* May comp sales up 3.3 pct; analysts expected 4.6 pct
* Europe crisis, global economic volatility hurt
* Exchange rates to hit Q2 EPS by 7-9 cents
* Shares down less than 1 percent
By Lisa Baertlein
June 8 McDonald's Corp reported a
lower-than-expected rise in global sales at established
restaurants in May and warned that austerity measures in Europe
and global economic volatility were taking a bite out of
May sales landed below Wall Street's estimates in Europe and
the United States -- its two largest markets -- and unexpectedly
fell in Asia Pacific, Middle East and Africa, due to declines in
Japan and China, the company said on Friday.
The world's biggest hamburger chain has been more resilient
to economic gyrations than most of its competitors. But analysts
said it faced a perfect storm of challenges during May, when
European debt worries roared back to life, rival restaurants
stepped up promotions and growth cooled in China.
"This month's results point to a slower pace of growth ahead
for the company after a multi-year period of exceeding
expectations," Bernstein Research analyst Sara Senatore said.
Foreign currency rates and higher costs, due in part to
preparations for the summer Olympics in London, also are
expected to weigh on earnings this quarter, McDonald's said.
The report sent McDonald's shares as low as $85.92 before
easing to $87.86, off 0.6 percent, in midday trading.
The reaction spilled over to Yum Brands Inc, which
dropped 4 percent to $64.08 and was one of the top decliners on
the New York Stock Exchange. Yum's KFC chain is the biggest
western restaurant brand in China.
Sales at McDonald's restaurants open at least 13 months
increased 3.3 percent globally. Analysts polled by Thomson
Reuters expected a rise of 4.6 percent, while analysts queried
by Consensus Metrix expected a 5.2 percent gain.
For Europe, which edges out the United States as the
company's top revenue producer, same-store sales rose 2.9
percent, below expectations of at least 4.4 percent.
Sales fell in Germany, which has been more sensitive than
many other markets to economic shocks, but remained positive in
France and other important regional markets.
McDonald's has been a top performer in Europe despite many
months of worry over the financial crisis and related belt
The softer results suggest "that the economic climate must
be getting worse," Edward Jones analyst Jack Russo said.
Europe was also a disappointment in April, when McDonald's
same-store sales rose 3.3 percent, and the trend stoked concerns
that European consumer spending was weakening.
U.S. same-restaurant sales rose 4.4 percent last month, just
below Wall Street's most conservative projection of 4.7 percent.
In the Asia Pacific, Middle East and Africa unit,
same-restaurant sales fell 1.7 percent, while analysts expected
a jump of at least 3.2 percent. Japan is McDonald's largest
market in Asia, but China often steals headlines because the
company is building a lot of restaurants there.
The Golden Arches chain said unfavorable foreign currency
exchange rates would lower second-quarter profit by 7 cents to 9
cents per share.
Analysts, on average, expected McDonald's to earn $1.41 per
share this quarter, according to Thomson Reuters I/B/E/S.
"The second quarter is going to be tough for them. You just
hope the back half can get a little better," Russo said.