015 in 2002.
McDonald’s cited “encouraging” initial results from the new salad it launched in the United States beginning last month, targeting primarily 18- to 35-year-old women.
In other menu tweaking, the company is introducing the McGriddle sandwich -- a breakfast specialty with sausage and syrup between two pancakes -- this spring and plans to offer 12 new products on its New Tastes menu of rotating items this year.
