Cost controls boost McDonald's profit

LOS ANGELES/CHICAGO Thu Oct 22, 2009 1:01pm EDT

A man carries his food as he leaves a McDonald's restaurant in Arlington,Virginia, July 23, 2009. REUTERS/Jim Young

A man carries his food as he leaves a McDonald's restaurant in Arlington,Virginia, July 23, 2009.

Credit: Reuters/Jim Young

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LOS ANGELES/CHICAGO (Reuters) - McDonald's Corp (MCD.N) posted a profit that topped expectations and said September sales improved as consumers sought low-cost meals, sending shares up more than 2 percent.

McDonald's, which has outperformed other fast-food chains, also said it expects global same-store sales to be higher in October despite declines in informal dining around the world.

In the United States, where diners continue to spend cautiously, October sales comparisons at established restaurants are expected to be "flat to slightly negative," Chief Executive Jim Skinner said on a conference call with analysts.

"We do not believe, however, that this is a change in the overall trend in performance in the U.S.," Skinner said.

Edward Jones analyst Jack Russo said: "I'm a little concerned about what they're seeing in October so far."

The world's largest hamburger chain reported better-than-expected September sales on a comparable basis as demand was up in all regions.

McDonald's, known for its Dollar Menu and Happy Meals, said September sales at restaurants open at least 13 months rose 5.1 percent globally. Same-store sales increased 3.2 percent in the United States, 6.9 percent in Europe and 5.3 percent in Asia/Pacific, the Middle East and Africa.

Analysts had expected increases in September of 3.2 percent globally and 2 percent in the United States.

Lower food costs helped third-quarter net income rise about 6 percent to $1.26 billion, or $1.15 a share, from $1.19 billion, or $1.05 a share, a year earlier.

The 2009 quarter included a negative impact of 5 cents per share due to foreign currency translation.

Analysts on average had expected the company to earn $1.11 per share, according to Thomson Reuters I/B/E/S.

Revenue, which includes sales from company-owned restaurants plus fees like royalties from franchisees, fell 4 percent to $6.05 billion, below the $6.10 billion analysts had expected.

Nevertheless, Russo said McDonald's has pulled ahead of rivals like Burger King Holdings Inc BKC.N and Yum Brands Inc (YUM.N), the parent of Taco Bell, Pizza Hut and KFC.

"I think the take-away here is that McDonald's results in the U.S. are far superior than the other two," Russo said.

McDonald's shares rose $1.45, or 2.5 percent, to $59.78 in afternoon New York Stock Exchange trading. Shares in Yum were up 0.4 percent while Burger King's stock was up 0.6 percent.

U.S. WORRIES PERSIST

For the quarter, global same-restaurant sales were up 3.8 percent. U.S. sales rose 2.5 percent, Europe was up 5.8 percent and Asia/Pacific, Middle East and Africa increased 2.2 percent.

"The U.S. was a smidge weaker than most people were expecting, but the comps in the U.S. are extremely difficult at this point. A 2.5 percent sales increase based on the kinds of numbers they've put up over the past several years is still pretty good in this economic environment," said Janna Sampson, co-chief investment officer with Oakbrook Investments, which owns about 300,000 shares in McDonald's.

McDonald's said consumers around the world were seeking value during the quarter. In the United States, sales were helped by a favorable response to its new premium Angus Third Pounders burgers and McCafe espresso-based coffees.

But many analysts are worried about U.S. unemployment, which is expected to soon top 10 percent.

"Anecdotally, I'm hearing breakfast was weak, but I haven't heard that directly from anybody at McDonald's yet," Sampson said.

McDonald's sells more breakfasts than any other fast-food chain and U.S. restaurants get roughly a quarter of their sales from morning meals. When people lose their jobs, they are less likely to stop at one of the chain's restaurants in the morning for a quick bite to eat.

(Editing by Maureen Bavdek and Gerald E. McCormick)

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