UPDATE 2-McDonald's casts doubt on sales outlook after China food scare

Fri Aug 8, 2014 11:03am EDT

(Adds details from result, analyst comment, link to graphic, bylines)

By Lisa Baertlein and Sruthi Ramakrishnan

Aug 8 (Reuters) - McDonald's Corp said on Friday that its global sales forecast for 2014 was at risk after a China food scandal drove away diners and forced the chain to scramble to find new suppliers of ingredients for Chicken McNuggets and Big Macs.

The warning could portend the company's first full year of global sales declines at established restaurants since 2002, Janney Capital Markets analyst Mark Kalinowski said in a client note.

McDonald's global same-restaurant sales dropped a steeper-than-expected 2.5 percent in July, which Kalinowski said was the company's worst monthly performance in a decade.

The trouble in China hit as the world's biggest hamburger chain was already scrambling to bolster its U.S. business, where monthly sales at established restaurants have been down or flat since November.

But investors were braced for bad news, and McDonald's shares were down just 0.1 percent at $93.19 in morning trading.

McDonald's on Monday warned that sales in markets including China and Japan were experiencing a "significant negative impact" following a local Chinese TV report on July 20 that showed workers at a supplier using expired meat and doctoring food production dates.

"As a result of the China supplier issue, the company's global comparable sales forecast for 2014 is now at risk," McDonald's said in a statement on Friday.

Last month, executives said they expected full-year worldwide sales at restaurants open at least 13 months to be "relatively flat" due to increased competition, pricing and other cost pressures.

McDonald's said same-restaurant sales in Asia-Pacific, Middle East and Africa (APMEA), which includes China and Japan, fell 7.3 percent in July.

McDonald's had 35,683 restaurants in 119 countries around the world on June 30. Roughly 2,000 of those were in China, and about another 3,100 were in Japan.

The company did not quantify the magnitude of the sales impact in China, where sales had just recovered from the double whammy of a separate food safety scandal and bird flu outbreak that crushed business there last year.

McDonald's Holdings Co Ltd, the long-struggling Japan unit, on July 29 withdrew its full-year earnings forecast after the China meat scare caused sales to drop 15 percent to 20 percent on a daily basis.

U.S. same-restaurant sales fell 3.2 percent in July, more than the 2.6 percent decline expected by analysts polled by research firm Consensus Metrix.

McDonald's has been losing ground in its home market, hurt by tough competition from Wendy's Co and Burger King Worldwide Inc, sluggish job and wage growth, and consumer's diminishing appetite for processed food.

Same-restaurant sales were up 0.5 percent in Europe, where weakness in Germany and Russia were a drag on results. (Reporting by Lisa Baertlein in Los Angeles, Sruthi Ramakrishnan, Devika Krishna Kumar in Bangalore; Editing by Joyjeet Das, Saumyadeb Chakrabarty and Lisa Von Ahn)