Sunday 26 October 2014

McDonald's profit falls as American diners not 'lovin' it'

Published 22/04/2014 | 17:17

McDonald's has reported roughly two years of turbulent sales at U.S. restaurants open at least 13 months.

THE McDonald's fast-food chain posted a lower quarterly profit today as high beef costs bit into margins and fewer customer visits resulted in a bigger-than-expected decline in sales at the firm's established US restaurants.

McDonald's has reported roughly two years of turbulent sales at US restaurants open at least 13 months, due to sluggish economic growth, stiffer competition and internal missteps that have complicated menus and slowed service.

Chief Executive Don Thompson, who is likely to come under more pressure to improve McDonald's results nearly two years into his term, said in a press release that he expects same-restaurant sales in April to be "modestly positive."

Still, this year promises to remain challenging as Thompson grapples with record-high beef prices, labour cost increases, protests from its minimum-wage workers and aggressive competition for its market-leading U.S. breakfast business from the likes of Yum Brands' (YUM.N) Taco Bell chain.

Those restaurant sales fell 1.7 percent in the United States during the first quarter. That was worse than the average estimate of 21 analysts polled by Consensus Metrix, which forecast they would slip 1.4 percent, and the sixth straight quarter they have missed Wall Street projections.

Wall Street analysts warned improvement could be slow in coming.

"We continue to view McDonald's domestic business as hampered by a menu with far too many items on it, which is slowing average service times," Janney Capital Markets analyst Mark Kalinowski said in a research note.

Slow service likely will stunt efforts to improve traffic by running more diners quickly through restaurants, Kalinowski said. Quick service is key to a fast-food chain's success.

Elsewhere, the world's largest restaurant chain by revenue fared better. Global comparable sales rose 0.5 percent last quarter, helped by gains in Europe, where they were up 1.4 percent, slightly better than analysts' forecast for a 1.2 percent increase.

In the Asia Pacific, the Middle East and Africa (APMEA) region, same-restaurant sales rose 0.8 percent, compared with analyst projections for a 0.5 percent increase.

McDonald's said first-quarter net income fell to $1.2 billion, or $1.21 per share, missing Wall Street's estimate by 3 cents, according to Thomson Reuters I/B/E/S. That compares with a profit of $1.27 billion, or $1.26 a share, a year earlier.

Edward Jones analyst Jack Russo said higher beef costs were likely a factor in the disappointing profit numbers.

Reuters

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