Business World

Wednesday 21 February 2018

High beef costs blamed as McDonald's profits take a hit

Don Thompson, president and chief executive officer of McDonald's Corp. Photographer: Daniel Acker/Bloomberg
Don Thompson, president and chief executive officer of McDonald's Corp. Photographer: Daniel Acker/Bloomberg

McDonald's Corp posted a lower quarterly profit yesterday as high beef costs bit into margins and fewer customer visits resulted in a bigger-than-expected decline in sales at the fast-food chain'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 he expected same-restaurant sales in April to be "modestly positive".

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

Those restaurant sales fell 1.7pc 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 1.4pc, 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.

Slow service likely will stunt efforts to improve traffic by running more diners quickly through restaurants, Mr 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 0.5pc last quarter, helped by gains in Europe, where they were up 1.4pc, slightly better than analysts' forecast for a 1.2pc increase.

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

McDonald's said first-quarter net income fell to $1.2bn (€0.86bn), or $1.21 per share, missing Wall Street's estimate by 3 cents, according to Thomson Reuters.

That compares with a profit of $1.27bn, 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)

Irish Independent

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Promoted Links

Also in Business