McDonald’s Profit Drops but Sales Keep Climbing
McDonald’s Corp. posted its largest quarterly earnings decline since 2002 on Friday, a 14% drop that reflected a big tax gain a year earlier and came as customers continued spending significantly more money at its restaurants.
Lower profit failed to dent three years of momentum for the fast-food leader, with same-store sales rising 5.2% worldwide and its flagship U.S. operation still resurgent thanks to successful new products, later hours, a strengthened breakfast business and cashless pay options.
McDonald’s executives said more new U.S. menu items such as a big breakfast burrito are in the works and promised a big push in China, where the company plans to build drive-thrus at a rapid pace to take advantage of the explosive growth in car ownership and traffic.
Sales have now risen for 35 straight months at restaurants open at least 13 months, which comprise the vast majority of its 31,000 restaurants.
Analyst Leigh Ferst of Fitch Ratings said there’s no sign of growth slowing any time soon and noted that McDonald’s has both abundant cash and the ability to generate more in order to fund a variety of initiatives.
“I think they have plenty of room to keep the [sales] streak growing,” she said. “They’ve been very responsive to consumer tastes and they’ve improved the restaurants.”
The Oak Brook, Ill.-based company said net income was $625.3 million, or 49 cents a share.
That compared with $727.9 million, or 56 cents, a year earlier when results were boosted by several one-time items, most notably a favorable audit settlement of the company’s 2000-02 U.S. tax returns that added 13 cents a share.
Per-share earnings matched the consensus estimate of analysts surveyed by Thomson Financial.
Revenue was $5.1 billion, up 6% from $4.8 billion.
The year-over-year earnings decline was McDonald’s largest since the fourth quarter of 2002, when it posted a net loss of $344 million -- its first ever as a publicly traded company.
McDonald’s remains under pressure from consumer advocates to offer healthier food, a trend it has tried to get in front of by adding entree-sized salads and the option to substitute apple slices and juice for fries and soft drinks in Happy Meals, among other changes.
A new children’s book co-written by “Fast Food Nation” author Eric Schlosser, “Chew On This,” adds to criticism of the fast-food industry for its perceived role in increased obesity.
But despite that and intense competition in the restaurant industry, profit and sales are trending upward and the stock is just off a 5 1/2 -year high reached in February.
Shares in McDonald’s fell 48 cents to $34.60.
