McDonald's profit up, but worries weigh

A McDonald's restaurant in a file photo. McDonald's reported better-than-expected quarterly profit on Wednesday, fueled by strong sales in the United States and abroad, sending its shares up 3.4 percent in premarket trade.

LOS ANGELES (Reuters) - McDonald's Corp (MCD.N) results showed it is growing faster than rivals as U.S. consumers visit fewer restaurants, but it may not outrun a weak economy for long.

The world's largest hamburger chain on Wednesday posted a quarterly profit that beat Wall Street estimates, helped by a 7 percent jump in global sales.

Chief Executive Jim Skinner said the fast-food chain "continues to be recession resistant" and that he was optimistic about the company's performance going into the last quarter of the year.

But analysts questioned how long even low-priced fare will keep attracting consumers hit by rising fears of a global recession, a protracted credit crisis and job losses.

"They're accurate when they say they're recession-resistant ... but they can only dodge those bullets for so long. It's just a matter of time before the music slows a bit for them too," said RBC Capital Markets analyst Larry Miller.

He said McDonald's is likely grabbing market share from weaker competitors like Wendy's/Arby's WEN.N, independent operators and hard-hit middle tier restaurants. As consumers tighten their budgets, they are eating at home more often, or choosing lower-priced restaurants when they do go out.

That has helped fast-food operators like McDonald's, Yum Brands Inc (YUM.N) and Burger King Holdings Inc BKC.N.

"People who can't afford to go to (mid-priced restaurants) but still want to go out -- we've benefited from that," Burger King CEO John Chidsey told Reuters in an interview in Taiwan. "The question is if things get worse, do people decide at some point they should just stay at home?"

FRANCHISEE CREDIT

McDonald's net income rose to $1.19 billion, or $1.05 per share, from $1.07 billion, or 89 cents per share, a year earlier. Analysts on average were expecting 98 cents per share, according to Reuters Estimates.

But Chidsey warned that a protracted credit crisis could eventually make it harder for franchisees to get loans. Skinner said on Wednesday that McDonald's franchisees have access to the credit they need, but at a higher cost.

McDonald's shares are down about 6 percent year-to-date in what analysts call the worst restaurant operating environment in 20 years and closed down 95 cents, or 1.72 percent, to $54.18 on Wednesday.

Fast-food chain Yum -- parent of Taco Bell, Pizza Hut and KFC -- saw shares close 4.17 percent lower. Shares of Carl's Jr parent CKE Restaurants Inc CKR.N closed down 3.3 percent, and Burger King shares finished off 6.34 percent, amid a deeper market sell-off.

"No company is going to outrun a recession. Maybe we're seeing a little gravitational pull downward on McDonald's, but relative to their peers they're doing phenomenally well," said Matthew Kaufler, portfolio manager at Touchstone Value Opportunities.

DOUBLE CHEESEBURGERS AND CHICKEN

McDonald's has captured consumers trading down from more expensive restaurants with premium-priced food like salads, $4 and $5 combo meals and its new Southern-style chicken sandwiches, Miller said.

At the same time, its Dollar Menu and low-priced drinks help it hang on to cash-strapped customers. Without that two-part strategy, Miller said, "this would be a very different story."

Still, he noted that worldwide September same-restaurant sales were up 4.5 percent, below analysts' call for a rise of 5.0 percent and his forecast for a 5.5 percent increase, as U.S. and European sales missed his targets for the month.

Skinner said October sales trends remain strong, but Miller took that guidance with a grain of salt: "Until I see that number, I'm going to be a little more skeptical that this was a one-month hiccup."

Separately, mid-tier chain P.F. Chang's China Bistro Inc (PFCB.O), reported a smaller-than-expected decline in third-quarter profit on Wednesday, helped by cost controls.

P.F. Chang's, which operates the Pei Wei Asian Diner chain and has seen shares fall to nearly half their year-high of $33 in May, said it would close 10 underperforming stores.

The Asian-themed restaurant chain said third-quarter net income fell to $3 million, or 12 cents per share, from $5.3 million, or 20 cents per share, a year earlier.

Before items, the company earned 31 cents per share, handily topping analysts' average estimate of 25 cents.

Standard & Poor's upgraded the company's stock to a "hold" rating from "strong sell" due to better margins. P.F. Chang shares closed up 2.78 percent to $18.11.

(Additional reporting by Martinne Geller in New York and Doug Young in Taipei; editing by Gerald E. McCormick, Dave Zimmerman and Carol Bishopric)